Tuesday, October 29, 2013

Wisdom from Hyper-growth Companies

Guest post by Lisa Regan, writer for The Lean Startup Conference.

Last week, we hosted a webcast conversation, Lean Startup for Growing Companies, with Eric Ries, Wyatt Jenkins of Shutterstock, and Ari Gesher of Palantir. The discussion focused on companies that have hit product-market fit and are growing fast—a topic for advanced entrepreneurs. But the information was critical for any early-stage company that hopes to reach that critical point and wants to be prepared when it comes. We’d like to share some highlights from the webcast and invite you to watch it in its entirety. There’s great information here about hiring, team structure, and best practices that will make you smarter.

About Ari and Wyatt: Wyatt Jenkins is VP of Product at Shutterstock, a stock photo site founded in 2003 that now encompasses twelve cross-functional teams and is one of the world’s largest two-sided marketplaces. Ari Gesher is a senior engineer at Palantir Technologies, creating data-mining software for government and financial clients. Palantir, founded in 2004, had 15 employees when Ari started there; it now has over 1,000 employees and undisclosed revenues reported to be approaching $1B. Wyatt and Ari will both be speaking at The Lean Startup Conference in December.

The first topic that came up is one that people in younger companies will want to know about—what’s hyper-growth actually like? What would it help to know about it before it happens?

Ari: “Having been through hyper-growth or exponential growth, you hear about these other organizations that have been through that and you look at your Googles and your Facebooks and you sort of knew them when they were smaller, and you see them as these behemoths. And what you don’t realize is that there’s almost no graceful way to go through that kind of growth. It’s painful no matter what. We had a year where we doubled size from around 400 to 800, and so you end this year where you have half the company’s been there for less than a year. And all the old ways of doing things are busting at their seams…. It’s a good problem to have. It means that hiring’s working, the business is working – but when you’re going at that speed and that growth, I think it’s something humans just weren’t even built for…. It’s going to be painful. And if there’s one lesson to take away, I guess it’s, ‘Know that it’s going to be painful, and don’t be afraid that that means you’re doing something wrong.’”

Wyatt: “There’s a certain point at which all the things you didn’t want to have to do when you started a company, you now not only have to do, but you have to do them well. You have to really know how to run a meeting, to keep it efficient and keep people wanting to go and be productive. You have to get really good at onboarding practices and the things that when you started a company you thought, I don’t want to do any of that, I just want to build stuff. But now suddenly all those soft skills become the key to your organization.”

Another portion of the conversation centered on the role Lean Startup techniques usually associated with smaller companies can have in a scaling business— specifically, a Five Whys (a technique for discovering the root causes of a failure, which Eric explains in detail in the webcast) and testing.

Ari: “We started doing Five Whys when we were I’d say probably around 100 people. And at that point I might argue you maybe don’t even need it. But it’s important to get it to start being part of the culture, because the point at which you need it is when you’re bigger, when you have a lot of complexity in the way the organization interacts, and the whole point of asking ‘why’ five times is that you’re going to come up with some really surprising results that have to do with everybody doing what they thought was right, but because of the way information doesn’t really flow or process interlocks… the problem is actually four or five layers deeper than where you thought it was. And that only happens at scale.”

Wyatt: “I think testing culture is one of the most important parts of keeping yourself Lean as you scale. And the reason is that people have a direct connection to results without having to go up and down the chain of command. When I meet companies that are struggling a lot with hierarchy or struggling with bureaucracy, a lot of the time the data and results about things are trapped in pockets of the organization and other parts of the organization have to fight to get at it. But if you have a true testing culture, whenever somebody says something in a meeting like, ‘I think X,’ and someone else goes, ‘That’s a nice hypothesis. Let’s go try that out,’ I think that healthy level of testing keeps you lean, it keeps you close to the customer, and that’s one of the things that I think helps us a lot – testing.

Hiring, recruiting, and training (or perhaps fostering – the correct term to use was hard to settle on) played a big role in this conversation. Having more employees doesn’t mean that each hire is less important – it means that the processes around hiring need to develop to meet the company’s needs. But those are constantly changing. So what goes into acquiring and supporting the best employees?

