Interview with Allen Lau of Wattpad: On evolving from entrepreneur to leader.
Allen Lau is the CEO and co-founder of Wattpad, a service that allows people discover and share stories about the things they love. Wattpad stories range from romance to sci-fi, and everything in between. More than 45 million users from all over the world interact with Wattpad every month. Entertainment companies are now working with Wattpad to adapt stories into movies, TV series, and books. Prior to Wattpad, Allen co-founded and sold FeedM8, a mobile advertising company. He also previously co-founded Tira Wireless, where he helped leading brands optimize content for mobile delivery.
His key ideas?
- A growing business needs both vision and purpose.
- Leadership style needs to change as the business grows.
- Pay attention to the rule of ‘3 and 10.’
- Entrepreneurship involves constant learning and evolution; you will learn a new job every 12 months.
- Company culture starts from the top.
Q: What were you like as a youngster growing up, and what milestones, significant events, or critical learning experiences stick out for you, that helped shape who you are today?
A: I think I was an introvert. Even now I still believe I am an introvert. I’m just a bit more extroverted than before. I was kind of nerdy, geeky. I loved science, physics and math. Like physics courses calculating how planets circulated a star, how fast they rotate and all those sort of things were fascinating to me. Quantum physics was one of my favourite subjects in university. But when I was in university I started to realize that perhaps as good as science is, it was not that practical for me. Teaching was something that I knew I didn’t want to do. The most common path for being a scientist is to be a professor or a teacher.
Around that time, computers started to become popular. I can’t remember how old I was, but when I was 12 or 13, my father bought the Apple II. It was the first mass-market computer. Then he bought an IBM PC clone. That kind of opened up my eyes, I could start to do things without any permission. I could just create my own thing.
In the end, I chose engineering when I went into university and learned a lot about computers. That changed my life, and now I am running a technology company. Without that background it would have been very hard to do.
I would also say that during my first job at IBM right after graduation, I knew that it was the wrong type of company for me. So, I joined a start up company and the contrast was so huge I never looked back. I would never work for a large corporation.
Tell us about your path to becoming the CEO of Wattpad. How did you get to where you are today?
It wasn’t like I had an aspiration to be the CEO. My aspiration was to create something, to build something. If you look at my blog, I named it “Making Things Out of Nothing.” That truly describes me.
I started two other companies before I started Wattpad. And before that I worked for startups. I also worked for an incubator to help other people start their companies. So starting things was my thing.
You know, our prototype evolved in to a product, the product evolved in to a company, and the company evolved in to a business. We went through that evolution. So the path from a founder to a CEO… those are very different roles, even though I am both the CEO and co-founder. Founding is very different than running a business.
The starting point was the idea. In 2002 I wanted to build a mobile reading app for myself because I was so busy and I wanted to bring my reading material with me. But my phone was too crappy at the time, and I didn’t really pursue the idea. When phone capabilities became much better in 2006, I resurrected the idea, and coincidentally my Wattpad co-founder Ivan, came out with the same idea without us knowing. Once we discovered that overlap, it made sense for us to join forces and start a company together.
But at that stage it was still a prototype. It was just an idea. We didn’t know that anyone would use the prototype. So we launched it, and we got a few users, but very minimal. Maybe close to 1000 in the first year, but it was miniscule. It was a very tough first year.
So, at this stage, is the product working? Yes. Does it have the right product market fit? Probably not. So we evolved for another year, continuously improving the product and then slowly growth accelerated to the point where we had product-market fit.
So first we evolved from a prototype into a product. Once we had a product we went out and raised some angel funding. After 3 years, it was still only Ivan and I. We knew we had product-market fit; there were hundreds of thousands of people using it already. But it was still small, and we knew it could be bigger.
With the money we raised we hired some people, to scale faster. We grew the company from the two co-founders to 6 or 7 people. Including co-ops and interns it was closer to 10.
By then it was no longer is it just a prototype, no longer just the product. I had an early stage of a company now. We had to hire people. We had to think about payroll, which we never had to think about before. We had to think about retaining people. These were the company chores, not in a negative way — they were just things outside of the product that we had to worry about.
