Book Summary — High Growth Handbook

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1 paragraph summary:

“Scaling Startups from 10 to 10,000 People” is an appropriate tagline. Great detail and stories to illustrate the journey of high growth startups. It covers a massive breadth whilst going deep into each area. If you’re going through that Series A+ round, this is the perfect book to set yourself up for what’s to come.

Most common startup issues? Andreessen Horowitz

1. Once PMF, the main thing becomes taking the market — which is to say, figuring out how to get the product to the entire market, how to get dominant market share; because most tech markets tend to end up with one company with most of the market share.
2. Number two is getting to the next product. We are in a product cycle business. Which is to say that every product in tech becomes obsolete, and they become obsolete pretty quickly. >> If all you do is take your current product to market and win the market, and you don’t do anything else — if you don’t keep innovating — your product will go stale. And somebody will come out with a better product and displace you.
3. But then the third thing you need to do is what I call “everything else,” which is building the company around the product and the distribution engine. That means becoming competent at finance, HR, legal, marketing, PR, investor relations, and recruiting. That’s the stuff that’s the easiest to put to one side — for a little while. If you’ve got a killer product and a great sales engine, you can put that other stuff aside for a while. But the longer you put that stuff aside, the more risk that you develop and the more

Distribution > Product

In fact, the general model for successful tech companies, contrary to myth and legend, is that they become distribution-centric rather than product-centric. They become a distribution channel, so they can get to the world. And then they put many new products through that distribution channel.

One of the things that’s most frustrating for a startup is that it will sometimes have a better product but get beaten by a company that has a better distribution channel. In the history of the tech industry, that’s actually been a more common pattern.

When add HR?

It’s somewhere between 50 to 150 people. It’s somewhere in there. If you don’t start layering in HR once you’ve passed 50 people on your way to 150, something is going to go badly wrong. I think there’s actually an explanation for that. It’s because 150 is the Dunbar number, the number of people you can directly know. So somewhere between 50 to 150 people, everybody doesn’t know everybody.

Moat and Pricing

First of all, raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to. The definition of a moat is the ability to charge more.

Companies that charge more can better fund both their distribution efforts and their ongoing R&D efforts. Charging more is a key lever to be able to grow. The companies that charge more therefore tend to grow faster.

How to org structure?

Generally, I think matrixed is death, so I’m always pushing companies to go to a flat structure of independent teams. I’m really on the Jeff Bezos program on that, the two-pizza team thing.2 I think hierarchies kill innovation for the most part. And I think that matrixes are just lethal in most cases.

Chapter 1 — the role of the CEO

The CEO:

1. Sets the overall direction and strategy of the company and communicates this direction regularly to employees, customers, investors, etc.
2. Hires, trains, and allocates company employees against this overall direction while maintaining company culture.
3. Raises and/or allocates capital against this overall direction.
4. Acts as chief psychologist of the company. Founders are often surprised by the extent to which people and organizational issues start to dominate their time.

Instead of strategy I want to cover three key tactical duties of a CEO that often go under-discussed:

1. how to manage yourself,
2. your reports, and
3. your board of directors.

Personal Time Management

Key components of personal time management include:

1. Delegation.
2. Auditing your calendar regularly.
3. Saying no more often.
4. Realizing your old way of operating will no longer work.
5. Finding time for the things you care about in life.

Delegate

1. Hire an experienced manager to run a team and watch how she does it. You will notice she probably tends to hold regular 1:1s (to stay in sync with her team) while also trying to give the most rope to the team members who run most independently.
2. Trial and error. Try delegating and try again until it works.
3. Get a formal or informal mentor. Ask a board member. Alternatively, assemble a set of CEOs whose companies are at the same stage as yours, and meet them regularly for dinner so you can compare notes.

Key signs that you are NOT delegating the way the CEO of a high-growth:

1. You tend to leave meetings with many action items
2. Someone now “owns” an area you used to run, but after 4–8 weeks you find you are still doing most of the work or weighing in on every decision, however small.
3. You feel the need to jump in on every email thread or attend every meeting across the company.

Biggest reasons CEOs don’t delegate:

1. They don’t know how.
2. They don’t have lieutenants they can trust.
3. They are stuck in a work mode that made sense for a smaller company but doesn’t for their fast-growing organizations.