Wyatt: “One thing I try to avoid is dogmatism. If somebody’s really into a process, like really, really into it, to where they’re inflexible, they’re probably not ready for a hyper-growth organization, because whatever it is you’re dogmatic about, it ain’t gonna work in another six months. So when I see that dogmatism I immediately recognize that, wow, this person’s going to have trouble when we’re a completely different company in a year. I always like to look back at my own job and say, you know, I’m doing a completely different job today than I was a year ago, and the year before that, and the year before that. That’s hyper-growth. And in hyper-growth, I promise you whatever you hold near and dear will be incorrect – soon.”

Ari: “You can’t train people to have a different mindset…. The important thing to do as leaders is bring in priming, to give people permission to be uncomfortable. To say, hey, we’re gonna go through this, and some stuff’s gonna be broken, don’t freak out. It’s when they’re not ready for it, when they’re not aware that that doesn’t mean that there’s actually anything existentially wrong, [that you have a problem]….. The psychological effect of priming is really important. If you give people a framework on which to hang their experiences before they encounter them, it makes it much easier for them to digest them and understand them as they encounter [them].”

Though a company may expand from two to 2,000, Eric, Wyatt and Ari all agreed on the importance of maintaining a structure of small, cross-functional teams, rather than siloed divisions (for more on that, see our last webcast on Lean Startup in the Enterprise).

Wyatt: “We’re still in love with the ‘two-pizza team’…just in general if it takes more than two pizzas to feed the team, the team’s too big. We like our teams to be small, relatively autonomous, very autonomous in some cases, depending on the kind of work they’re doing. We treat the teams like startups, we like that ‘us against the world’ mentality of small, autonomous teams.”  And, later: “I don’t think we can say that enough: Let the product team figure out what they’re building. If you’re trying to micro-manage that on a high level, across lots of teams, you’re not smart enough [to pull it off], I promise. You really have to point into a direction, have a few high-level metrics, and let your teams fill in the gaps, let them be autonomous. That was a big lesson for me, at least.”

Ari, on creating community while maintaining multiple teams: “We foster all kinds of extra-curricular activities, everything from people doing tabletop games to sponsoring a team in a basketball league to having video game rooms. A lot of these things exist here and they may look like perks…but they’re actually about building the non-obvious links, the non-formal links between teams to really start to create a community. And I think everything you can do to invest in making that place – a business – actually a community, where people live their lives and meet each other, and have a lot of trust – that goes a long way toward making the company feel smaller. And then you get people to be able to lean on those relationships. So maybe you have a team of five people that work close together, and you need something from another team, and one person, well they play Halo together after dinner. And so it’s easy to have that conversation, to break through that ‘stranger barrier’ you get at scale.”

Finally, some last words of wisdom from Eric on the basics of creating a culture of experimentation:

Eric: "People listening in, you’re hearing a lot of cultural and practical tips that are applicable to the stage of company that these guys are at now, and I’m trying to throw in my two cents every once in a while based on companies that I’ve seen. But if you just go and you say, ‘Ok, I’ve learned that we should have a culture of experimentation,’ and you put up posters in your office saying, ‘Ok, everybody, starting today we’re going to have a culture of experimentation!’ You’ll have absolutely no impact whatsoever. One of the things I really believe in is something called the Startup Way, which is just a diagram that helps me remember how to invest in change from the bottom up rather than mandating it from the top down. And it goes like this: Accountability; Process; Culture; People – in that order. It’s the foundation of how we hold people accountable; determines what kind of [experiments] we can and can’t use, what kind of process and infrastructure we will or won’t invest in – obviously if you hold people accountable only for quick, short-term results, then if there’s no long-term philosophy then there’s no point ever in investing in long-term infrastructure, for example. But if you don’t make those process investments, if you don’t have a system for testing hypotheses, you’re never going to get a culture of experimentation and hypothesis-driven development. And if you have an old, Dilbert-styled culture, you’re never really going to be able to retain the best people for the long term.

"So when people say, ‘The solution to having a high-growth company is to hire good people,’ that’s true. When people say, ‘You have to have a culture of experimentation,’ also true. ‘You need to really invest in infrastructure and tools,’ yup, that’s correct. And when they say, ‘You need to hold people accountable, not to vanity metrics, but to learning milestones,’ yup, that’s true. All four of those things are the one thing you have to do to have a high-growth, successful company. It’s just that there’s more than one number-one high-priority thing, because each of those is an interlocking part of the system. You can’t really do one without the other, or if you try, God help you."

Watch the rest of the webcast—and register for The Lean Startup Conference—for more specific information on all these topics. We sell conference tickets in blocks; when one block sells out, the price goes up. Register today for the best price possible.

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