I’m the lucky guy because I get to talk about my favorite topic today. The topic is how do you take a little small startup and turn it into a big growing scale up? I love this topic. My favorite topic. I don’t know about you guys. A lot of friends starting companies these days at software companies and they’re starting hardware companies, they’re starting professional services companies, all these companies. They have three things in common, right?
Starting a Company
Organic, artisanal farm to table everyone starting a company. And I thought, what’s expensive to start a company? And I went back and look, how much did it cost Rulership to get started back in 2006? Two hundred thousand dollars in startup fees. And I said, well, what’s it going to cost one of these companies today to get started? About a thousand dollars in startup fees.
Everything’s cheaper. It’s so much cheaper to start a company. Everything is cheaper. Except that one magic startup ingredient. Coffee. Doesn’t come cheap, organic, artisanal farm to table stuff’s expensive. Since the caveman entrepreneurs started companies back in the Neolithic age, it’s never been a better time to start a company. It’s certainly never been cheaper, right? Everything’s cheaper. The Internet gives you all these services. Very inexpensive. Just a wonderful time to start a company. Now, I’ve seen this play out in spades at Rulership and in my own my own world. Basically, we started Rulership. We had about 30 competitors, if you you very broadly counting 30 competitors for our to get customers small industry in 2006, you roll that clock forward to today, there’s over 5000 competitors fighting for the same dollars. We are there’s been an explosion in entrepreneurship in our industry. It’s never been easier to start. But the flip side of that, it’s never been harder to scale since the cavemen were starting companies. It hasn’t been harder to grow from startup to scale up. Now. You might say. That’s the software industry, I mean, I’m not in the software industry, I make real stuff for a living. I you know, I’m in the I’m in the Adams business. And one of my friends said that I have a friend who’s starting a really interesting business. She’s in the high end children’s potty business. All right. She doesn’t just want to be a party planner, though, she wants to grow up someday and be a tiny toilet titan when she grows up, right. And it’s easy to become a party printer. In fact, there are 75000 party printers who have beat her to the punch. Every corner of every market seems to be crowded. It’s hard to scale. Headwinds are everywhere. Tight labor markets, lots of competition, harder than ever skill. OK. I really like this graph, OK? Sorry, Bill. I really like this graph starting, I think we’ll drink. And I mostly like this graph because I put it together. And it represents the journey, that perilous journey from early stage startup up to big scale up in phase one is kind of the founding phase. You know, you get three people, two or three people working on the idea. Phase two is the startup phase can be between three and 30 people. You’re working on product market fit. You know, all your customers, most of your customers are your cousins or your childhood friends or your friends from band camp. You’re trying to get the thing going. Phase three. Well, that’s the scale up phase. Got more than 30 employees.
How To Grow Your Business
You’ve got many millions of dollars in revenue, growing costs. You pour money into the top of the funnel. You get a nice return at the bottom of the funnel. I just want to take a measure of the audience who in the room is in that kind of phase one, that founding stage three employees or less. Can you clap for me? OK, between three and 30 employees haven’t quite got the models scaling yet in face to. Who’s in phase three, they’re really cranking, they got the model going and they’re putting money in the top. We’ve got. There’s a little bit of bad news in this slide for every hundred companies that start in phase one, only about five make it to phase three. Starting is pretty easy. Skilling is getting harder than ever. Now, what I want to talk about today is my own journey, my own journey through this curve. Basically at Rulership, we breezed through phase one about a year to get through phase one. We got stuck in phase two, five, six years, couldn’t get the math to work or pouring money into the top of the funnel, couldn’t get the return. We knew all our customers are best reference customer back here when we had to import as a best reference customer is right over here. Kirstyn Dharmesh, his wife. Thank you, Kirstyn. And so this is a stuck in face to eighteen employees early on. Now we eventually figure it out and now we’re at about eight hundred employees. The models working quite well. And what I want to talk about today is everything we learn, all the mistakes we made along the way to get there. OK, and I can summarize the things we needed to know back at eighteen employees that would have been useful and would have helped us breeze through the startup phase to scale up phase in three important muscle groups. And I’d like I like to call the muscle groups, there’s really no silver bullet, but there’s three muscle groups we sort of built up in phase two that helped us get to phase three there. A little counterintuitive. There were a lot of work. OK, so I’m going to go through the three. OK. The first muscle group. Is around hiring. Sorry, first, I just said I didn’t say hiring on that. The first muscle group let’s try to get first muscle group is around scaling your management. So ceiling management, a lot of the things we learn to do as managers in startup mode worked against us in scale up mode. We had to learn a whole new bag of tricks. And any time I talk about scale up management, best practices and management, I got to talk about my dog, Romeo. This is Romeo, he’s having a great