“Do I really need to do this?”

“Or can someone on my team do it instead?”

When in doubt, force yourself to delegate.

We find a few common types of meetings they should skip 90% of the time:

1. First-round interviews. Executive hiring is different and as CEO you may need to actively reach out to candidates.
2. Sales or partnership meetings. Who can go on your behalf? I am not advocating you skip all such meetings, but some you can probably skip.
3. Every internal engineering, product, and sales meeting.
4. Random external meetings. See “Learn to say no” below.

Learn to Say No

Don’t take every meeting at any time — that will just exhaust you and not really help progress.

Choose the one or two highest-impact events.

Excessive networking. Networking is a crucial part of being an entrepreneur but take a look at your calendar. Put networking into consolidated blocks so the switching cost is low, and focus your outreach on things that are actually meaningful.

Unnecessary fundraising. Fundraising is a necessary side effect of having a company that needs capital to scale, but it’s also hugely distracting.

It may be painful, but to scale your organization and move ahead as CEO you will likely need to let go of certain parts of your prior roles that you enjoyed or thought were important.

A common trigger of founder burnout is finding yourself working on things that you hate.

Managing Reports

1. Hold regular 1:1s
2. Hold regular staff meeting once at about 30 FTE — key metrics, topics, issues, different members to present, knowledge sharing, issue raising, relationship building, collaboration and strategy
3. You should start to add skip-level meetings as one way to stay in touch with the broader organization. As companies scale, the CEO often starts to lose touch with.

I think that founders should write a guide to working with them. It would be one of the pieces I’m describing, to clarify the founder’s role:

• “What do I want to be involved in?
• When do I want to hear from you?
• What are my preferred communication modes?
• What makes me impatient?
• Don’t surprise me with X.”

That’s super powerful. Because the problem is, people learn it in the moment, and by then it’s too late.

One thing I’ve observed is that you can’t make too many things at a company mandatory. You really have to be judicious about the things that you’re going to require, because there just can’t be that many. There’s probably something related to performance and feedback. There’s probably something related to whatever your planning process is. And then there’s a few day-to-day tactical things, like a launch review. But you can’t have that many and you can only have one at each level.

My answer would be that you can map decision-making to org structure to a point. Then it goes back to being explicit about how certain types of decisions are going to be made. “Hey, if we’re making a major pricing change, everyone on the leadership team needs to agree.” Be transparent to the org about whose role and responsibility it is to make those calls.

Sometimes that gets confused, though, because the group thinks they’re the decision-maker and that the goal is consensus. When really the goal is, “Let’s hash it out together. We may not all agree. One person will be the decision-maker, and then we will all commit to it.” If you don’t clarify what kind of decision this is, then groups really struggle because their expectations are not set correctly.

Because the org is always oriented toward making it work. I think decisions to stop or to retrench or to rebuild usually have to come from a leader if not a leadership team.

The first one is, what are things that ONLY the founder/CEO can do and which are existential to the company? What must they spend time on? One of those is often recruiting additional leaders. Others would be, in most companies, articulating the product vision and setting cultural standards.

Figure out what those are, and figure it out quite transparently with the rest of the leadership team. Then do a big self-awareness exercise across that leadership team, in terms of skills, capabilities, past experience, strengths. See if you can deploy the group against your needs and objectives, and be really ruthless about what the CEO and founder has to be involved in.

Chapter 2 — managing the board

If your cofounder is like your spouse, then your board members are like your mother-in-law and father-in-law. You are going to see them regularly, they are hard to get rid of, and they can have an enormous impact on your company’s future.

I would always take a lower valuation in order to work with a board member or VC partner I really like, rather than a higher valuation and a lesser board member.

How to determine who: Write a job spec. It bears repeating: this is one of the most important people you will hire. Market, Functional, Operational XP? What do you need?

“Your board members are optimally people that you wish you could hire for the company, that are truly out of reach otherwise.”

Chairman

Typically, the only real “legal” capability of a chair (depending on charter and state of incorporation) is the ability to call for a board meeting independently of the CEO (assuming the roles are split).

In later-stage companies, the chair may play a board-coordination and influencer-leadership role, especially if the size of the board of directors has ballooned.

