Hacks for Founders of High-Growth Startups with DigitalOcean CEO Yancey Spruill

Uh, the context for this is how I got this gray hair. Uh, and, uh, I have come in after 3 different founding teams, sort of Series B timeframe. And the context for this conversation is what did I find and what did we have to do to get the companies— all 3 of them, uh, have gone public. And have become multi-hundred million dollar businesses, multi-billion dollars in value. And so that's what this conversation is about today. The last, the company I'm at now, DigitalOcean, we took public earlier this year, several hundred million dollars in revenue. And prior to that, I was at SendGrid, which we took public and then sold it to Twilio. The lessons learned here sort of come into 4 buckets. They're around process, they're around prioritization and clarity, they're around capital is permanent, and it's really about the team. And these are sort of the same patterns that I've seen. And I wondered, you know, I started over 20 years ago, I was an investment banker covering tech companies. And it was a familiar theme where the VCs would love the company, and all of a sudden they wouldn't love a company, and they would ask us, these $50 to $100 million revenue businesses, to sell them. And I was always like, wow, why? It seems like a good company. It's growing 25%, and the product's working. Why do the VCs throw their hands up? And then I joined this company Digital Globe, which happened to be $50 million. Sort of Series B stage. And this is why— what I found and why these VCs throw their hands up and the difference between them sort of giving up and putting more money in and getting to the potential of the company is sort of centered around these key themes. Again, prioritization and process, you know, cap structure matters, and the team. So first, you know, when I've come into these businesses, And the gray hair comes in to a founding— founder's startup, and there's a lot of chaos. And everybody's proud of the chaos because it's all about the chaos. It's allowing you to have an exhilarating time and raise capital, et cetera. And then there is a point in time when you get to 100, 150 people where you actually need more process. You can't— the weight of the organization will start to bog down. So it's actually your friend, it's not a foe. And when you think about adding process, both in terms of the vertical markets, marketing, product engineering, and then how they work cross-functionally, if you don't formalize the process, and I know in the early stages of a business, there's this creative energy where there is no process and everybody's very excited about that, and that starts to break down as you get bigger. And the practical reality is if the process at some point does not exceed the rate of change in the business, the burn rate's gonna go up, the growth rate for revenue's gonna go down. It's just an axiom, it will happen. And so there's a lot of complicating factors for that. So this is a chart that when we did our first offsite at SendGrid, we stole some graphics from a Harvard Business School case study. But it talked about providing clarity and creating process and alignment. And what I found in the businesses that I've come in is everybody— these arrows are meant to be the people in the company. The activity in the company is going in all sorts of different directions chasing customers. And the problem with that is that works when it's 5 people around the ping pong table and the computer terminal writing code. And when you get to 50 people, 100 people, this starts to break down. Because you can't all keep on the same page. And you can't possibly all be aligned in terms of what you're doing, be aligned cross-functionally. Turns out a lot of you are dependent upon each other, and as you— more and more people you get without process, it makes it very difficult to actually grow and scale the company. It's math. I haven't written the theories on it, but it's very, very consistent in terms of the patterns. And I think it's really important that everybody appreciate it, is at some point you gotta get the arrows going in the same direction, and you need fewer arrows. Arrows being initiatives, activities, etc. You have to start to narrow down what you do and focus it, and focus people in the same direction. So the things that make you successful to get product-market fit and get the ball rolling in that first million dollars of revenue and the first few customers and the first $10 million actually are going to be the enemy as you get to Series B, get the $30 million, $40 million, $50 million in revenue, 100+ people in the company. If you do not organize people in a more organized fashion, systematic fashion, it will break down. And I know people will say, well, Yancy, so what? We get paid to have a super high burn rate. As long as we can grow really fast. And that's true until it's not. And, you know, the capital markets over 100 years don't reward people for that. They certainly have in the last 20, so, you know, we could continue to be wrong. But my perspective on it is prioritizing and using process actually is a way to drive better execution. So generating cash isn't a bad thing. And the reality is if you don't create process that outpaces the rate of change of the business, customers, employees, etc., you're gonna burn more money. And we'll talk about that in a second. It has very real cost to leadership, people going out and raising capital, dilution on equity, more voices and more opinions in the boardroom on what you should be doing. So that's real, very real cost. And it's not, it's not It's not always necessary. The second thing to think about is it does become more complex. And, you know, the more employees, when you go from 2 founders, 3 founders, 5 people, 10 people, 100 people, just more human beings in the same room, it's just more complex. You go from 1 customer to hundreds of customers, that's another layer of complexity. 