I had no business model, because we weren’t making any money — we just had an app or a website that people could use. It was not a business since there was no money. But we had a company!
We evolved for another year or two, and by then the user base was much bigger. We had to raise more money, so we could make this company in to a real business. That was another step.
Eventually we had millions of people that all enjoyed using the product. They were coming back weekly or daily or hourly, and they were super passionate. But we were not a non-profit, and we had to figure out how to generate revenue, to run a sustainable business.
And at the same time we had to stay true to what we were trying to build. That is helping storytellers to find their audience, helping storytellers to potentially make a living, and helping the audience to find great stories for free. A lot of people don’t have access to written work because they cannot afford it, and when we provide something that is very meaningful, we change the lives of the audience and the storytellers. The question was, how can we change this into a sustainable business while staying true to our purpose?
I’ve heard you mention the importance of vision and purpose when starting and running a business. With Wattpad, did you create a vision/purpose at the start of your journey, and then follow it to build your business? Or did the vision/purpose emerge and evolve as the business grew?
There are some businesses where the purpose is clearly articulated from day one. Then there are businesses that are great but there is no purpose, the sole purpose of the business is to make a ton of money. We are neither.
The starting point of the business was that both Ivan and I love to read, that is why we built a reading app for ourselves. We were passionate about solving that problem. I think it’s a great problem to solve. The purpose of the company was to help people have access to the written word more easily.
But over time, we started to realize that we can actually help the storytellers to find the audience that they would otherwise be unable to find. We democratized the process. And we changed so many storytellers’ lives. That purpose became more articulated over time. Could we articulate it on Day 1 as well as we can today? No I don’t think so. But over time that purpose became more clear to us.
The purpose and the vision, they intertwine; they kind of support each other. A vision without purpose is a business without a soul. Having purpose without vision, you are kind of wandering aimlessly.
What is so powerful about the combination of having great vision and purpose in a business? It motivates you every day to come back to work. It’s a long journey but you know where your destination is. You are not wandering aimlessly.
And it doesn’t just apply to the founders, it applies to the 120 people that work here every day. They come here because it is an exciting business. There’s nothing wrong with that, but that is not the only way to motivate people. If our sole purpose is to make a ton of money then you attract a bunch of mercenaries, and it may not be a good thing.
How would you define your own leadership style? What principles do you try to keep in mind as you continue to lead your large and talented team?
This also evolves over time. When it was only the two co-founders, I just had to lead myself. My left-brain talked to my right-brain and I just had to make sure there was a cable between Ivan’s head and my head. That’s super easy. There’s no need for any leadership.
When we evolved to 5 or 10 people, things were a little bit different. We were very small — so many of the employees were interns and coops. We couldn’t afford very senior people. We had a lot of talent, but they were very junior people. ‘Micromanage’ is the wrong word but you had to be very explicit in telling them what to do, because they were inexperienced.
As the company grew the mix of the people in the company also changed — we started to add more leaders. We scaled the company by adding better and larger leadership. When we crossed the 20 people threshold, things changed once again because I could not be involved in every decision any more. If I got cc’d on every decision I would not be able to keep up, let alone help them make a decision.
By that time things started to change, I had to let go of some things as we brought in more leaders. Now I was saying “hey you take it and run with this group or function.” The communication or leadership style had to change from telling people exactly what to do, to saying “this is what we need to achieve, and this is why, and you go figure it out.”
As the company grew even larger, we no longer had a single layer of leadership anymore. The leaders had managers who reported to them, and individual contributors reported to the managers. So now not only do I have to communicate with the leaders, I have to make sure that the vision, the purpose, and the strategies of the company are crystal clear — from the CEO to the leaders, to the more junior managers, team leaders, and individual contributors.
I have to not only communicate that, but I have to build a communicative infrastructure in the company so that all of those things can be communicated as quickly, and as clearly as possible. That becomes a different problem yet again.
So it’s a long answer to your question. The leadership style evolves over time, and in different stages I have to act differently.
