I did a talk out in Portugal to a group of company founders this time last year and I bait-named it “Lose the body fat. Why keeping your company lean makes it more attractive.” I pulled in a reasonable crowd and the talk went down okay, but not as well as I’d hoped, so I buried it in my Keynote graveyard and hoped never to speak of it again. Yet here I am exhuming the rotten thing to re-examine whether it warrants a new line of investigation, and as it turns out, I think it does!
In the talk, before getting distracted by a deep dive into Mark Logan’s Team Size and Catastrophe theory (you should read that btw), I hypothesised that:
Too many scale-ups grow too big too quickly without understanding the costs. This will make them less effective and less attractive.
At the time things were getting a little rocky in VC-land. There were bleak talks like “RIP Good Times” and seasoned investors were telling founders that they needed 36 months runway, minimum, and if they didn’t have that then get out there first thing on Monday and raise, whatever the terms. Dilution be damned, runaway was all that mattered. The stark thing for me was how many companies were in this seemingly perilous situation. Was there a pattern, and could this situation have been avoided?
This is nothing against the investment-backed growth model. In fact I’d say this model is the right choice for many (most?) tech startups. Of course everyone loves the idea of bootstrapping and being profitable from day one, but many great companies struggle to bootstrap for a litany of legit reasons. We tried to bootstrap FreeAgent for well over 2 years unpaid, while also becoming new parents and taking on part time work to cover the rent and nappy bills. We would have absolutely loved to have bootstrapped it to the moon but, frankly, it would likely have died without outside investment. Now it thrives and y’all love it so don’t tell me bootstrapping is the only righteous path </soapbox>.
This is nothing against the investment-backed growth model. In fact I’d say this model is the right choice for many (most?) tech startups. Of course everyone loves the idea of bootstrapping and being profitable from day one, but many great companies struggle to bootstrap for a litany of legit reasons. We tried to bootstrap FreeAgent for well over 2 years unpaid, while also becoming new parents and taking on part time work to cover the rent and nappy bills. We would have absolutely loved to have bootstrapped it to the moon but, frankly, it would likely have died without outside investment. Now it thrives and y’all love it so don’t tell me bootstrapping is the only righteous path </soapbox>.
The trouble comes with the traditional high-burn for high-growth tactic that we see play out in countless startups. There are many examples of this working out, but I don’t think it should be the default position. Is hiring aggressively really that effective, or does it actually create more problems and distractions than it solves? You raise money to invest in growth, of course, but my view is that even if you’ve raised several million, you should still only hire when it hurts. Sit on the rest until you get a feel for things. Bide your time until you’re really feeling the pain. Know what you need to do before you hire people to do it. When you’ve got incredible traction and the only thing required is selling the damn thing, literally throw supercar bonuses at sales people but in most areas, like engineering, product, marketing, I’d recommend restraint. Resist that urge to splurge.
By intentionally keeping your company lean, you delay hiring additional engineering managers, product managers, social media managers or, worse, people to manage the managers. You might well need them eventually, but keep things flat for as long as possible because your organisation’s structure will be simpler, people will have more agency, and trust among your smaller team will be higher which means everyone is happier and more productive. You can choose to pay people more too. I’d argue this will make your company stand out and be more attractive. At least to people who want to work for a sustainable, profitable company that provides the autonomy to create, build and ship great work.
By intentionally keeping your company lean, you delay hiring additional engineering managers, product managers, social media managers or, worse, people to manage the managers. You might well need them eventually, but keep things flat for as long as possible because your organisation’s structure will be simpler, people will have more agency, and trust among your smaller team will be higher which means everyone is happier and more productive. You can choose to pay people more too. I’d argue this will make your company stand out and be more attractive. At least to people who want to work for a sustainable, profitable company that provides the autonomy to create, build and ship great work.
In 2018 when we sold our company, the buyer invested a wedge. I don’t remember how much but it was in the millions. We went off and hired like rabbits. I think we doubled the team in 18 months. Why? Because it would allow us to do more, faster! At least that’s what we believed. The cost was enormous – a multi-million commitment every year on salaries and an equally painful overhead in having to manage it all. It wasn’t plain sailing but the bet was that this investment in people would grow the business more quickly and result in further market share and profitability. Did it work? Hard to say. Maybe eventually, but at what cost? And who’s to say taking a less aggressive approach wouldn’t have been more successful? In hindsight, I’d argue we could have achieved just as much with fewer people.
In the past year most startups/scale ups I’m involved with have been downsizing one way or another, while the tech titans have been offboarding people in their thousands – a bitter indigestion pill following their gluttonous people-binge during the Covid era. Startups want to extend their runway, while the FAAMGS want to milk profitability for all it’s worth, sure, but underlying all this is the fact that companies (and, seemingly, VCs like Andreessen) are starting to figure out that they can do the same, if not more, with less. With this comes short term pain for many, but I'm hopeful we'll see more longer-lived, healthier companies going forward.
RIP Greedy Times.
RIP Greedy Times.