Presentation Dave Kellogg gave at SaaStr Europra 2022 in Barcelona on the top 5 mistakes in scale-up phase for startups

1. The Top 5 Scale-Up Mistakes
(And how to avoid them)
DAVE KELLOGG
EIR, Balderton Capital
www.kellblog.com
@kellblog

2. Former Operator
ε CMO 3x for 10+ years
ε CEO 2x for 10+ years
ε Enterprise, B2B SaaS
Including:
ε Business Objects, Host Analytics,
MarkLogic, Alation (gig)
Advisor, Angel, and Director
ε Advisor 18x+
ε Angel 20x+
ε Non-exec director 7x for 10+ years
Including:
ε Numerous Balderton companies
ε Nuxeo, Pigment, Recorded Future,
Scoro, Alation, Bluecore,
GainSight, MongoDB, Tableau
Who Is This Person?
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3. Who Is This Person?
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4. You’ve got product-market fit (PMF)
ε The Andreessen test
ε The Sean Ellis test
You’ve identified a buyer (persona) to sell to
And a problem you solve for them
You’ve sold maybe $2M to $10M in ARR
You’re no longer in founder-led sales
The product is no longer MVP
Congratulations!
You’re exiting start-up and entering scale-up
Image source: https://nzrise.org.nz/9-rules-to-interrogate-hockey-sticks/ 4

5. 5

6. How hard should you step on the gas? When?
Do you have the right people on your team?
Do you have a repeatable sales formula?
Do you have the right support and enablement?
What’s your holistic plan for entering international markets?
What shape will you be at $100M? Do the e-team and board agree?
How do you stay focused in an idée du jour environment?
When should you make your second album? Do you need one?
What’s your product plan and when do you start worrying about technical debt?
Well, Maybe Not
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7. Now, You Have Different Questions
(But they’re still hard)

8. 1. Prematurely accelerating go-to-market (GTM)
2. Putting (or keeping) people in the wrong roles
3. Losing focus
4. Messing up USA expansion*
5. Accumulating debilitating technical debt
The Top Five Mistakes in Scale-Up
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* This presentation is intended for a European startup audience

9. By far the top scale-up mistake
Causes:
ε Prematurely thinking you have repeatability
ε Board pressure
ε Model-induced hallucination
Consequences:
ε Dead VP of Sales; wounded founder/CEO
ε Millions of dollars burned
ε Loss of investor confidence
ε Reduced employee morale
Mistake 1: Premature GTM Acceleration
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Catching air on
the lifecycle curve
World’s worst reason to hire a seller
“If I don’t hire we have no chance of
making it, if I do then we might.”

10. How Much Does a Seller Actually Cost?
Direct Costs
ε $300K OTE
ε $180K for 2/3rds of an SC
ε $60K for 2/3rds of an SDR
ε $60K for 1/6th of a manager
ε $100K of marketing for 25-40 oppties
ε $700K = direct cost of carrying the wrong
person for a year
Opportunity Costs of a Bad One
ε Deals lost that you could have won
ε Flagship clients on competitor’s website
ε Damage to your reputation
ε Impact on coworkers
ε “Impaired, but contributing” – wrong
ε Deals lost, resources wasted – right
ε Test: are you proud they represent you?
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11. “You can never fire someone too early.”
ε By the time you find out there are problems, a lot of damage has already been done
Do you even think about firing your best employees?
ε If you are thinking about it, the employee is definitionally not a star or superstar
In countries where terminations are difficult by law
ε Be extra careful on the initial hire (background/profile, references, work test samples)
ε Setup formal review prior to expiration of probation period
Aside: Remember the Old VC Adage
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12. Be realistic in self-assessment
ε Advisors and directors can help
Hire according to empirical indicators, not the financing plan
ε Indicators: quota attainment, forecast accuracy, pipeline growth and coverage
ε Beware: pipeline discipline, pipeline chicken or egg problem
ε Qualitative: does the VP of Sales want to make the hires?
ε This is intelligent use of capital, not a bait-and-switch on your investors
Learn what repeatability looks like so you can know how close you are
Avoiding Premature GTM Acceleration
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13. The Search for Repeatability
What is it?
How do you know when you have it?
Conceptually, it’s simple
ε Given standard inputs,
ε And a standard process,
ε Do you get a standard output?
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14. Defining the Repeatable Sales Process
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Standard Process
• Tools and ongoing training
• Management and cadence
• Sales process and methodology
Standard Inputs
• Profile/background
• Hiring criteria
• Onboarding
Standard Output
• Ramping
• Productivity
• Attainment (X% at Y%)
See https://kellblog.com/2021/01/14/the-holy-grail-of-enterprise-sales-defining-the-repeatable-sales-process/

