Aaron Patzer had come to a crossroads. He knew he was onto something with Mint–but he realized he couldn’t be a successful CEO and also run product for the company. “He’s one of the very few founders I’ve seen who knew it was time to let go and hand things to someone new,” says First Round Partner Rob Hayes, who worked closely with Mint. “He wound up hiring this great guy Aaron Forth, and it helped move the company to the next level. That moment when a CEO gives up their core competency to someone else so they can focus on running the company is the moment they become a great leader.”
Hayes started investing in early-stage startup founders a decade ago, and he always gets the same question: “What should I be doing right now?” Through this experience, he’s narrowed down his answer to three things. Patzer did a brilliant job at all three, and notably the most important thing on the list: Hiring the right people. “The other two are don’t run out of money and always have a North Star,” says Hayes.
While each of these pieces presents a huge challenge, this framework can be very powerful. “Founders who achieve these goals always succeed,” says Hayes, citing Mint’s lucrative sale to Intuit. “If they’re constantly thinking to themselves, ‘Okay this work in front of me… am I actively achieving one of these three things?’ they don’t fail.” We recently sat down with Hayes to delve into these three areas of focus and tactics to win at each one.
Hiring amazing talent is both the most difficult thing a founder will ever do and the most transformative for their business. “If you’re not spending at least 50% of your time hiring–and that’s the minimum–you’re already on the road to failure,” says Hayes. Despite this fact, he’s seen dozens of entrepreneurs avoid this responsibility. And it always comes back to bite them. So why delay?
Concentrating on hiring can feel like you’re slamming on the brakes. “Here you are talking to a bunch of people and none of them are good enough. You begin to flounder and feel terrible,” says Hayes. “This is when you make one of two terrible decisions. You hire someone just to get anyone on board, or you decide to spend no time on hiring at all. You think to yourself, ‘No, I can’t do this right now. I have to build product. I have to put out this fire. I have to tend to this customer. But really you’re making a huge mistake.”
Hayes often meets with founders who say they’re putting hiring on pause for one of the above reasons. “The most effective thing I can do in that case is introduce them to other founders who have been through this,” he says. “They’ll have a long conversation about what it actually means to achieve scale–and they’ll be able to see for themselves that growth is all about hiring the people who can give you momentum. It’s true every single time.”
He also advises reluctant founders to start small with hiring–ideally with hires who can take something off their plate that they really shouldn’t be doing. “I’ll say, listen, you need to hire a part-time controller to deal with your finances. They’ll immediately say, ‘No, I’m handling that right now,’ and I’ll say, ‘Okay, so you’re spending at least a couple of hours this week putting together numbers for your board deck. Is that the best use of your time?’ When you put it that way, it’s clear that it isn’t. There’s a finite number of hours in the day that you can work, and only you can decide how to get the most out of them.”
CEOs need to understand that if they spend their time inefficiently, they’re directly costing the company. So what are the things that someone else can do who will not only be better at the work but cost less? “When they finally hire that part-time controller, every founder is like, ‘Wow this is amazing!’ Then they feel good about moving onto harder hiring challenges.”
Hayes advises founders to begin with allocating one whole month to hiring: “In the broader scheme of things, a month isn’t going to kill you. And if you can get the people you need on board and ramped up, three months from now you’ll have a completely different company.”
In addition to hiring being difficult, some founders get nervous about bringing on people who may be more talented than them. This can be a very dangerous line of thinking, Hayes says. You need to realize that surrounding yourself with smart people will only make you look smarter. “A lot of people don’t get this. They say, ‘I can’t hire a product person because what if they take it in a completely different direction than I would?’ And it’s like, ‘Yeah, they might, and that might actually be the best thing for the company.’”
“I explain this point in terms of leadership–you can’t be a leader without having people around you who you trust to do the right thing. And that means they’re not always going to do it the same way you would. It’s not your job to micromanage them,” Hayes says. “Your job is to get great people and get the best out of them. Even if this makes you uncomfortable, you’ll find that really good things happen.”
If a founder is intimidated or apprehensive about hiring, they need to narrow their focus to the single most important next hire. Think about what is mission critical to the company. “This will probably be some sort of engineer,” says Hayes. “Once you know what you need, spend all of your time hiring that one person. Once founders land someone awesome in a role like this they tend to get into the hiring mode. They see how fast changes start happening and they realize hiring is like an adrenaline shot. So I tell them, just invest the time in making that one hire and see how you feel.”