But a classic young, idiot board member will say, “Well, I’m giving you my expertise and advice. You should do X, Y, Z.” But the right framework for board members is: You’re the CEO. You make the call. We’re advisory.

You’re looking for a cofounder who may have a different skill set than the people who are part of the initial “family” or “tribe.” But you’re looking for, essentially, a cofounder. There are various tests for cofounders. Like, “Would you do this job if we paid you half of what we’re paying you? Because you’re really committed to this thing?” That’s not to say you should pay them half, but you want someone who sees this as the thing they want to do.

Roughly speaking, one of the tests I use on the CEO side is, would you want to spend an hour or two a week working with this person?

For an early-stage company, board meetings may be primarily about reviewing a handful of fundamental metrics (e.g., “Are we running out of money?” and, “is our product working?”) as well as broader strategic input, organizational advice, and hiring help for the CEO and executive team. Later-stage board meetings tend to broaden to include advanced strategy questions (e.g., M&A and other conversations).

Effective board meetings

1. Send out the board deck and other materials at least 48–72 hours before the meeting.
2. Call board members in advance for a 30- to 60-minute 1:1 briefing.
3. Plan a board dinner the night before, or lunch/dinner right after.

Agenda

1. Board business — short.
2. Big picture summary.
3. Quick review of key metrics.
4. Follow up items from last meeting.
5. Discussion of 2–3 key strategy topics.

Board members can help you with a variety of items outside of meetings too. You might ask a board member to spend extra time with a member of your team or to work with a key function to help it run smoothly. For example, a board member with significant experience taking companies public or managing public companies as CFO could help coach your CFO or her team. Board members can also be valuable for 1:1 conversations with you or your executives on key strategic questions, management and organization, or other items. Board members can also help with interviewing or recruiting key executives.

Naval Ravikant

The whole point of a company is to try to be efficient and get stuff done. And when you go through human history, you find that when you want to prevent an entity from having too much power, you defuse that power by having committees or groups.

Go back to the Romans; they had the Senate, and all the senators had to agree. But when the Romans went to war, when they wanted to be efficient, they elected a dictator. And that dictator then took charge of everything and went off and fought the war—and usually ended taking over all of Rome afterward, so it kind of backfired.

You have a dictator at the top, a CEO, or the founders. Then all of a sudden it turns back into a butterfly network, and now you report to a board, a bunch of people. And inherently, the founder-dictators tend to be very risk-prone.

Boards don’t like to be dragged along. It’s a group of people. It’s groupthink, it’s committee-think.

No committee ever built anything great.

So related to that, no board ever built anything great. Boards can be helpful; they can be sounding boards.

Let’s face it, anyone who’s been in the venture business knows it’s not really a full-time job. Maybe for the best VCs it is, but your average VC does not work the hours that your average entrepreneur does.

My solution to most board problems is going to be highly unacceptable to the venture community, but we don’t give out permanent board seats. We would never ever give out a board seat that we could not remove.

The way my company is structured is that everyone can be removed, including me. Then it is actually a very consistent moral argument that I can make, which is saying, “Hey guys, you can remove me as well if I’m out of line.” Nobody is safe, and that forces everybody to behave.

Chapter 3 — recruiting, hiring, and managing talent

For each role, you should write a job description that explains what the role will do, and what experience and background you are looking for.

For each candidate for a given role, ask the same or similar interview questions. This will allow you to calibrate candidates across identical questions.

As each person finishes their interview, it is good for them to enter feedback about the candidate before talking to other interviewers. This avoids people biasing each other and forces each interviewer to take a written stance.

The biggest determinants of candidate conversion is how quickly you interview them and how quickly you can make an offer.

Reference checks are often the clearest signal on a candidate. You should reference check everyone.

Early on, the best approach to recruiting is to have people on your team actively refer in people from their network.

Send a welcome letter to the new employee — and cc all the teams that person will be working with.

Create a checklist of items that each new person receives as they show up for their first day at the company. This should extend beyond the utilitarian items of laptop and email address.

Pair a new hire with a “buddy” — someone who is not in the reporting chain of command .

The biggest obstacles to happy employee onboarding tend to be (1) a bad manager/employee relationship, and (2) a lack of feeling of ownership for the area they were hired to do.