15. Nostalgia can be pretty nostalgic
ε “In the good old days, we had 80% of our sellers at quota every quarter.”
ε “Back at BigCo, if you missed quota two quarters in a row, you were summarily fired.”
Such comments have little value
ε 80% at 100% on the year is a maybe, 80% at 100% every quarter, NFW.
ε At that time BigCo was a $500M category-leading company growing at 50% -- not our situation
ε If they were really firing everyone so quickly, the analysis is likely survivor-biased
My take
ε I like 80% of sellers at 80% of quota on the year, and even that’s a high bar
ε In emergencies say this: “I can fire everyone who’s missed two consecutive quarters, but then we’d
have no salesforce. And that would seem problematic.”
Quick Thoughts on Attainment
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16. In start-up and scale-up companies there are two types of people
ε Figure-it-out: give me a telephone and a machete and I’ll be fine
ε Scale-it-up: let’s define and execute a process and I’ll be fine
The people who got you from $0M to $10M are figure-it-out people
The people you need from $10M to $100M are scale-it-up people
They’re different
ε They don’t respect each other
ε They often don’t even like each other
Mistake 2: People in the Wrong Roles
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17. Example: Figure-It-Out vs. Scale-It-Up Sellers
Figure-It-Out Sellers
ε Love hard problems
ε Like unanswered questions
ε Get bored with repetition
ε Feel constrained by process
ε Want to prove value of product
ε Quit slowly if you keep them too long
ε Artisanal
ε Give me a telephone and a machete
Scale-It-Up Sellers
ε Love making money
ε Want a playbook
ε Want to lather / rinse / repeat  $$$$
ε Want a defined process
ε Want to prove they can do big numbers
ε Quit quickly if you hire them too early
ε Industrial
ε Give me a patch and a playbook
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18. The Hardest Balance
ε Loyalty is important, but winning is
your paramount responsibility
ε You must build a team that’s a mix of
veterans and up-and-comers
Strike a balance
ε Truly value people
ε Re-organize periodically
ε Assign cross-functional OKRs
ε Re-deploy people to matching roles
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Loyalty Scaling

19. Building and Scaling are Different
Building
ε Small number of amazing, creative,
unstoppable people
ε Solving problems
ε Quality = individual excellence
ε Motto: amazing people can do anything
ε Investors: talk about your amazing people
ε Blazing trails
Scaling
ε Small number of amazing process- and
infrastructure-oriented leaders
ε Leveraging a large number of great but not
necessarily amazing people
ε Building systems and processes
ε Quality = process
ε Motto: we help great people do amazing things
ε Investors: talk about your amazing machine
ε Building roads
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20. ε Other than that, I mean, how are we going to grow?
ε What about new, semi-relevant competitor X?
ε Are we moving to usage-based pricing?
ε Should we acquire company X?
ε Should we have an app store?
ε Do we do ABM?
ε Should we start a business unit?
ε How are we expanding channels?
ε Do you have a second album?
ε Should we start a run-rate business?
ε Should we do PLG?
Mistake 3: Losing Focus
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The Great Irony
Despite all the focus on
the machine
You never get to say,
“uh, we’re going to do
more of what we did
that got us here.”

21. Remember, They’re Trying to be Helpful
(Most aren’t trying to distract you; they’re just throwing out ideas)
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22. Throwing an Occasional Bone Doesn’t Work
Over My Cold, Dead Body
ε Paint it red and rent it
ε Become vertical search engine
ε Launch video search service
ε Fact-extract the Twitter firehose
ε Do what killed competitor ABC
ε Replace Oracle in structured apps
ε Sell a virtual appliance
ε Build a finance solution
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If I Run Out of Excuses
ε Open source it
ε Implement SQL
ε Change to subscription pricing
ε Focus on enterprise search
ε Start an email search application
ε Become Bayesian
ε Launch enterprise attack
ε Switch to subscription
See https://kellblog.com/2017/03/01/the-dogshit-bar-a-memorable-market-research-concept/

23. Your Second Album Can Likely Wait
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24. How To Stay Focused
ε Remember your company is not a fund
○ Investors get diversification by investing in N of you
○ You should probably not be seeking diversification, especially not because of investors
ε Don’t get bored with your own message
○ You’ve been saying it for years, but what percent of people have heard it?
○ Benioff has been selling cloud for two decades and we’re a long way from done
ε Focus your energy on winning the market
○ Be the best in the world at what you do
○ Measure market share and penetration
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25. Delaying expansion due to threshold anxiety
Failing to adapt structure and process as you expand
ε Opening the USA usually changes your entire company, not just one part
Hiring the wrong people
ε Europeans can’t read USA resumes (“these people are Gods”)
Underestimating the importance of sales & marketing
ε Tattoo this to your brain  best product doesn’t necessarily win
Looking and sounding too European
Mistake 4: Messing Up USA Expansion
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See https://www.balderton.com/build/the-top-5-mistakes-european-technology-startups-make-in-us-expansion/

26. To go public in 2021, it took 11 years, $200M in burn, and $225M ARR
ε That’s a long time to be focused on scaling go-to-market
That’s an eternity in the technology world -- in 2010:
ε AWS was 4 years old (and a $500M business)
ε New Relic was 2 years old
ε MongoDB was 1 year old
ε React wouldn’t be developed for 1 year
ε Terraform and Kubernetes wouldn’t be released for 4 years
Mistake 5: Accumulating Debilitating Technical Debt
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See https://www.meritechcapital.com/blog/2021-review-select-saas-ipos on select cohort class of 2021

27. I Have One Thing To Say About Technical Debt
That shit will kill you
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28. Managing Technical Debt
ε Second only to overall product direction, the
most important CEO-level product priority
ε Hire and empower strong architect(s)
○ As feared as they are respected
○ Separate role from VP of Engineering
ε Do trust releases once every 4-6 cycles
○ Architects assume PM duties in prioritizing backlog
○ Features added only if they also reduce debt
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Marley’s Chains

29. Ingore Technical Debt
Accumulation at Your Peril

30. Here’s how to avoid the five most common scale-up mistakes:
ε Understand repeatability, accelerate GTM proportionally to amount you have
ε Build a mixed team of loyalists and new hires, reconfigure it periodically
ε Stay focused on winning in the market, never try to throw a bone to someone
ε Start in the USA early and build a holistic attack plan
ε Hire strong architect(s) and empower them to manage technical debt strategy
Summary and Conclusion
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31. THANK YOU