Preparing for Growth After Launch and Product Market Fit

In the final How to Start a Startup lecture, Sam Altman talked about the really important things startups must do after finding product-market fit.

In the beginning, it seems like everything you do leads up to launching. And after that, it may seem like it’s all leading up to product-market fit.

But the thing is, if your company is truly innovative and ambitious, you’ll never run out of big benchmarks. That’s the exciting part!

As you grow and begin to gain your footing, though, you’ll need more people. Altman, who is president of Y Combinator, says this is the beginning of the biggest change your company will go through.

In this self-hosted final lecture of his How to Start a Startup course at Stanford, he said that once you start to hit 20-25 employees and have found product-market fit, “Your main job shifts from building a great product to building a great company and it stays there for the rest of your time. This is probably the biggest shift in being a founder.”

(For more startup advice, check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.)

Management

When you’re just powering through the first 12-24 months of your company, it’s fine if everyone reports to the founder. But once you get an office and your company starts to expand to multiple, distinct departments, you’re going to have to create a new management structure. The good news is that the best ones are simple.

First, you need to hire some senior executives. Altman said that founders often think it’s too early to do this, but when they finally do it, they wish they had done so sooner.

With executives in senior positions, you have people with more experience to take the reins in areas where you and your team may not be extremely proficient. Also, they become the people that employees report to instead of you.

Altman said, “All you need is for every employee to know who their manager is and for everyone to have exactly one manager. Every manager should know their direct reports.” With this simple system in place, there should be enough clarity to avoid any confusion.

Also, as you hire more employees, it becomes even more important to have your mission clearly stated. Altman said it’s as simple as writing down how and why you do things so new hires know your company values from the get-go. As he put it:

“You, as the founder, get to basically write the law.”

Altman has encountered several “failure cases” to avoid as your company shifts to a new management system for more employees:

1. Being afraid to hire senior people

As the company scales, you’re going to need senior execs, as opposed to the beginning stages where experience doesn’t matter as much. Don’t wait too long to hire because when you start to need them, you’ll really need them.

2. Going into “Hero Mode”

Founders can have a habit of what Altman called “extreme leading by example.” This can lead you to take over jobs you should be delegating. If you get stuck in “Hero Mode,” Altman said to let things fall behind a little while you look for a new hire. Don’t stay in this mode until you burn out.

3. Bad delegation

This kind of goes back to Hero Mode. Your leadership style should not be to ask someone to do research and then come back to you with information on which you base the final decision. Altman said, “That’s how most founders delegate. That does not make people feel good and it certainly doesn’t scale.” Ask people to make decisions themselves and trust them.

4. Not developing a personal productivity system

The early stages of your startup are the prime time to start deciding the best way for you to work, personally. You need to make sure you’re keeping your priorities in check while also keeping tabs on the work of your employees.

Company Productivity

In the early days of your startup, Altman said that you don’t need to make an effort to focus on productivity because small teams are naturally more productive. But as your team grows, he said,

“The reason companies become unproductive is people are either not on the same page …. Or they’re actively working against each other, which is obviously worse.”

So, in addition to ensuring that everyone is clear on the company’s values — as written up by you, the founder — you need to provide a roadmap. Altman said that, when you ask a company’s employees what the company’s top three goals are right now, they should all have the same answer. Unfortunately this isn’t usually the case.

To keep up momentum, Altman said that a big focus of your productivity has to be product, not process. That should be the core of your meetings, which you should be having with your management team once a week, plus all-hands meetings once a month.

“So the goal in all of this productivity planning is that you’re trying to build a company that creates a lot of value over a long period of time. And the long period of time is what’s important here,” explained Altman.

That’s the hardest part of building a company. Altman said that repeat innovation will be the most difficult but most crucial part in creating a sustainable and ongoing business model that exceeds the startup phase and has staying power.

Marketing and PR

If there’s one thing we’ve learned about marketing in this series, it’s that PR won’t save your startup.

But, while press shouldn’t be one of your top priorities as an early-stage founder, as you begin to grow it should start to become something you put some effort into.

The first thing to do is decide on your key messaging, yourself. Like the company values, you want to have control over this so that your company is being talked about in the way you want. He said to keep in mind, “It’s very hard to change [your key messaging] once the press decides how they’re going to talk about you.”

Altman even suggested avoiding hiring a PR firm because it’s better for both you and journalists if you develop a personal relationship with them rather than dealing with a middle man.