One piece of advice I got from an article I read about Rakuten’s CEO is a rule called ‘3 and 10.’ Every time the company crosses the 3 and 10 threshold everything is broken. When we grew from a single founder to 3 people, everything was broken so we had to fix it. When we grew from 3 to 10 people, everything was broken, so we had to fix it. It was working for a while until 30 people, and then it was broken again and we had to fix it. The company kept growing to 100 people, and at 100 it was broken again, so you fix that. At 300 people you will have to fix it again. At 1000 people you will have to change everything again. I absolutely experienced that as well.
Did your Chinese cultural heritage has influenced your leadership style?
Yes and No because I never lived in China. When I lived in Hong Kong it was a British colony, it was before the turn over, so I never spent a day living under Chinese rule. My childhood was influenced a little bit by British and Chinese culture, as a cocktail. I came here when I was turning 19, I studied in university here, and have lived here for over 25 years. I would say that I’m more Canadian than Hong Kongese. I’m not saying that I’m pure 100% Canadian. I never understood what a teenager would go through living in Canada, that was never part of my life.
I would say that mixture helped me to see things from a different perspective. I understand why people would act differently if they have a different ethnic or cultural background. I am more sensitive to that than most people.
Also Wattpad is a very global business, our users are geographically diverse. Even if you look at the 120 people here, many of them, I would say more than half of them are bilingual or multilingual. We have a mixed cultural background of employees here. My background has given me the unfair advantage to be able to manage so many groups of people and a culturally diverse community.
As you’ve grown as a business, what have been some of the biggest talent management challenges that you’ve faced at Wattpad? How did you address them?
We have amazing talent in Toronto, but there is no such thing as having too much talent. The startup or tech ecosystem here is so vibrant now. And unlike many other industries, supply and demand is imbalanced; we have more demand than supply. Retaining talent, and grooming them is important.
Some people are very senior here, but some are very junior. So how can we provide a career path to retain and groom them, so they become better leaders and individual contributors?
Keep in mind not everyone wants to become a leader. The top data scientists for the company have no direct reports and yet they can be very senior. So how can we structure the company so it provides the right career path and so we attract and retain the best talent? This is always top of mind.
In May, you gave a presentation at TechTO that covered two important topics, both of which I want to ask you about. First, you talked about the evolution of an entrepreneur, and how as their business grows, that they have to transform themselves into leaders. You emphasized what a challenge this is. You’ve talked about this already but is there anything else you want to say on this topic?
The most important thing I realized is that I was getting a new job every 12 months. Early on I needed to be an idea person (versus a product person).
An idea person is a lot different than a product person. You can have the greatest idea, but how can we turn this idea into something useable by other people? That’s a completely different skill set.
Moving from a product person to a company builder, who’s hiring, retaining people, structuring the company, creating the processes — that is another very different skillset.
And then lastly, turning that into a business, through finance, fundraising, investors, finding capital, etc. What is the difference between revenue and profit? You’d be surprised how many people are confused about that! The skillset requirement is very different at each stage.
That’s why unfortunately a lot of founders who were very good a certain stages, may not be the most effective leader at later stages. Perhaps it’s life experience, I’m in my 40s, I’m old, I’ve worked for different companies. I have seen other companies fail. I can observe that as an outsider, so I have self-awareness of what I may be facing ahead of me. That’s helpful.
That’s why it is very hard for a very young founder to go all the way, because sometimes experience does help. It doesn’t mean that the founder is not great or smart. But there are some organizational problems that they will have never seen or experienced. And so they may not know how to solve the problem.
In your TechTO presentation you also described entrepreneurship as a life-long learning process. Can you explain what you meant? Why are the two so closely linked?
Smart people will never make the same mistake twice, but there will still be new ways to make new mistakes. Because the skillset requirement is so drastically different across stages, most founders may not have experienced all the nuances at each stage (unless you have started 10 companies, and then you have probably seen it all). Everyday there are new challenges that you meet, and everyday there are new challenges that you have never faced before. The ability to learn to detect the problem is a skill by itself; to realize that there is a problem and there are ways to optimize this. Perhaps something is already good but you want to make it better. That is a skill that you have to acquire everyday.
What do you do for your own professional development, and to ensure that you are learning the new skills necessary to make your business successful?
The good news is for most challenges, someone has faced something similar before. I just have to find that person and figure out how they solved that problem, and apply it in my context. What worked in other companies may not work here and so I have to apply my context.
