Serial entrepreneur and angel investor Elad Gil has become renowned in Silicon Valley startup circles, largely because he not only funds startups but he advises many, too. Some of the tech companies he has logged time with include Airbnb, Twitter, Google, Instacart, Coinbase, Stripe, and Square.
All have evolved into massive growth companies, and because Gil says he has seen common challenges emerge as each has taken off, he decided to write about how to address some of these challenges in a book that’s being released today called The High Growth Handbook.
We talked with Gil about the book recently to learn more.
TC: What was the impetus for this project? You were tired of repeating yourself when talking with founders?
EG: I decided to write it after seeing a lot of the common patterns that late-stage companies follow. A lot of them wind up having exactly the same issues.
TC: Including . . .
EG: Some of the biggest issues center on what a founder’s role as CEO should be as a company scales, how to hire a board, how to hire executives, how to do re-orgs, how to buy a company for the first time, how to build a a real product organization, how to do late-stage financings, how to think about secondaries offerings . . .
TC: That’s a lot of issues! But aren’t companies getting advice from their investors along the way? Isn’t that partly the point of working with venture capitalists?
EG: The truth is founders sometimes don’t want to raise these questions out of fear that they’ll seem naïve or not fully up to the role. You also see some VCs who understand early-stage really well but who haven’t themselves operated at scale and maybe don’t have a lot of experience with re-orgs and M&A.
TC: Going back to the many challenges you raise, which do founders most often fumble?
EG: This biggest mistakes you see tend to be around hiring and leadership. That’s probably the most likely reason for outright failure.
TC: Can you elaborate?
EG: Say you’re an engineer who started a company. You don’t know the role of VP of sales or CFO or COO. Executives are very tricky versus individual contributors and these are people you’re going to spend a lot of time with and who may define the role differently than you might assume they would. Some of the questions you need to be asking is can they hire great people and manage them productively? Are they strategic? Are they collaborative? Are they ethical people who will fundamentally do the right thing?
TC: You also mentioned M&A, which seems like a minefield for any executive team, given that acquisitions so often don’t work out. What do founders misunderstand about M&A?
EG: I think that’s partly the misunderstanding, that M&A can be a mistake. You can think of M&A two ways: from a portfolio perspective, meaning you are overseeing strategic assets, or that you’re buying something that you’re willing to experiment with. Either way, throughout the history of tech, most of the great companies have gotten where they are through acquisitions. Cisco, Microsoft, Google, Facebook. You have to be willing to have things not work, but it’s a fallacy to think it doesn’t work generally, which you sometimes see at companies with less experienced employees. They might think, “Why buy this company when we can hire 10 engineers instead and build the same thing?” What that misses is that companies can be under-resourced and constrained but they could be working on something good. Companies also sometimes think they have to integrate tech stacks when they should let something run independently and just redistribute the product.
TC: You’ve been in the startup world a while. What are some of the biggest shifts you’ve seen, aside from maybe all the late-stage capital we’ve seen flood into Silicon Valley?
EG: One of definitely the rise of the COO, a change ushered in by Facebook’s Sheryl Sandberg. Before her, founders were often relegated to secondary roles as we saw when Eric Schmidt took over for Larry and Sergey at Google. What used to happen: you’d hire a CEO and the you’ve move into a kind of VP role. Now, founders are able to stay with the company with the support of a COO and not give up control.
Obviously, too, the time to IPO has lengthened considerably, driven by all the late-stage capital that’s available. There’s a generation of entrepreneurs that’s been scared to go public out of fear of the enormous overhead associated with it, when the reality is you do not need to hire 100 people to deal with a public offering. They also worry that Wall Street is too quarter-to-quarter focused, but if you look at companies like Google and Facebook and Amazon [and their ability to continue to innovate], that’s probably not true. And you see arguments around hiring, but when you go public, you can pay people less because they know their stock is real and liquid.
Thankfully, companies like Spotify and Dropbox and Square have started setting the tone that it’s okay to get out there.