Each manager can set 30-, 60-, and 90-day goals for new employees. This gives a sense of direction, context, and structure.

Early employees that can grow and scale responsibilities within a company are invaluable. They can channel the mindset of founders/CEO.

Their “old timer” status allows them to challenge convention (or provide context on it) in ways that enable them to reshape or remove rules or old processes.

Sam Altman

The role of the CEO is basically to figure out and decide what the company should do and then make sure it does that.

Heavily involved in, like recruiting and evangelizing the company to new hires, major customers, investors, whatever. And there are some jobs where people only want to talk to the CEO; fundraising is a great example.

The hard part is that most people want to just do the first part, which is figure out what the company should do. In practice, time-wise, I think the job is 5% that and 95% making sure that it happens.

And the annoying thing to many CEOs is that the way you make it happen is incredibly repetitive. It’s a lot of the same conversation again and again with employees or press or customers. You just have to relentlessly say, “This is what we’re doing, this is why, and this is how we’re going to do it.” And that part — the communication and the evangelizing of the company vision and goals.

The hard part of being a good CEO is that you have to be willing to let some things fall apart. You don’t have enough time to do everything well. And in practice, what that means is that there are some urgent things that you just don’t do. Getting comfortable with that takes a long time. It’s hard.

I think the most important thing is that boards hate surprises. And boards hate feeling like you’re trying to hide bad news. You want to over-communicate with boards for sure. Certainly if you have bad news, you want to get that to them ahead of the board meeting.

Because in a board meeting, you usually have all these weird dynamics of different VCs trying to impress each other. You’re actually just much better off to have individual conversations ahead of time when you really want open-ended brainstorming. You’re likely to get better results.

But I think most founders — actually, I’m pretty confident in saying almost all founders — overweight the importance of press.

It’s important to do very small amounts of that. Less is more. If you look at the most successful founders, they’re not the ones that are on the circuit.

Biggest change people fail to make is that at some point your job becomes more about hiring people and working with them to get what you want done than doing it yourself. The number one failure to scale that we see in CEOs is the failure to make that transition.

No one does it well the first time. No one is naturally good at letting go of something they care deeply about.

So, I think you just have to give yourself permission to screw it up for a while.

Chapter 4 — building an exec team

When hiring executives, look for people who have the experience and background that would make them a good fit or hire for the next 12–18 months. Anything shorter than that and they will not be able to scale sufficiently far relative to the time it takes to hire them. Anything longer and you will over-hire and end up with someone who is a bad fit for the job.

Some companies are known to have turned over their entire first (and even second) executive team over time. Facebook, for example, let their first executive team go early on and saw quite a bit of executive turnover until Sheryl Sandberg and others came on board.

Keith Rabois

Go find the five best people in Silicon Valley that do that role, and just have coffee with them. And just chat. In that dialogue, I think you form an ability to benchmark the differences between an A+ and a B+, so that when you meet new candidates, actual candidates, you can triangulate against the people you’ve met that are clearly stellar.

“If this person joined my company, would you join?” And yeah, people may say, “I’m retired” or “I’m a VC now,” and all these reasons. But fundamentally you should hear in their voice, “Absolutely, yes.”

What are the key risks to the business? What are the most important two or three things? You want the things that are one, two, or three to report to the CEO.

Fundamentally, what makes or breaks the company should probably be reporting to the CEO.

Because ultimately the CEO is responsible and accountable for everything.

Direct reports? At most seven. Or five. Five or seven. The reason why is that you want to do a certain number of 1:1s at a weekly pace, and you want to do about one a day. So that means five or seven or something like that.

One of the lessons I’ve learned is the executive team meeting is not necessarily just for the CEO. It’s actually often more important and more valuable to the executives that participate in the meeting. They get to be on a stage with their peers. They get to understand what’s going on laterally in the organization so they can make smarter and better decisions.

The meeting may not be particularly insightful to you, because you’re doing 1:1s with all these executives and functional organizations. You may know everything that comes up in this meeting, and you probably should. But it’s the debate or dialogue or the lateral sharing of information that makes that meeting constructive.

I think a lot of CEOs get frustrated because the meeting isn’t adding value to them. But they forget that it’s adding value to the three or four or five other people there. And if you can make your executives more successful with an hour of your time or two hours of your time, that’s totally worth doing. It’s a classic high-leverage activity.