When Hayes heard that Matt Van Horn was vacating his business development role at Digg, he immediately wanted to connect him with a First Round company. So he introduced him to Dave Morin at Path, whose first reaction was, “I love him, but we don’t need a BD guy for another six months.” But Hayes wouldn’t let it drop. “I told Dave, ‘Look, You’re going to spend longer than you think and find someone whose not as good sometime in the future.’ I’ve seen people in this situation blow past their six month deadline and lose out on potential business.”
When you do the math on an amazing prospective hire, it’s probably worth paying several months of unexpected salary to land incredible talent and jumpstart a part of your business you already know you’ll need. In Van Horn’s case, Morin made the early call and hired him as VP of Business. “When you happen to come across these really good people, don’t let an arbitrary schedule tell you you don’t need them until March of next year. Just get them in the door,” Hayes says. “You’ll get all that time back that you would have spent in the recruiting process too.”
“You should only be thinking about whether people are the best for your particular company. Whether they’re the best depends on your culture, your management style, how decisions get made. Are you a bunch of individual contributors? Are you hierarchical? Are you consumer or enterprise? Are you engineering driven? Product driven? Marketing and sales driven? All of these things matter.”
Even once you find someone who fits all this criteria, you may hit roadblocks. Many of the founders Hayes has worked with over the years have come to him with the same line: “They find someone they love, but say, ‘I could never hire that person. They would never come here.’”
“If you really think there’s nothing you could offer an awesomely talented person, then how amazing do you think your company is? You’re basically saying, ‘My company’s not as good as that company,’ or ‘the opportunity that I have here isn’t as good as the opportunity they have there.’ Well then shit, who would want to come work for you in that case?”
In short, if you can’t convince the people you want that your startup is the best possible opportunity, then you should go find something else to do. A lot of founders get caught up in comparing the package they can provide to compensation elsewhere. But this comes back to finding the right people for you. If someone would rather stick at Google where they have a giant guaranteed income than join a startup with unlimited upside, then they’re not the person you want. You have to let them go.
Remember, once you hire a ring of senior people, you don’t have to do all the hiring yourself anymore. You let them build out their teams.
“People will come in and tell me they need to hire three customer service reps and my first thought is, ‘Why not hire someone to manage those people first?’” says Hayes. “If you do that, you only have to focus on one awesome hire, not three. And by the way, if you bring in a manager after you have those reps on board, there’s all this possibility for conflict that you don’t need.”
For founders, hiring never truly goes away. Once you have your key leaders in place, you still need to make sure you’re giving them the support, resources and answers they need to assemble great teams. You should sit on early hiring loops and make yourself available to close candidates who might be on the fence. But you’re out of the trenches yourself and will suddenly have much more time to focus on other, pressing needs.
It’s true, one or more of your lieutenants may leave, but probably not all at the same time. And when that happens, you only have the burden of replacing one person, not hiring the 15 people that one person could hire for you. One thing Hayes does advise here is finding seasoned lieutenants, and not relying on someone junior to step up if you can avoid it.
“Don’t be afraid to talk senior people into taking a demotion. If they really are excited about your company and the opportunity, they’re not going to get hung up on title,” he says.
One of the youngest CEOs Hayes works with, Brett Kopf at Remind, did a beautiful job hiring a circle of leaders around him to strengthen and build out the business. “He found top people to come in and run engineering, marketing, product, and it’s totally supercharged the company,” says Hayes. “This gave him more confidence. He knew he had never been a CEO before and that there was a lot he could learn from others, and he was open to that. I know that devoting most of his time to hiring upfront and realizing what that could do for Remind was an eye-opener for him.”
Only think in terms of cash.
Hayes advises founders to form a strong cash management plan. Right after a round closes, the champagne’s flowing and everyone’s excited — the last thing you want to do is sit down and chart out how to spend that money over the next 18 months. You certainly don’t want to think about fundraising all over again. But you need to.
“Things might seem like peaches and cream, but you have to ask yourself immediately, ‘What if things don’t go exactly as I expect them to?’”
His advice? Consider putting a venture debt line in place, and if you do, try to forget about it just as fast. “You want it there, but don’t plan to use it,” Hayes says. “It only costs a few thousand dollars to set this up, and hopefully that’s all it will ever cost you, but it will give you peace of mind.”