time with his favorite chicken. He loves his toy chicken. Toy chickens not having a great time. Here’s Romeo at the toy chicken store. And here’s how the conversation always goes from here, says, yo. And I could use another chicken here from how many chickens you need, Brian Johnson, for some chickens here. And every time, you know, one week we have this conversation and my answer is the same every time I say yes. Yeah, my predilection for saying yes and being a yes man happens at home. It happened at Rulership in the startup phase. OK, I was the yes man. I prided myself on being a yes man. I didn’t care what the question was. The answer was yes. And they were getting a little bigger. And I got some feedback from a woman named Lori Norrington. She’s a fabulous board member of ours. And she said this this YES-MAN thing, we’re great in startup mode, but man, it’s backfiring and scale up. We got projects, have big projects all over the place. You need to amend your YES-MAN ways. And then she gave me a great expression. I love this expression. She said startups are much more likely to die of overeating than starvation. Right. Too many projects, not enough. And she said, you have a serious overeating problem. And so I went to work on this Feedback’s the breakfast of champions, and I listened very carefully to her and I went on a yes man diet and I had to learn an important new word. And I struggle with the word can never remember the darn word and came up with a little hat that really helped. And if you have the YES-MAN problem, maybe you could borrow this. And. And laundry day. The diet wasn’t enough, the diet wasn’t enough. I needed an exercise routine to really help me reform my YES-MAN ways, and the exercise routine was a document we put together called our AM spot, OK? And this has been a killer killer thing for us. The M stands for Mission S are the people we serve. The P are the plays we’re going to run this year, the O or the place we’re going to admit this year, the T or how we’re going to track how we’re doing on this stuff. And this is a document we put together and published internally the first week of January every year. It’s a really key play for us.
Building An Online Business
Almost every scaleup I’ve encountered has a similar document to this that keeps everybody on the same page. Now, the key, the hard part of the play, the muscle you need to develop is on the O. We argue like crazy about those missions every year in this past year was no exception. These were the admissions we decided to pass on in twenty seventeen. I like that one. OK, so the first muscle group is you learn to focus, you get to do you learn to do less things? Well, OK, this second management muscle we needed to develop really was a problem that started emerging as we grew larger. OK, when we were small, 10 people were all in the same office. We saw each other every day as we got bigger. We had a layer of management in place. We had people working from home in remote offices and whatnot. And what started to happen that causes a lot of problems in scale ups is people managers started to make decisions that optimize for their department over the company. Right. Tapin over the company. And this was happening a lot. They didn’t do it maliciously, of course, but this became sort of a normal thing. So we put in place a muscle that we call Rulership hierarchy of needs. And what we want our managers to do and everyone to do in Rulership is when they’re making a decision to solve for the company over their department. And even better, if they can solve for the customer, over the company, over their department, over themselves. This was a muscle group that was really important to us. So to summarize, if I could go back in time to when we had 18 employees, the advice I wish I got was. Gee, everyone’s got to learn to say no from the front line on to you need some way to keep everyone aligned on the plays you’re running in the plays you’re admitting three. You need to solve for your company over the department. That’s what I wish I learned when we were at 80 employees. OK, second muscle group. And. Billie Jean second muscle group is around hiring, OK, in this sounds like an easy muscle group and it’s an easy idea, but it’s actually very hard to do at scale. And we learned a lot of things about hiring that didn’t work in startup mode, that really enabled things to happen in scale up mode. Now, when we first started Rulership. The word culture wasn’t one we encouraged discussion about, we didn’t talk a lot about culture, we didn’t think we could measure, it felt like a luxury we just couldn’t afford. Right. And that was until we met this guy, and this is Colin Angle, he’s the CEO of iRobot and Collins Company, they make those Roomba vacuum cleaners, right. And I I could summarize my relationship with Colin in one one word. Man crush. And I joined the CEO group right around when we were 18 employees and there were 10 CEOs, the group, I joined it because he was one of them and they spent a whole day once a quarter together and they picked a topic and went very deep on the topic. And I joined my first meeting kind of nervous during my first meeting. And the topic was culture, which was disappointing because they didn’t have a lot to the one topic, I didn’t have a lot to say about and we go through the meeting. I didn’t have a lot to say. And the meeting was going fine. And during the coffee break in the afternoon call and kind of took me aside and he said, you know, Brian, you want to build a great company, right? Sure, he said, if you want to build a great company, you can have to hire lots of people, right? Yeah, if you can hire a lot of people. You’re going to need a great culture like, OK, he said culture. Culture is the magic startup ingredient, and I said, hold on one minute, coffee is the magic startup ingredient. OK. So I went back to the office and had a chat with it, chat