COO

Optimally, you want someone who will come in to complement, operationalize, and execute your vision as a founder.

1. Maturity and lack of ego. Look for a seasoned executive who is willing to suppress her own ego to partner with, and execute, a founder’s vision.
2. Chemistry with founders & CEO. If the COO cannot mind-meld with the founders, conflicts and a bad ending to the relationship are on their way.

Chapter 5 — organisational structure and hypergrowth

Hypergrowth means that every 6–12 months the company’s org structure may change.

When choosing an organizational structure for your high-growth startup, focus on the next 6–12 months. Don’t try to find the “long-term” solution, as in the long term your company will be completely different have radically different needs.

Early on, you may re-org the entire company frequently. But once you hit 500 to 1,000 people, you should expect fewer company-level re-orgs and many more interfunctional re-orgs.

Spell out to yourself the logic of why you need to re-org first, and then think through the leadership and org structure that works best.

Determine what org structure is most pragmatic. Who on your leadership team is overloaded and who has bandwidth?

Get buy-in from the right people before implementation. If possible, you should consult with a handful of executives whose functions would be most impacted by the change.

Re-orgs should never be open conversations with the whole company (or a functional area) about what form the new organization structure should take. This only opens you up to lobbying, internal politicking, and land grabbing. It also prolongs the angst—re-orgs should happen swiftly and with as little churn as possible.

Announce and implement the re-org soup-to-nuts in 24 hours.

When looking for the permanent replacement/executive, you need to focus on the present and what you need in the next two years. Otherwise you end up chasing unicorns, people who can get their hands dirty, build a team and manage a team of 100 five years from now. Sadly, unicorns just don’t exit.

Your biggest levers for shaping culture have to do with who you hire, the behaviors you emphasize and reward, and the people you let go.

Every single founder I know who has compromised on culture when hiring has regretted it due to the disruptions it has caused their company: having to fire bad actors, creating a crappy work environment, good people quitting, trust eroding between coworkers, product moving in the wrong direction, misaligned incentives emerging in the organization, etc.

Culture

1. Get hiring right — explicit filters
2. Constantly emphasise values day to day —Repeat them until you are blue in the face. The second you are really sick of saying the same thing over and over.
3. Reward people based on performance as well as culture. People should be rewarded (with promotions, financially)
4. Get rid of bad culture fits quickly. Fire bad culture fits even faster than you fire low performers.

What are the cornerstones of your company’s culture? What sort of values do you want people you hire to have? What are you willing to compromise on? What are you not?

How do you plan to screen for these values in your interviews? What questions do you plan to ask at each stage to surface candidates’ values?

The right strategy is to not hire the person.

“If there is a doubt, there is no doubt” unfortunately proves itself to be true over and over again.

Patrick Collinson

You need to be explicit about what you are, but also willing to revisit it. One of the most difficult exercises in judgment that has to be applied by the leaders of a startup is continually balancing this tension.

Where are outcomes undesirable or insufficient because of deficiencies in the degree to which people are following the culture, and where are they deficient because of what the culture itself is? Is it the implementation or is it the spec?

The first-order thing is simply being clear that you do not want to preserve culture; you want to collectively steer the right evolution of the culture.

It’s really easy to learn the wrong lessons from early success. I really think you need to be explicit about that, that the challenge is not in preserving the culture but in having it evolve the right way. And I would highlight some of the early things you inevitably did that were just kind of stupid.

The CEO ultimately does not have that many jobs, but I think culture is among them. And it ought not be delegated.

The five top responsibilities of a CEO:

1. being the steward of and final arbiter of the senior management;
2. being the chief strategist;
3. being the primary external face for the company, at least in the early days;
4. almost certainly being the chief product officer, although that can change when you’re bigger; and then
5. taking responsibility and accountability for culture.

And I think the key things are to have the right site lead and initial seed crystals. It’s not just about the lead; it’s about the two, three, four people around whom the culture of the office is going to form.

I think you want to have the seed crystals be people who either spend a whole bunch of time at headquarters first or, to your point, have worked at headquarters for a while and want to go live or work elsewhere. For a long time, you also want all employees at the new office to start out in headquarters for at least weeks and potentially months.

