5 failure points between $5M and $100M in ARR

I had the privilege of leading PlanGrid to $100 million in ARR before I stepped down as CEO and passed the baton to Autodesk Construction. I’ve had years to dissect the mistakes I made with my first startup.

Regardless of which industry you build in, or where you are at in your startup’s journey, there are many things that will likely fail.

This post breaks down PlanGrid’s key failure points and what I’ve learned from them. If these reflections help even one founder make one less mistake, I would consider this effort worthwhile.

Organization structure and communication failure

As first-time founders, we were too creative with our organizational structure. We had a flat management hierarchy in the early years, and we bragged that we ran our startup like “Star Trek” — you were either in engineering or operations, and everyone reported to a founder.

This was cute until it quickly stopped working. People care about titles and career paths, and if you want to retain great people, you have to care about these things too.

In Year 3, we tripled from 30 to 90 people, then doubled the team to 180 a year later. Those were the most painful years, because we went from a high-execution team to one that felt like it was stuck in molasses. We didn’t know how to hire giants, so we recruited several mediocre managers, who in turn recruited more mediocre people.

Meanwhile, communication gets a lot harder with more people, and I did a poor job communicating the direction of the company. We had a first-mover advantage in a category we created but lost our position during these years of slow execution.

Takeaways: Be creative about how you’re solving problems for your customer and not about organization structures. Hire a great HR leader as a business partner to help recruit and retain the right team and design a good communication flow. Remember that A players can recruit other A players, but B players can only recruit C players.

Internal conflict

Our trickiest inflection point was hitting Dunbar’s number — at 150 people, everything went to chaos.

Hierarchy is a factor. At 10, 20 or 30 people, everyone can report to a founder. At 150, just based on basic management ratios, the frontline team member is now separated by three to four degrees from the founders.

Not feeling like a unified team becomes dangerous when you don’t hit revenue targets or product milestones. When there is a mismatch on velocity and performance, it’s easy for those who feel like they’re performing to blame any slowdown on everyone else. There are natural tensions between sales and marketing teams, support and product, and product and engineering. Everything becomes magnified with more people simply because communication gets harder.

Another heartbreaking side-effect of growth is that the people who helped get the company to where it is may not be the right people to take it farther in the next five years.

Takeaways: Fight for your company’s core values. If you don’t like the ones you’ve written, rewrite them so you can live by them. Hire and fire by these core values. Anything less will send the signal that it’s all bullshit.

An executive not working out

My biggest mistake was hiring a big-public-company tech executive with a fancy resume who had never worked at a startup. Although everything in my gut told me they were the wrong fit, I felt so underwater with work that I convinced myself my life would suck less if they were just in the building.

The Big Tech exec came from a sweet life with an established brand, big budgets, unlimited perks and fully built recruiting, engineering, marketing, sales and customer success teams. The only way a Big Tech exec can be successful at a small startup is if they’ve been at one before and volunteer to roll up their sleeves and get in the trenches again.

As we grew to nearly 500 people, we had several versions of the executive bench. The best indicator of an executive’s success is that they have already done what you want them to do at exactly the same stage that you are in and want to grow to. Working on a startup is hard in a way that is almost indescribable to anyone who hasn’t experienced it. That said, I do believe a first-time executive with raw talent and a growth mindset can be successful. In my case, at my first startup, it felt risky to be learning on the job as a CEO and be surrounded by other leaders who were learning on the job as well. Luckily, it worked out for us.

Another good indicator of how execs will be to work with is what their former colleagues, bosses and direct reports say about them. After hiring and firing several wrong VPs, I tripled the number of reference calls on any serious candidate. With over 10 references across the board — people who they have reported to, people who reported to them and their peers — you start to see a good picture of who they are and what it would be like to work with them.

Here is a brief list of red flags for an executive who isn’t working out:

1. They frequently use the wrong pronoun: “I” followed by “[contribution to the company].”
2. You dread having 1:1s with them.
3. They blame you or their peers.
4. They complain laterally and downward.

When executive red flags show up, try to fix them quickly.

Takeaway: Always trust your gut with people.

Losing product-market fit

Construction people used our software because they loved us. If construction folks were using our competitors’ software, it was because they were told to do so. In enterprise software, the best product doesn’t necessarily win, and there is a long trail of great enterprise software under tombstones.

Although we skipped the corporate buyer completely in our early years to much success ($50 million in ARR), in order to get to the $100 million mark, we would need new levers for growth. We’d need to go upstream toward the enterprise segment and build products for the corporate buyers who would never use our core product.

As more VCs came up with predictions around mobile technology disrupting the construction industry, they poured hundreds of millions of dollars into our competitors. Copycats showed up across the board. Within a few years, the category we created became one the corporate buyer cared about. Our product was not built for this buyer — we were a point solution competing against platforms.

Selling to the enterprise requires a series of features and products that have nothing to do with making the end user happy. There is security red tape that the non-user buyer cares about: RBAC, SOC2 Type 2, ISO270002, admin consoles, SSO and more.

Prior to PlanGrid’s acquisition, in my last years of leading the company, our growth slowed to double digits while our competitor’s growth was rumored to be triple digits. We needed additional levers. We pushed to internationalize our product and launched two new product lines with two scrum teams and slim budgets. Concurrently, we were knee-deep in technical debt and our vice president of engineering quit with no notice.

Those were rough years, but through hard work and great people who continued to pour their heart and soul into the company and customers, we hit almost all our milestones and secured the attention of Autodesk, our future acquirer.

Takeaways: It is completely possible to have product-market fit one year and lose it the next because the world, the market and the competition have changed. Always go where it hurts the most. Looking back, it was obvious we needed to launch more products and build for the enterprise, but we were too slow to execute that strategy.

Life happens

I’ve come to believe that a big part of our jobs as founders is to manage our own emotions through the rollercoaster that is building a startup. It doesn’t matter how well we were doing; it never got easier, because life continues.

I remember how excited we were to be accepted into YC’s Winter 2012 batch. As we were launching our product, living the entrepreneurial dream, sleeping and working out of our Silicon Valley hacker house, we were also experiencing the cruelty of life. Between demos and code commits, we greeted hospice care at our doorsteps. We watched our co-founder battle and succumb to cancer at age 29.

As our team grew to hundreds of people worldwide, it felt like sad stuff was a constant: family getting cancer, partners and parents dying suddenly and children getting terribly sick. This is the human condition. It bleeds into our startup journey because it’s impossible to separate our personal lives from our professional lives. The best we can do is to be as generous as we can to our teammates. Sometimes, just being by their side and witnessing their loss is enough.

Takeaways: Life is short and hard even for the most fortunate. That’s why, whatever you have chosen to work on, it has to be worthy of your time. If you have any success at all, it will take up at least a decade of your life.