When he asks to see entrepreneurs’ cash management plans, he often sees this debt line included in runway calculations. This is asking for trouble. “You want the debt there, but you have to know what your business and your spend should look like without it. Pretend the money doesn’t exist. Don’t even talk about it or you’ll treat it like a rainy day fund you can dig into. Don’t let optimism blind you to the need for a rainy day option all the time.”
“Founders should be worried about cash on-hand all the time. Even if employees love you, they won’t stay if you can’t pay them.”
Your cash management plan also shouldn’t include assumed or projected revenue. “I hear it all the time, some founder saying, ‘This is where revenue will start flowing in, so we can do X, Y and Z,’” says Hayes. “I want to see a cash plan that assumes absolutely zero revenue, because you never know.”
One of the best things you can do is share your cash plan (sans debt line and revenue) with your investors and advisors. It builds immediate accountability. You want to make sure that if something happens, someone will be there to ask, “What the hell? What happened?”
“It’s crazy how often people miss this,” says Hayes. “In the early days, know that it’s only about cash. That’s all the money you have to spend and should be spending.”
Every founder should be dilution sensitive–when they raise money, they should be keenly aware that the percentage of the company they and their employees own has gone down. But this sometimes leads to bad behavior.
“Because of this, everybody ends up waiting until the last possible minute to raise money,” says Hayes. “They want to achieve as much as they can so that they can get as much as they can out of a round. They assume if they go out and raise six months before they absolutely need to, they’ll end up leaving money on the table. Who knows? Maybe they’ll do great things in those months and they would have gotten a much higher valuation. This is how startups end up with really short runways.”
“The thing is, funding cycles in Silicon Valley don’t care about what’s going on inside your company.”
There are a few pitfalls you expose yourself to when you wait.
“The world can change,” says Hayes. “You go another six months, do amazing things, but the fundraising environment turns–in which case you’re in serious trouble. Even if you do raise money, you’ll raise less for more dilution than you would have six months beforehand.”
The other thing that can happen is that you do everything you said you were going to do, but investors don’t care. “Investors tend to think in terms of hurdles, and there’s hurdles that matter and those that don’t,” he says. “You could wait for the next version of your product to come out before raising, for example, but then you realize investors only care about how many customers you have. You misjudged what would get you that uptick in valuation.”
Either that, or you simply fail to do what you set out to do before your next fundraise. Now you’ve generated your own bad signaling, and of course people are reluctant to invest. You’d have been better off raising on the strength of this plan before you started it, Hayes says.
“Sometimes the promise of what you want to do is more powerful in a fundraising conversation — it becomes more important than what you’ve already done,” he says. “Look at the early days of Twitter. For many months the company grew quite slowly. If they would have told investors, hey wait six months and things will be going great then, they would have cratered. But they got people excited about the vision. That’s why people invested.”
If you’re fortunate enough to generate interest before you need the money, you’ll probably nail down a great valuation and get the benefit of the doubt on what you accomplish in the next months before you would have planned to fundraise. If the money is being handed to you, take it, Hayes says.
“Don’t waste time. If the money’s there, take it. Every founder will tell you that the only thing they hate more than hiring is fundraising. It’s terrible. It’s a long series of no’s followed by an eventual yes, maybe,” he says. “Don’t underestimate how hard this will be. When you’re getting no after no, you’ll feel like the worst person on earth. You’re horrible. Your company’s horrible. People hate you. That’s how bad it feels. So if there’s any way for you to kickstart or shorten the process, do it.”
Not only will taking this funding extend your runway and help you dodge desperation, it will reward you with a ton of time you would have spent away from your company worrying exclusively about raising. “I’ve been to at least 25 board meetings in my career when a founder has said, ‘Hey our results this last quarter weren’t great because I was spending all of my time fundraising.’ And it’s true–they really do have to let the company go and make raising their full-time job. It’s time away from building your team and your product.”
Leah Busque at TaskRabbit is one of the most prudent entrepreneurs Hayes has worked with when it comes to fundraising.
“Two and a half years ago, there was all of this crazy buzz around TaskRabbit and all these investors were around the table, but Leah didn’t really need to raise money at all,” he says. “That didn’t stop her from getting out there and raising as much as she could and she did it with very clear intent: ‘This is not 18 months of money,’ she said. ‘This is three years’ worth of money.’”