So many people are sharing their experiences on the Internet today, unlike 10 or 20 years ago. There’s almost too much advice. Spending some time every day to find an article, a blog post to inspire myself, helps acquire new skills even passively in the back of my mind. It may not be directly applicable today or tomorrow, but perhaps a year from now I will be facing a challenge and will remember that I read the article. I do this a lot. I spend at least half an hour a day reading blog posts or articles to help me be more prepared for the future.
Having peers is super helpful too. There are lots of companies, even in Toronto, that are in the same stage as we are. Their CEOs have probably faced the same problems before. Having a group of peer CEOs where we can rely on each other to help us solve problems is helpful.
I have a group of CEOs, where we meet every two months, we lock the doors and turn off phones for 3 hours — it’s like Vegas, what we say in the room stays in the room. It is a free environment where we can share some of our challenges, and I can utilize the power of my peers to help solve my problems and vice versa.
All the members come from similar sized tech companies, and they’re local. Seven or eight of us started this forum, and we realized that it is a great idea. And now there are tens of these types of groups. There are at least 200 founders in this co-founder city initiative. We have a standard process I described, meet at whatever frequency you want, confidentiality, no phones for 3 hours. We now have maybe 20 groups across Toronto and Waterloo right now.
The level of management expertise and skill at startups has been in the spotlight lately. Companies like Zenefits and (here in Toronto) Joist have attracted some negative publicity. The recent book ‘Disrupted’ leveled criticism at the management of Hubspot. What do you do at Wattpad to ensure your managers and leaders have all the training and preparation they need to build this company for the future?
Of course it’s a challenge. I can’t comment on other companies. As an outsider we have a different perspective. Unless I have both the insider and outsider view, I don’t have the complete picture.
One thing that I would say is my personal experience is that the company culture starts from the top. The founders’ influence on the company culture is over-indexed. Say if the founders were jerks, the company would have a very aggressive, yelling-is-the-norm kind of culture. It is fascinating to see the correlation. It’s like the founders’ DNA can replicate across the company. Part of the reason is that the founders might hire people who are compatible to their own culture and that multiplies across the entire organization. Before you know it, you have 100 or 1000 people with a very similar mindset; that’s pretty hard to change. So that’s very important: the purpose of the company, the company values, what’s important to the founders, what’s not important. That has to replicate and amplify over and over again so that the culture will be maintained.
For us positivity, user-obsessed, and teamwork qualities are very important. From a hiring perspective we have a ‘no jerk’ policy. As a candidate you may check all the boxes from a technical stand point, but if we know that you would create a chemistry problem then we would gladly say no.
The 3 and 10 rule applies here as well. For a smaller company, you can’t really afford to train. You almost have to hire someone who is exactly what you’re looking for. For a bigger company, training is very important for the company to continue to scale. We are kind of in the middle. We built a very strong culture. We have a nice collegial working environment. We provide career paths to many different people. If you want to be a leader, we can help you work towards that. If you want to be an amazing individual contributor, we can help you work towards that too. It’s socially acceptable to transition from a leader to an individual contributor and vice versa. Those are two different paths, none is superior to another.
These are all emerging issues. They weren’t issues when we were at 50 people; they become very important at 100 people. We are building that training, leadership, and grooming process right now.
You’ve had some great investors over the years — including OMERS Ventures (also invested in Shopify) and Union Square Ventures (also invested in Twitter, Foursquare, and Kickstarter). What were the most important lessons you learned about running your business from them?
Investors have a portfolio, so they can see themes more easily. They may not be able to help me solve a very technical problem, because they are not fully an insider. They are an insider as much as possible, but they are an outsider because they don’t run the company, they don’t see the day-to-day interactions. On a tactical level they don’t have the complete picture. And they shouldn’t. As an investor you shouldn’t be in the weeds. As an outsider they can observe all the themes, they can help me avoid some of the landmines ahead of me. They can help me solve certain issues.
Something very powerful is if an investor says that they have 40 companies in their portfolio, 10 at my stage, 8 facing the same problem, and this is how they solve that problem. Then I don’t have to reinvent the wheel.
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