with Dharmesh about this, and we said, let’s do a little research for both fans of Colin. Colin had a big scale up. We wanted to be like him when we grew up. And let’s do a net promoter score type survey of our employees. And this is the first one we’ve done. We’ve done hundreds since. And the results came back and the results were interesting, the number two reason that people liked working at Rulership was they love the culture, right? They thought the culture was great and they wanted to talk about the culture. The number one reason they loved working at Rulership was the free organic bugles. OK, so two data points, employees really like the culture calling, thought we should do it, so we got to work on our culture and our mission. I did some work thinking about the culture, understanding what the culture was that we had, thinking about the future of it. And we wrote it down. We wrote it down like a weed, because Dharmesh did all the work on this and we wrote it down to something we call the culture code. And we call it a code, by the way, because we think of it like a piece of software. We take a piece out, we refactor it, we put it back in. It grows and scales and changes over time as the amount of employees join the company. And it’s a lot like a product in another way, if you build a great product in your company and its unique relative to your competition and it’s valuable to your customers, gosh, that looks like a magnet that pulls customers in.
If you build a great culture is unique relative to your competition and it’s valuable to your employees. That’s like a magnet that pulls in and retains those employees. OK, what can you if you’ve come across our culture code, you read it, flip through it, can you clap for me? A lot of people have come across it. Colin was largely right about this. We published the culture code and have it over three million views on SlideShare, and it’s been a key, key part of that end to end employee experience for all the Rulership employees. So the first muscle in the hiring muscle group is you need a great culture and you need to write it down. The second muscle I have to describe a little bit of how we collaborated Rulership to describe this one, we have a section of our wiki at Rulership where we collaborate, and it’s called the Lauren Mythology, part of our wiki, and it’s a part of our wiki where anyone can write anything down that we might want to look at later or maybe even laugh out later and it’s a really fun part of our wiki. And this is I’ll give you an example of a post. This is a wiki post that someone someone put up there in the lore mythology. We had an outage in 2007 and Dharmesh really pinpointed the scientific reason behind the outage. And somebody wrote down his analysis, pinpoint analysis of it. And now and then I have this beauty that someone wrote down about a month later. Now, I want to introduce you, we have eight hundred employees, she may be our best employee. Her name is Katie Burke. She’s our chief people officer. OK, now. There’s a story behind Katie that’s interesting, Katie’s a career marketer, Katie joined Rulership marketing department, stayed in the marketing department, and at the time we had kind of a voice of the customer, a guy named Jonah. If Jonah was in the room, we didn’t need a customer in the room. He understood the customer spoke passionately on their behalf. Katie, despite being a marketing, was the voice of the employees, spoke passionately about the employees. Now Katie’s superpower is and she moved eventually into H.R. and when people. She does a great job on hiring. She does a great job on benefits and all that stuff. But what her superpower is, is she’s passionate about not making Rulership a good place to work, but making it a great place to work, even trying to make us the best place to work in the world. You need someone like this, the voice of the customer, passionate about making your company a great place to work if you want to move from scale up to startup. OK. Last one in this muscle group mission. This is the one muscle we had right from the start. If your mission today is you want to make three cents a share more than last year by gouging the planet or gouging your employees or customers. That just doesn’t fly in twenty, seventeen, the employees we want to hire the employees, you all want to hire those special snowflakes. They’re more missionary than mercenary. All right, you need to appeal to them. Mission matters now and Rulership. When we started the company, the thesis was quite simple. We felt the Internet disproportionately benefited small businesses relative to large and that your success was more about the width of your brain than the width of your wallet. Right. Every investor we met along the way from day one of Rulership tried to talk us out of our mission, said it’ll never work right. These small, medium sized businesses are growing. You can never make it work, right? Never make it work. You need to go to the Fortune 500, build a product for the Fortune 500. What they failed to understand was that mission mattered to Dharmesh and me and didn’t matter a lot. Eleven years in, I’m up here working my guts out because I believe in that mission. Dharmesh the same. We’ll be up here 11 years from now working our guts out because we believe in the mission. I suspect our employees, they come to work every day because they believe in that mission. Mission matters. In fact. I’m going to give you a quote from Simon Sinek, one of our speakers a couple of years ago. He said if people are working hard in a mission they believe in. They call that passion. If people are working hard in a mission, they don’t believe it. They call that stress mission matters, mission matters more than 2000 17 than it ever has. OK, so what are those hiring muscles you need to scale to go from startup to scout? What did I wish I knew when we had 18 employees that I know today.