I think people should select carefully the companies they seek to emulate and learn lessons from. It’s very easy to choose those that are contemporaries of yours or happen to be top of mind and salient. But generally speaking, if they’re contemporaries—and certainly if they’re of a remotely similar size—they’re likely to be insufficiently proven.

And I hope that the Valley in general moves away from the term “culture fit.” The word “fit” almost primes us to think about “who is like people we already have on the team,” beyond the specific traits we’ve articulated. I really like when companies think about it more in terms of values alignment or work-style alignment, people that are going to do work the way that work gets done in our organization. We’ve also worked with companies that call this “culture add.” “Who’s going to bring what we most need?” rather than “Who fits in with what we already have?”

Structured interviewing is the one thing that I think is completely critical to doing that effectively,

1. Step one is articulating the relevant qualifications for every role, technical and non-technical.
2. Step two is designing specific questions to assess for each qualification. It’s important not just to be clear about what matters, but be clear about how you’re going to determine whether someone meets that qualification,
3. Step three is limiting the domains that each interviewer assesses. You shouldn’t have to go in and try to decide, “Should we hire this person?” as an interviewer. You should decide, “Does this person meet what we need on these two things?”
4. Then step four, and this one’s really critical, is creating rubrics to help interviewers evaluate answers to the questions that they’re asking, or to grade work samples that they’re getting. A rubric can be as simple as: A great answer will hit on these three things, a medium answer will hit on maybe two of those things, a bad answer will not talk about any of these, or maybe it’ll hit on one.

There’s a lot of research on a topic called “ambient belonging.” That is, what are the little signals that we’re getting from the world around us that tell us whether we belong or not? This can be really small things like the posters on your wall, or the types of social events you host. Are all your networking events or social team events happy hours after work?

The other thing we see companies really struggle with is new managers, or inexperienced managers. A lot of people in early-stage companies haven’t managed other people before, or don’t have a lot of experience doing that.

Show people what it actually looks like to give process-oriented feedback that helps people grow and develop. I think coaching and using external vendors, external coaches, can be super helpful, and you can do that at any stage of your company. Elad: Outside of people outright quitting, are there any warning signs or ways to gauge that you’re creating an environment that is going to drive out certain people over time, or not help people meet their full potential at your company?

Chapter 6 — marketing and PR

I think when people aren’t scaling, they micromanage in an incredible way because they feel like that’s the only thing they can really control. They can also get really tactical, really quickly. It becomes, “Well, I can cross that off my list,” as opposed to, “I’m going to tackle this big, chunky strategic issue.”

Your internal PR team or your agency should start things off by media training you and any other members of your team who will be officially representing the company and/or speaking to press.

Practice, practice, practice. Imagine that you are an actor in a play. Read through your narrative and practice your storyline.

Given how hard people work on their companies, CEOs may get emotional or upset about press coverage. Realize that most of the press coverage will be forgotten in the future, and most companies have had a bad story or two (or ten) at some point or another.

Every company will have a bad press cycle. In general, companies tend to get built up in the press, and then torn down by the press.

Chapter 7 — product management

Do not hire project managers as product managers. While project managers may be great at organizing and driving a schedule, they often lack the ability to prioritize features or ask the larger strategic questions. In general, project managers are not needed in high functioning software organizations, where a mix of the engineering manager and product manager will take on project management.

About how easy it would be to build something in house instead, or that integration challenges will be too hard. In reality, breakout companies never have enough resources to do everything and should buy more startups. In general, most companies buy too few, rather than too many, companies as they scale.

Chapter 8 — financing and valuation

For the first 40 years of the technology industry, high-growth, breakout companies would go public (IPO) much earlier in their lifecycle. Intel went public two years after incorporation, Amazon when it was three years old, Apple at four, and Cisco at the ripe old age of five. Microsoft was an outlier and long in the tooth when it went public after ~10 years in 1986 (largely on the back of its 1980 deal with IBM for MS-DOS.)

Investors who used to invest in young public technology companies have been forced to invest in private companies instead. Long time horizons to liquidity has created large secondary markets for common stock. And finally, the shrinking number of public breakout companies (and public company founder role models) has created a founder generation skeptical of going public.