Human Resources

Altman said that when people think Human Resources, they usually think of the cheesy, overbearing characters that they see on TV. But in real life, this position can be a huge asset for your team and allow you to speed up your performance.

One way this happens is with simple and frequent feedback for employees. This is also a good way to monitor for burnout. Burnout is not good for employees or your company, so make sure you’ve turned the workflow from sprint mode to marathon mode.

With compensation, Altman suggested maintaining bands tied to performance. For example, keeping all of your mid-level employees around the same range will avoid problems in the future and keep things fair.

Altman said another thing to take into account when thinking about human resources is to be generous with equity. He tells founders,

“You should think about for the next 10 years you’re going to be giving out 3- 5 percent of the company every year ’cause you just get bigger and bigger. So the individual grants gets smaller but in actuality it’s a lot of stock … If you value your people you should be doing this.”

Hiring

Altman suggested hiring an actual recruiter because, at a time when you’ll be growing so quickly, hiring can take a lot of your own time that could be spent on building the business. He also said to make sure you hire with diversity in mind, primarily diversity of experiences. While it’s good to hire people with an outlook that aligns with your vision, different perspectives can make for a more dynamic, indispensable team.

Your hiring process may cause other early employees to be uprooted or to expect a promotion to the head of their department. Altman said to avoid this if it’s at the expense of finding someone else who is more experienced. He said it’s important to sit down with those early employees and talk with them about where they see their future at the company and decide on what you can both do to navigate that.

Legal, Finance, and Accounting

During the time that all of your legal documents can be easily sorted and contained, get them organized. If you wait to do that until you start growing, you’ll end up in a real bind with possible costly repercussions.

Here are some especially important things to take care of in the world of paperwork:

Stocks: Altman said to remember this around the time of series B funding: “Most founders don’t actually want to sell stock until the company is worth like a billion dollars … You can actually safely set this up after things start working in the next financing round and then you can sell it two, three, four years down the road.”

Patents: To ensure that all of your patent ducks are in a row, Altman said that you have 12 months after you announce something to grab a patent on it. So, 11 months after you’ve spoken publicly about your idea, get a provisional patent that will basically start that process. He also reminds founders to file trademarks for US and major international markets and get all the domains for your business.

FP&A: Altman said this is a good time to get a jump on your financial planning and analysis. This is a hire that people usually think about way too late in the game. He said,

“You almost certainly get better results [if you hire a full-time fundraiser] than if you hire an investment banker or someone else … And you end up paying way less money and take literally half the dilution.”

Whether it’s you who’s fundraising or someone you’ve hired, he said it’s important to be clear and direct about asking for what you want.

Tax Structuring: There is a way to structure your taxes by assigning your IP to a certain corporation overseas that licenses it back to the US and this spares you corporate tax. Altman said to dig a little deeper with more research on this, but it can put you on the same level as your competition, which is likely doing the same thing.

Your Mental Health

If you aren’t able to keep it together then, no matter how hard you work, all of this advice means nothing. As he mentioned before, Altman said it’s important that you consciously make the mental switch from a 24/7 sprint to a more well-paced marathon. This will keep your enthusiasm high and help you avoid mistakes.

As your company gets bigger and you get more exposure, it’s inevitable that people will go from loving to hating you, so you’re going to have to be ready to handle that emotionally. He said that, in order to keep a clear head, you have to remember to take vacations. Otherwise, if you lose your focus, you’ll flee to easier self-gratifying tasks that aren’t moving your business forward.

If you get especially drained, acquisition may look like more of an appealing option. He said that this mindset will put you at a major disadvantage against your competitors who are in it for the long haul.

“[Entertaining acquisition conversations] is one of the biggest killers of companies … You distract yourself. You get demoralized if it doesn’t happen. If an offer does come in, it’s really low. You’ve already mentally thought that you’re done and so you take the offer. As a general rule don’t start any acquisition conversation unless you’re willing to sell for a pretty low number.”

Losing a grip on your own psychology is something that Altman said can kill companies quickly and easily. But, if you handle your mental state in a way that’s healthy and intentional, he said, “You’ll be in a far, far better place.”

Next Steps

You can watch Altman’s lecture here.

Also, if you enjoyed this post, be sure to check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.

Featured image was taken from the video of Altman’s lecture at Stanford.

Preparing for Growth After Launching and Finding Product Market Fit