1 investor, A dozen investors, more complexity, and those are all the three people that you have to triangulate between customers, employees, and your investors. And it's really, really important to provide clarity. So related to prioritization, or process, is prioritization. It's sort of a four-letter word. People hate it. Every time I've come into a company, people Yancy, you have no vision, you're all about the money and cash flow. Yeah, kind of, a little bit, but the reality is you need clarity for employees. The other thing we see in these companies that are challenged is a lot of things that, you know, look at employee engagement surveys and what do employees talk about? They have no career direction, there's too many priorities, they don't know what's important. They don't know how to have a career at the company. There's too much chaos. People say that very openly, and they're looking for some clarity. It's incumbent on people to provide clarity. And I know they don't ring a bell when you have product market fit. They don't ring a bell when the company could get to a billion dollars in revenue, but you have to start changing your behavior as if you're going to get there, uh, or you won't. Because of what we talked about earlier in terms of the chaos. And so it's really, really important. I know this is very difficult. We've just come through 2 years at the last company where we come in 2 years ago and we start talking about doing fewer things and people go crazy. Like, we can't do fewer things. All these things are important. And the reality is the leadership of a company has to determine, well, everything is not important. And so you have to tell what is important, and more importantly, what is not important. What are we not gonna do? And you know what? So what? And again, when you get product market fit, you got real revenue, real customers, you're not going anywhere. But the only way to sustain that trajectory is to start acting differently, acting like, you know, I recommend to people take a day off, take 2 days off and say, Forget about next quarter, next year. If we're successful on the trajectory that we wanna be on, in 18 months or 2 years, what will this look like? And what are the things that we're doing now that are gonna break and fall down completely on their face if we don't change? And what I will guarantee you is that will help clarify what is important now. If you only focus on this quarter, next quarter, my annual plan, getting through the next 12 months, you will never optimize a business that should be around for a really, really— you didn't found a business to be around for next quarter. And if you really have a vision for what this looks like in 5, 10 years, you have to start acting like that, you know, at a point when you have product market fit. So it's really important to to focus on narrow things. The other thing I would say is when you have that first product and it's taking off, customer feedback's good, you know, there's always this temptation to go build product 6, 7, 8, 9, 10. And what's very fascinating about software companies, and you could look at the largest software companies on the planet that are headquartered right down the street from here, how much of their revenue comes from product A. And how much money and chaos that they still have decades later focusing on all these other products that produce less than 5% of revenue. It's fascinating, but that's the real pattern. It's very unusual to build product 2, 3. There are some incredible companies who have done that, but the reality is you look at that initial product and how do you make it better? How do you scale it? How do you diversify channels? All the different things and optimize that, and then be very thoughtful about adding new things that you're selling into the market. Just 'cause you were a genius about this initial idea doesn't mean product 2, 3, 4, 5 are gonna have the same traction. And the minute you start introducing multiple products, multiple channels, the complexity goes through the roof. So you better be very, have a ton of conviction. You have, A ton of feedback from customers saying that's the right thing to do because it really changes the organization to say, I have built a whole energy and ecosystem and workflow of the company around X and then I'm gonna go add Y. It's very difficult. Sounds easy to do, it's very difficult to do. So be very thoughtful about that. The third thing is around capital and we're in Silicon Valley here. People are throwing money. At every startup. I get it. So it seems like capital's free, and it probably is, right? It's really cheap. The reality is, you know, the dollars you're raising are permanent dollars, and all of these things around efficiency and prioritization on the math side of it are correlated to burn rate when you're losing money. And so if you're gonna go out and raise money, the sooner you get efficient, the less money you're gonna raise. The fewer voices you're gonna have in the board, fewer investors who are gonna have points of view on what you should do, the more control you're gonna have on your vision and executing the vision. And so waiting longer to do this, to Series C, to Series D, You can do that, right? There's ample evidence, the data's undeniable that there's a lot of money out in the capital markets today for great technology companies. The problem is the longer you go into the capital structure raising money before you make money, a weird thing happens in terms of your investors. You get to this point where your VCs, are on the other side of the time horizon from you, right? So you're building a company for the very long term, and they have 10-year money. They probably started 5 years into their fund. So they're heading for the exits in 5 years. And so if you're delayed in terms of growth rates, et cetera, and having the opportunity to create this liquidity event, You know, you have more people in the boardroom who are at odds with each other. Later money cares more about the next 5 years than the people who were there 8 years ago. They could care less about the next 5 years. And that's a very real tension on the founding team, on the executive team. And so, you know, if you can push out raising capital, and again, you want to make sure you're overcapitalized early so you can hit your milestones and get product-market fit. But once you have that, by prioritizing and creating process, you're gonna be more efficient with every incremental dollar. That's just gonna accrue to the benefit of every current employee, current investor, and it's gonna simplify how you execute in the future. And you have to remember, you're on very different timeframes as you get into year 1, year 2, year 3. This most recent company that I've been a part of, we went public very early because of this issue. So it's really important for people to think about this. The last point I would make is, especially the longer you get in, the VCs put a lot of money in, they always wanna be on the board, and they have every right to be. I would advise you to make sure that you've had operators on the board, people who have done what you're trying to do, from $1, $1.5 million of revenue to several hundred million dollars of revenue because of all the things