First, you need a culture. You need a good culture, unique culture. You need to write it down. Second, you need a voice of the employee and maybe that’s you inside. Your company doesn’t have to be an H.R.. H.R. is necessary but not sufficient to go from start to scale up three mission matters. You need a great mission that’s compelling. OK, most of you in the room are doing a fabulous job at building an inbound customer funnel, right. Pulling customers in through the Internet to go from startup to scale up. You need to build an inbound recruiting funnel. It’s the same type thing. So nothing up here on the screen. I didn’t mention LinkedIn or job boards or recruiters in all that, but it’s it’s not going to get you there to go from star skill up. You need to master these place. OK. One less muscle group. This is the one that held us back. This is the one this is how we got stuck in phase two, took us a long time to figure this out. And I’ll tell you why. One of the things that’s good and bad about Dharmesh and I. As we read everything about startups, we’re steeped in the latest start thinking, we’re fascinated in it. We read all the startup dogma and we buy it. And so these words that you see on the screen when we were in phase one founding stage, we must have said minimum viable product a thousand times a week. When we get to phase two, we hung our hats on product market fit. All we talked about was product market fit. But that started dogma held us back to getting to scale up mode, you don’t you don’t need product market fit to get to scale up mode, you need product market light to get to scale up mode. And it’s very different. Delighted customers. Well, they do two things, don’t they? The first thing they do is they pay you, of course. The second thing they do is they market for you. And in 2017, you’re delighted customers are a better marketing channel than in your own marketing department. That’s the way you grow. That’s the fuel in the scale up rocket ship in this day and age. It took us a long time to figure this out, took us a long time to go from star scaleup. We started investing heavily in R&D, heavily in net promoter score improvements, heavily in retention rate improvements. This has made all the difference for Rulership. This was the key play that helped us go from start to scale up. And I probably I personally probably shouldn’t be too surprised given my history in my first job I ever had, my first job I ever had. I was 16 years old and I worked in a gas station. And I want to tell you about my first day on the job, my first day on the job, and my first customer, 7:00 in the morning. Beautiful day and kind of like pulls up to get their gas. And I’m a gas pump guy and my first job and I’m 16 and the woman rolls her window down. You had to roll it down back then. How can I help you, ma’am? And she said, well, fill it up with unleaded. I said, Sure. So I walked down the side of the car, I’m looking for the gases, we put the gas in and see that car. And the other side of the car and quite see it here and. Well. Take another look. Must have missed the gas cap on the first time through. No gas cap on a Cadillac, apparently it can’t find the darn gas cap, and so the woman this is my first customer having a little trouble with the lighting. My first customer here woman gets out of the car.
She’s a little irritated with me and she goes and she pulls down the license plate. And sure enough, that’s where the darn gas cap is on a Cadillac. Right. Don’t judge me, short shorts were in back then. OK, so off to a rough start, but. Unscrew the gas cap, right, but on top of the thing and take the hose out and I put it in. Go, go, go, go, go, go, go, go, go, go. Fill up the thing with the thing and put it in the thing and take our money. And she’s off. Second customer comes up, car pulls up. Gentlemen, how can I help you? Sir, please fill it up with unleaded. OK, walk down the side of the car. Gas thingy’s where it’s supposed to be right on the side of the car. Unscrew the gas cap and I put it on top of the thingy goes out and I put it in the thing. Go, go, go, go, go, go, go, go, go, go, go, go. But back in the thing, it’s often this way. I got this right. I’m a customer dilation machine. I got this. And then about an hour in, I served a bunch of customers. My my boss comes out busy and he comes out. And he takes a customer and a and rolls down the window. How can I help you, sir, and fill it up and then let in he goes and the gas canister is supposed to be and and screws the thing. And then he goes to put it on top of the House majority and he realizes that his new hire had forgotten a key step in the customer delight process. I like to think I did my own part in helping the gas station industry convert from a full service industry to a self service industry.
