Mistakes to Avoid When Scaling a Business – Interview with Brad Feld

Scaling a Business - Mistakes to Avoid with Brad Feld

I spoke to Brad Feld, who has been an early stage investor and entrepreneur since 1987. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures. Brad is also a co-founder of Techstars. In addition to his investing efforts, Brad has been active with several non-profit organizations and currently is chair of the National Center for Women & Information Technology, co-chair of Startup Colorado, and on the board of UP Global. Brad is a nationally recognized speaker on the topics of venture capital investing and entrepreneurship and writes the widely read blogs Feld ThoughtsStartup Revolution, and Ask the VC. In the following brief interview, Feld talks about the biggest mistakes business owners make, typical management issues that occur when entrepreneurs grow their businesses, and more.

Dan Schawbel: What do most business owners get wrong when first starting their companies?

Brad Feld: People, people, people. Picking the people you start your company with – partners, investors, and mentors – is critical. Many founders don’t spend enough – or any – time thinking about this. You are about to enter into a very long term relationship. Make sure you’ve thought hard about who you are about to enter it with, and they are the ones you want to work with.

Schawbel: What typical management issues occur when entrepreneurs grow their companies and how do they solve them?

Feld: Scaling a business is hard. There are many points at which the leadership and the management structure of the company needs to change. This often happens a lot early on, at 10 people, 20 people, 50 people, 100 people, and 200 people. You wake up as a CEO and you realize you don’t have the right people in the right roles, or the business has scaled beyond what someone is capable of, or there is a fundamental gap in the execution of the business. Great entrepreneurs are always thinking about this and building capacity and skills ahead of scale.

Schawbel: How does a successful entrepreneur hire the right people, manage them and then deal with expected turnover?

Feld: Recognize that you can’t motivate people, you can only create an environment in which people are motivated. As a result, putting effort into understanding and defining your culture and then only hiring people with high competence for the role and high culture fit is critical. It’s very hard to get this right, especially if you haven’t clearly defined your culture. In addition, when you find someone who is very competent for the role, but missed on culture fit, it’s easy to rationalize that you should hire them and then keep them around. But this is a bad idea, especially in a fast growing company. Once you start missing on culture fit, things spin out of control quickly.

Schawbel: What is the best way to scale a business or create a model that is scalable? How do you know if it’s going to scale or not?

Feld: You only know if it scales by understanding the economic drivers and then applying more capital to the things that you believe will create a scalable return. Many companies, especially those that are overfunded early on, spend too much money scaling before they’ve found product market fit. Spend money slower and really search for something that your customers and users respond to. Once you’ve found that, you can start to scale.

Schawbel: What do most entrepreneurs not know about business operations that would help them be more successful at managing their company?

Feld: It’s hard. It’s very hard. It’s messy. It can be extremely boring. As you start to scale, hire people who know what they are doing because they’ve done it before.

Schawbel: What types of qualities do you look for in the type of people you hire when your company scales? What do you try and avoid when hiring? 

Feld: Optimally, you are looking for people who have been through the scale point you are at in an equivalent role. So – if you are 100 people growing to 200, you want to bring on people who have been in companies that have gone from 50 to 250 people. This is particularly true of executive hires. For example, if you are 100 people, bringing someone in who has never been in an organization of less than 1,000 people is likely going to be a miss. Ultimately, you still have to filter heavily for culture fit and should be willing to trade off specific experience in an organization at similar scale for tight culture fit and strong competence in the role.

Schawbel: Aside from hiring the wrong people, what are a few other mistakes that entrepreneurs make in the beginning? How do their problems change after the company has a few hundred people?

Feld: Over and over I see entrepreneurs being in denial about what is going on in their business. Every day brings new problems and you have to confront them. There are times when they pile up and are overwhelming. This is a huge trap – convincing yourself that things are ok when they aren’t, or that they are unchangeable (e.g. “this is just the way it works”) is a path to despair.

Schawbel: How do you create the right type of culture that makes for a successful business? Can you give a few examples from the companies you invest in?

Feld: There is no right type of culture. The beauty of being an entrepreneur is you get to craft the culture however you like. Some companies, like Moz, have an incredibly open culture (see TAGFEE – http://moz.com/about/tagfee). Others have a confrontation culture. Understanding what you want your culture to be is critical – if you don’t own it, it will own you.

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