Keith Rabois

My view is pretty simple, which is companies should go public as soon as they can. Increased transparency and accountability is always a good thing.

It’s also very binary. Once you are public, you have a lot of tools and levers at your disposal, about incremental financing, acquisitions, M&A.

I think the reasons why people don’t go public are basically excuses.

You wind up having a more process-oriented board meeting. I think both of us would probably advise startups having a smaller board, three to seven members max. Probably five more typically.

I think of money, of capital, like oxygen.

Imagine if we all had to live our lives and pay for every breath. We might live our lives differently. Like we might not work out as much; maybe we couldn’t afford to run or sprint. But because oxygen is free, we don’t even calculate it. In a hot market, everybody thinks that capital is sort of free, but that changes really fast. The price of capital has moved many, many times over the last hundred to two hundred years. And the virtue of having lived through various cycles is you’re always calculating that in the back of your mind.

How long to IPO?

I think that it can be done faster than people realize. The canonical advice again is that it’ll take about a year. I’ve seen it done in three to four months. That’s definitely pushing the envelope. Going from zero to sixty in three to four months would require incredible focus, energy, and probably some experience in the CFO or general counsel. So let’s say six months to nine months being more reasonable. But about a year of preparation is a good idea.

Naval Ravikant

“Valuation is temporary.

Control is forever.”

Whoever has control can effectively end up controlling your valuation later. Never give up control.

I think the single most important elephant in the room is that companies don’t need that much money anymore. It’s become a lot cheaper to build a company. All your software is open source. All your hardware is sitting at Amazon, in Amazon Web Services. All your marketing’s done on Google, Twitter, Facebook, Snapchat, App Store, contact lists. Even the people that you need — you need mostly engineers, and even half of them are outsourced. A lot of your customer service is happening through the community. So, companies just don’t need that much money.

But the downside, the subtle difficulty of raising money, is that when you raise more money you do spend more money. There’s just no way around that, no matter how disciplined you are. And what’s worse is you move slower. You get less stuff done. The meetings are bigger, the groups of stakeholders that have to be coordinated are larger. You’re less focused as a company; you take on too many projects because you have all these resources.

Fundamentally, venture capital is a bundle — it’s a bundle of advice, control, and money. The more options you have, the more you can unbundle those three things, and get the advice from the people you want and the money from the cheapest source of money, and leave the control behind. So I think it’s good.

It used to be that you would go to a VC for their network. But most entrepreneurs these days are much better networked than they used to be, thanks to accelerators, thanks to blogs, thanks to just being savvier about it.

But exactly as you said, you want to interview your investors. And you really want to look for the subtle signals — I think people’s true motivations and behavior are revealed, not said.

If somebody spends ten minutes telling you how honest they are, I can guarantee you that’s a dishonest person.

You should reference-check the hell out of them, you spend time with them, and you see how they treat you during the negotiation process. If they’re relatively easy during the term sheet negotiation process, if they’re quick to respond, if they’re no hassle, if they say smart things, they’re probably going to be good people to work with. If they give you an exploding term sheet, if they’re difficult to work with, if they’re inflexible, intransigent, they’re going to be ten times worse once the money is in.

This is actually where your early-stage investors can be super helpful, because they’ve seen it all. So you can use the nose that your early-stage investors have developed to help pick out later-stage investors.

The nature of human beings is that you come into a company, you work like a dog, you work really hard, and then you get tired and hire someone to do your job. And it always takes two new hires to do your job. Just repeat that ad nauseam, and you end up with five thousand people sitting around at a web app company.

So I think you should hire extremely slowly. Hire only after there’s a burning need for that person. I think you have to be ruthless about firing and trimming the ranks. And I know that’s not popular — I know people don’t like that model — but it’s worked well for me and for us. The founder just has to keep a very, very tight eye on waste. And there’s always waste.

Chapter 9 — mergers and acquisitions

Type of acquisition: Team buy, aka “acqui-hire” Valuation range: Anything from small signing bonus for the founders to $1M to $3M per engineering/product/design employee acquired.

Type of acquisition: Product buy Valuation range: $5M to $500M. Most are in the range of several million to $100M in size.

Type of acquisition: Strategic buy Valuation range: Up to $20B

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Batko OS