Scaling the startup mountain

Six lessons from building and selling our startup

Photo by Pascal Habermann on Unsplash

“We signed.”

It was midnight when these two life-changing words arrived via text message. I sat alone in the punishing glow of my computer monitor. I was exhausted, delirious, and shaking in disbelief. After a 6 year climb, we had reached the summit of the startup mountain. We had sold the company.

It was a treacherous and lonely ascent. Our company, Liveoak, faced near-death experiences, unfamiliar terrain, and a rapidly changing environment. As a co-founder, I was a sherpa when our bank account dipped perilously low, key customers said they wouldn’t buy our software, and accomplished investors said our idea wouldn’t work.

On our journey, books and blog posts were helpful, but the best teacher was lived experience: climbing the damn mountain.

(1) Perpetual crisis: something is always on fire

Running a startup means solving a recurring series of one-off crises until you give up or die.

In late 2019, we’d assembled an internal task force to resolve our impending office lease expiration. Then the global pandemic hit. We solved the lease problem, but far deeper issues surfaced. The lesson? Something critical will always be on fire.

During the startup ride, many folks condemn themselves to a permanent state of emotional turbulence.¹ One cause is the constant feeling of crisis management. That pit in your stomach that hits the moment you solve one existential threat — as you realize another one (or three) emerge in its place. Just closed your funding round? Now your biggest customer is about to churn. Just launched a successful marketing campaign? Now one of your star employees is about to leave the firm. And so it goes.

While I was adept at identifying the existential threats. It took time to internalize that some element of the business will always be on fire. Each melodrama seems like a one-off. But when reliably faced with a new one-off each month, one should stop being surprised by them.

Some of our “recurring” one-off problems:

• As we got to the end of a multi-month sales cycle, the buyer said yes, but under one condition. We had to undergo their vendor security audit that no startup had ever passed.
• Concerned about revenue, we spent months agonizing over another massive customer. When they signed, the revenue concerns subsided, but panic set in as we realized the spike in usage could cripple our site.
• We spent months hand-wringing and pitching for fundraising. The thrill of getting a term sheet is quickly replaced by the stress over contentious terms.

The trick is to accept this condition. Build systems to prevent yourself from making the same mistake twice. But don’t view failure to forecast unforeseeable problems as a knock on your leadership. You don’t know where the next crisis will hit, but you can be certain there will soon be another one. When you acknowledge this reality, it’s liberating. You can exhale.

For a good laugh, take a look at your calendar from a year ago and smile at the crises you were kept up late at night worrying about that now seem like quaint memories.

A firefighter doesn’t predict the precise location of the next fire. A firefighter is simply ready for a fire to breakout nearby sometime soon.

(2) Customer Success isn’t a cost center, it’s your ticket to victory

When you’re bringing a new company into the world, you are building the airplane in mid-air. To do so without crashing, you’ll need to build and learn quickly. The most valuable insights you will gain are from people who buy and use your product. Their views matter more than your senior executives, your investors, and other employees.²

Your Customer Success success team interacts with users on a daily basis — they’re your secret weapon. In most startups, Customer Success is viewed as a “lower status” job that doesn’t drive strategy.³ At Liveoak, we made Customer Success and product management the same role. The CS team sat with the developers, learned how our software works, and had a large voice at the table in our software development. This requires hiring for folks who are as comfortable in a conversation with developers as they are with a key client. Simple, but not easy.

Customer feedback became addictive, so we set up systems to collect it while we slept. We built a “ratings” feature in our app to passively collect feedback. These were the most profitable lines of code the company ever developed. It took mere weeks to build, but led directly led to dozens of critical features, increased customer stickiness, and provided a quantitative north star to evaluate how well we serve our clients.

Investing in Customer Success let us double down on our biggest competitive advantage: speed.

Speed meant quickly and transparently resolving customer support issues. Speed meant rapidly developing the killer features our customers told us they wanted. By doing this, we created a compounding benefit. Our existing customers become happier, stickier, and referenceable. Simultaneously we improved the overall value of our product for future customers. By making customer success a core strategy instead of a cost center, we took our learning velocity from a stagecoach to a Ferrari.⁴

(3) No shame in shortcuts: Find the right lipstick and find the right pig

In business, “putting lipstick on a pig” is generally frowned upon. It’s viewed as taking an inauthentic shortcut. The dirty secret in startups is that often there is zero relationship between effort and results. Cheap hacks (like changing the location of a button) can boost metrics by an order of magnitude, while massive company-wide initiatives (like rebranding a product) might barely move the needle.

Forget the 80/20 rule (80% of the output for 20% of the effort). You should look for your 99/1. Here were some of ours:

• We created a two-minute marketing video that catalyzed six-figure revenue deals.
• We coded low-effort features like help text, customer ratings, and more intuitive action buttons that dramatically increased NPS.
• Some of our most delightful employee perks cost the least — like the time we surprised each employee with a home delivery of ice cream on a Friday.

This is not to say you can build a company off of smoke and mirrors alone, but don’t assume that effort equals impact. Find the right lipstick and find the right pig.