that we're talking about, putting in process, prioritization, managing talent, managing multiple products, managing multiple channels, managing VCs, investors. You need people who have actually done that and not who have a lot of, there's a lot of great, incredible VCs, they have great benchmarks, they're very helpful with recruiting and advising you on different stages of the business, but they're coming at it from a financial lens, and a lot of these decisions you make are not financial. They're about people, they're about customers, and they're hard. They're not easy. And having somebody on your board, a coach, a mentor, somebody who's helping you formally to think through those issues from a lens of, I've done this, and I know what it takes to get from 50 to 100 to 150, 200 million in revenue, it's very different than somebody who's just been on 19 boards and seen 18 IPOs. Very fundamentally different because of the day-to-day job that's involved in that. The last piece I talk about is probably the most sensitive. Again, I've come in to 3 different situations over the last 20 years after the founders. So all the things that I've inherited, we've talked about. And this is one that's unmistakable. I was just having lunch with a VC-backed company CEO founder in Colorado just the other day on this, well, this whole talk, but this topic in particular. And this is about, you know, the team. And, you know, I get it, right? You're a founder, you're two founders, you're three founders. It's your idea. It's your force of will that got the product into customers' hands. It got the first dollars from VCs. It recruited all these people to come to the company. And it is about you. And there's no question about every organization, As it scales, it's about the team. It's about the people you recruit, the leaders you put in place, and that's a very weird line to cross. You know, my son was asking me about this before we went public a few months ago. He's like, "Daddy, why don't you start a company? Then you could be the only shareholder and not have to deal with these VC types." And I said, "You know, Oscar, I'm not a founder. I come in after the founders." So I get this. This is a very sensitive topic because the identity is the company. You founded it. That's why they use the word founder. It's your baby. And the problem is, is you diversify the talent in the organization, it has to become about the organization. And so knowing when to diversify the skill sets on your executive team, Right, when you're the founder and it's 5 of you, or 10 of you, or 20 of you, you can have 80 jobs. They can all report to you. You can make every single major decision in the company for years. And as you get to hundreds of people, and if you don't hire leaders who could actually work with you on strategy and execute your strategy, and you have confidence in you, and you can delegate that decision-making. If you can't do that, all the other things that we talked about earlier are impossible because they go through you. And this is very difficult for people. I understand it. I've seen it. But it's vitally important. It can't be about you. It's gotta be about that team and hiring a really strong team who can execute. 'Cause if you don't do that, you can hire people who have a title and they still take your direction. You're not really changing the game. You might be making the VCs happy that you hired a CMO or a CTO or chief product officer. But if you actually don't delegate to them and have them execute the strategy and they have them build a team, it's gonna get bogged down. The growth rate will slow and the burn rate will go up. So it's really important to diversify the skill set of the team. So in summary, process is good. I know that depending upon where you all are in the stage of the company life, you're gonna say, "Absolutely not. We want no process. We want the chaos, creative energy." I get it. Increasing complexity requires, it's a mandate, that you provide clarity. You have to do it. Focusing on the long term from a business perspective is really important, but it also, from any number of reasons, not the least of which is be efficient with capital. Just because capital's easy to raise doesn't mean you should always raise every dollar of capital to subsidize a very high burn rate. You can control the burn rate at some point. And again, this isn't day one. This is certainly when you're in the $10, $20, $30 million of revenue. You have to start thinking about what's this gonna look like when it's $100 or $150 million in revenue. And I guarantee you, you'll think differently about what's important now if you think out 2, 3 years, because the things that are gonna break down, whether it's on the talent side, the product side, the tech stack, the go-to-market, whatever it is, have to be addressed now. And the urgent things that you think are urgent now are gonna be a little less urgent in the context of some of the broader things that are coming up in the next year. And it doesn't take long for a year and a half, 2 years when you're growing so quickly. So really be thoughtful about capital and you raise capital when you need it and when you want it and when it's available. So there's that aspect of it too. When the cookie jar comes around, And there's dollars in it, you put your hand in it. But at the same time, you don't want cheap capital to subsidize a burn rate that you can control. Really important. And then the last is you have to diversify the leadership team. And you have to know when to diversify the leadership team. Nobody's gonna tell you when. I was talking with someone the other day and I said, put a list together. Of what needs to be done with your exec team and go through each item on the list and assign that, whatever it is, to somebody on the team. And if you can't get through that task list, initiative list, whatever it is, with your name not being on it, you're not diversified enough, right? You're doing things, your job as a CEO isn't to do anything other than have the right strategy and the right team and enough money in the bank to execute the strategy. That's your job. Worry about brand and worry about culture. And it's not to do a lot of the things that you might have had to do day one, or day 365, or, you know, year 2, year 3, etc. That has to start changing. And if you don't have the team that can execute the initiatives and you have to do it, and you're a $30, $40, $50 million revenue business, chances are that there's not enough process, there's not enough prioritization and clarity, and you're gonna be challenged to build and scale the business.