Unidentified: OK. All right.
Speaker 1: I’m impressed with the gas station industry, for what it’s worth. They disrupted themselves, they transform their customer experience and it’s much lighter touch. It smells a little bit, but it’s pretty good. Most industries aren’t so forward looking, are they? Here’s a couple that are in the news a lot, right? What I want to do with you all today is talk about these disruptions that happen and see if we can learn together something about them. All right.
Let’s start with the disrupt the industries that have been turned inside out. OK. There’s a line of thinking these days that these companies weren’t disrupted, but they self-destruct in. And then Netflix didn’t disrupt Blockbuster. Their late fees did that Apple didn’t disrupt the music industry. Buying the whole album did that Uber. They didn’t disrupt the taxi industry waiting outside in the rain did what they all have in common. Is they open the door wide for the disrupters to come in by creating kind of a crappy end to end customer experience, that was very heavy, OK? It’s a lot to be learned from these guys. What about the flip side, right? What about the disruptors? Is there anything we can learn from the disrupters? I think there’s three things, three things I learned. The first. It’s much more about how they sell than what they sell. Right, to how they sell, not what they sell. Great products these days seem to be disrupted very, very quickly. Great services in the end, experiences are far more durable, disruption cycles are fast, much more durable, with great experiences to. Light touch in animation wins out over heavy touch in humans. I don’t love that fact, but it’s kind of true. Self-service is one of those double win things, it’s better for your bottom line and your customers like self-service, two, three. The words coming out of the customer’s mouths are 10 times more valuable than the words coming out of the vendors mouths, they have mastered word of mouth, right? This is these are three things that we’re working on here at Rulership, so our own model at Rulership, you’ve seen us evolve over the last few years here, the amount we’ve moved from very much a freemium model clap if you’ve used one of our free products. We’re we’re trying to move, we’re kind of trying to move, I think of back in 2013, we got religion on a delightful product. We’re trying to move to a delightful end to end process.
We think that that’s really a key thing. So the premium is designed to do that. We sell in a whole different way. It’s about how we sell very light touch, and it’s designed to be word of mouth. So this is very influential. The other thing we’re doing with this is we’re changing the product we’re bringing to market to all of you. If I think back in time why we started Rulership in 2006, it was like a wormhole opened up on the Internet. That was a fabulous thing, that if you were small or medium sized business, you could create content and pull people in through Google. And social media was fabulous. Right? And we built a platform to help people drive through that wormhole, that wormhole. So it’s a bit smaller. By the way, the new wormhole today is creating one of these delightful inbound and end customer experiences. It’s much more today about what you sell. Sorry. It’s much more today about how you sell than what you sell. Your marketing sales service departments have never been more important than they are today. OK, so what are the three muscles in the muscle group? First, it’s about how you sell more than what you sell. Second, it’s light touch over heavy touch. Third, I mean, it’s not 2007 anymore. It’s word of mouth over word of seller. OK, I want to wrap up. With a short story about this guy. That’s my son, Luke. Luke, 13, but far more importantly, Luke is five, two and three quarters, and I know that because just backstage he texted me, he texted me every day with an update on his site. You see, Luke is in phase two trying to get to phase three like all of us. OK, here’s Luke doing the back to back thing with my mom, you remember my mom from about last year? Here’s Luke doing the back to back thing with my sister, Diane. I can hear my mother laughing over here doing the back to back thing with my sister, Diane. And, you know, it’s my last job. And he’s really pissed off because, Dad, I still got him by about a half an inch. Right. And I was heading down to on the weekends. We go to Dunkin Donuts. It’s our thing. And I go to Dunkin Donuts. I get a large hot coffee with milk, and Luke always gets a small latte and we’re in line waiting in the Dunkin Donuts. Hey. Your usual, he said hello. I’d like, uh, I’d like an apple juice, I said apple juice. What’s the matter? He said coffee stunts your growth. And I said, that’s funny because I always said coffee was the secret ingredient. Anyway, I think we all have a lot to learn from Luke.
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