(4) *Worrying About* competition is for losers

Peter Thiel famously argues that “competition is for losers” in his canonical “Zero to One”. The best businesses are monopolies that don’t actually compete with anyone.

When building a new company, *worrying about* competition is for losers too.

I remember once sitting in a cramped conference room, agonizing and analyzing that a competitor had raised $10mm. A few months later, we endlessly debated what to do when a competitor announced they were launching in our industry.

And yet, I can’t remember a single time in five years when a competitor’s action caused us to change our approach. We snapped ourselves out of this panic by remembering that the best response to a competitor’s progress is to keep executing our plan.

Competition isn’t even a likely reason your startup will die. Most startup deaths are caused by failure to gain traction (“nobody cares”) or failure to nail unit economics (“people only care if they’re subsidized by VC money). Whether you think your competition is a stealth startup or Jeff Bezos, the odds of either “killing” your company are slim.

This is especially true when your company is operating in a brand new category, like ours. Most of our buyers had never heard of Liveoak before. Few knew about “collaboration software.” We weren’t convincing them that they needed our collaboration software, we were convincing them that they needed any collaboration software to begin with.

Even if competitive analysis were a good use of time, it’s difficult to acquire reliable information.

Relying on publicly available info for competitor analysis is like relying on Instagram for an accurate picture of someone’s life. Companies carefully manicure each public image. They will post about their latest funding or partnership. Nobody does a press release when their biggest customer churns. PR was an amazing anti-signal for us. Our competitors who were most active on social media and the conference circuit were almost never finalists in the deals pitched.

This doesn’t mean that all competitor analysis is worthless. It simply means there are usually higher ROI ways to spend that time or money.⁵

(5) Hardy’s Law: Fundraising will always take twice as long as you think, even when factoring in Hardy’s Law.

Have you been told fundraising will take you three months? Wonderful, assume it will take six. There is no such thing as an easy fundraise. Pitching, negotiating terms, and actually closing are three independent and fragile processes that could each turn into a wormhole. The odds of all three going flawlessly are zero. There will inevitably be issues with new investors, old investors, multiple lawyers, arguments over a single word in a 200 page document, and more. How can you deal with this? Minimize the number of people involved in the fundraising. Ideally, only one or two founders should be involved. They should do their best to shield the rest of the company from the emotional roller coaster and time sink.⁶

6. Company goals work — but not for the reason you think

For our first four years of existence we did not have structured company goals. We were small, and our stakeholders all vaguely shared the same view of the company’s mission: don’t run out of money, get new customers, increase revenue, hire great people. I was skeptical of the false precision of company “goals.” If we aimed for $3.97 million in revenue but only hit $3.64 million, was it a failure?

In year five, we implemented a more formal goal structure and I was blown away with the impact. The primary value of the goals wasn’t a Kumbaya mind-meld. Rather, the win was each team member having a common language for conversation.

Before these goals, internal strategy discussions were emotionally fraught, time consuming, and had arbitrary outcomes. Sales and business development might argue for one feature, while engineering argued for another. The squeaky wheel often got the grease. That’s a great way to service a car, but there are better ways to run a company.

Having company goals gave us an objective framework to use when discussing important decisions. We could dispassionately ask: “Does this decision further the goal of Making our Customers Referenceable?” Instead of arguing with gut feel and its accompanying biases, we could now have a more neutral discussion.This de-fanged many fraught conversations. It turned down the emotional thermostat, which is critical in the high stress environment of a startup.

Most of lessons above were learned the hard way: trial and error from screwing up on the job. I hope the above insights can make your summit up startup mountain a little easier.

I’m always open to helping others on their journey. I’m on twitter (@canthardywait) or [my first name] b [my last name] at gmail dot com

Footnotes

1. The link between entrepreneurship and mental health challenges is well documented
2. Nuance alert: there is a long-running online argument of “Lean startup vs. Fat startup.” Are the best startups minimum viable products that iterate their way to greatness? or more like visionary movie productions? Each can work and it’s highly dependent on the industry and problem. My point is that for most people, more direct customer feedback is better.
3. David Perell and Michael Mayer discuss the Customer Success arbitrage at 46:35 in this episode of the North Star podcast
4. For a deeper dive on the value of customer success, check out this episode of Venture Stories with Erik Torenberg and Nick Mehta, CEO of Gainsight
5. A notable exception is in direct sales. Salespeople are often asked “what differentiates you from {Solution X}.” Understanding the competitive landscape establishes credibility in these settings. Sidenote: the best answer to that question is to prove that you’re not actually a competitor with {Solution X} for ABC reasons.
6. Over the course of writing this post, I discovered this excellent “fundraising Survival Guide” from Paul Graham

Acknowledgements: I owe a massive debt of gratitude to the employees, investors, advisors, and customers that helped guide Liveoak to this outcome. Special thanks to my co-founders Andy and Pete.

Thank you to Nick Maggiulli, David Perell, Taylor Pearson, Eric Walsh, and my parents for reading this essay.