Since then, this runway has given her and the company the flexibility to tinker with its model in a good environment. “She’s been able to perfect the business without worrying about where their next million dollars is coming from. The work TaskRabbit is doing today is much different and much better than what it was doing when they raised. If she had waited until she needed the money, the company probably wouldn’t have had this room to experiment.”
“Ideally, every founder is excited to get out of bed because they believe they’re doing something big and important in the world,” says Hayes. “They need to know what this is–to have this kind of North Star to guide them. That’s what’s going to give them the energy they need and the ability to hire all these people and convince all those investors. They have to make all these people feel like they’re going on the same journey.”
If you can’t define your North Star in words–brief, compelling words–you aren’t going to be able to do any of this.
“When I look at Will Marshall and Robbie Schingler’s vision for Planet Labs, it has always been about solving massive commercial, environmental, and humanitarian issues first,” says Hayes. “Yes, they build and launch satellites, but they don’t think of themselves as just a satellite company. Instead, they’re a company that harnesses space technologies to solve very real problems we face on Earth today. Now that is a North Star (no pun intended) that can keep a company focused for many years.”
Similarly, Brett Kopf at Remind started the company with the very ambitious goal to connect every student, teacher and parent in a secure and safe communication network, and in doing so, improve the quality of global education. That’s a massive objective to start with, but it’s played a vital role in inspiring key hires and investors to work with the company.
The takeaway, Hayes says, is that none of these founders–or the many others who have accomplished great things–got to their stated destination in their second or third year, much less their first. They simply knew where they wanted to go, and found people who were aligned with that mission to start the voyage.
“The opposite of this is playing small-ball, saying, ‘Oh, I’m only going to talk about our vision for the next year because we want to stay really grounded.’ If you do this, once you achieve that vision, you’re going to come to this grinding halt, look around and wonder, ‘Now what?’” he says. “Hitting a point like that is wrenching for a company. You go through this process of, ‘Okay, what the hell do we do now?’ If you can’t come up with something new, growth is going to flatline. Even if it’s a $100 million business, if the company is not growing things will stall. People will start to leave. It’ll be over.”
Hayes is a big believer in startup leaders regularly communicating with their entire companies. There should be several different channels of communication where the tiers of seniority cease to matter. All-hands meetings, one-on-ones and stand-ups are several of these tools. Regardless of format, every single one of these conversations should allude to the company’s North Star, he says. People need to be reminded every week, especially as growth accelerates, what everyone should be striving toward.
“As a founder, part of your job is making the rounds and asking people, ‘Hey, why are you doing that? How is that going to get us to our goal?’ You want to start meaningful dialogues about this, not just so everyone keeps pulling together, but to make sure you’re headed in the right direction.”
Anyone, if asked, should be able to say how what they’re doing in the moment or that week is getting the company closer to the bigger vision. If they can’t, then it’s only a short time before they’ll lose interest in their work and the company. Their role will start to seem small and less significant. Whether you’re a customer service rep or the VP of Engineering, you should be able to explain how every sprint or presentation or call represents another oar-stroke supporting the cause. But it’s up to the founder to make sure this is the case.
“One thing to remember is that the North Star, by definition, is way out there,” he says. “It’s really small and fuzzy–sometimes you know where it is roughly but not exactly. If your company’s North Star is like that, that’s okay. That’s how it’s supposed to be. That’s why you surround yourself with brilliant people you trust, who can help you locate and move toward the right star, even if you have to turn a little this way or that.”
Good North Stars make remarkable things possible. “Just look at Microsoft. In 1978, they said, ‘We’re going to put a personal computer on every desk,’ which at that time was absolutely unthinkable, right? What an amazing North Star. And they did it. They did what everyone at the time said would be impossible because they had a goal that was big enough, and they kept running toward it,” says Hayes. “The problem is they landed on that North Star 30 years later and didn’t know what to do next. They didn’t identify that next star.”
Microsoft is both an example of how effective a North Star can be, and how important it is to always keep it out in front of you. Once you find yourself getting close, perhaps just a year or months away, don’t get blinded–you need to figure out what the next great journey will be or you risk stagnating–or missing out on new, enormous opportunities.
“Having a North Star is incredibly important,” says Hayes. “But perhaps the more significant lesson is that losing that star can totally destroy you.”
This article originally appeared in First Round Review and is reprinted with permission.