High Growth Handbook

by Elad Gil

  Once a CEO has seen a “great” product organization and VP product in action, product management tends to become one of the most valued functions in a company.

  Product management processes

  For each functional area in a company, a small number of processes can go a long way (for example, doing code reviews in any engineering organization). For product management, the key processes to consider as you scale include:

  1. PRD templates and product road maps

  The starting point of building a product is getting agreement and clarity on what to build. While engineering owns writing the technical design documentation for how a product will be technically architected and work, product management should own writing up the set of requirements for the product itself. Who are you building this product for? What use cases does the product meet? What does it solve for and explicitly not solve for? What are the main features and what does the product do? What are the main product dependencies? A PRD may include wireframes that roughly sketch out the product user journey.

  2. Product reviews

  As your organization scales, so too will the number of teams and products. Many companies have a weekly product review meeting. This is attended by a common set of key executives to review progress on a given product and provide feedback on strategy, direction or launch readiness. A set of product teams will come in and present to these executives about their product development or road map.

  Some companies will have projects come in as they get staffed for a baseline discussion on primary objectives, use cases, and road maps. Other companies will only focus the meeting on check-ins for major products already underway.

  Product reviews are typically a mechanism to resolve uncertainty in direction or trade-offs for a given product area, or to provide cross-functional input to drive product direction or course correction. Product reviews may also be used to check in on post-launch metrics or success of the product or check in on user feedback or adoption.

  The teams attending the product review usually include the product manager (who is responsible for organizing and driving the review), the design lead, the tech lead and key engineers, and then other members of the core team needed for a fruitful discussion (this may include sales, BD, support staff, legal, or other stakeholders).

  3. Launch process and calendar

  Some companies bundle the launch process or calendar into the product review meeting. As you scale and the number of projects skyrockets, having a stand-alone forum to discuss upcoming launches becomes useful. Many companies will have an internal web page where each product is listed with a launch date. Next to each project, each functional area can give a binary “ready to launch” or not, and add questions or issues from their function. For example, product and engineering may all think the product is ready to launch but legal may still be “not ready” due to an unresolved legal question. The launch meeting allows the executive team and functional leads to weigh in on whether a product should go out the door or if there are unresolved items.

  4. Retrospectives

  After each product launch a healthy practice is to get the main cross-functional members of the team who worked on it together. The purpose is to discuss what went well and should be emulated for other launches, and what went poorly. For both, you can discuss what contributed to the success or failure mode and how to deal with it for future projects.

  Retrospectives serve two purposes—(1) to codify and understand what best practices are for product development and launch and (2) to allow some of the praise, as well as pressure and disagreements to vent in the open. By having a forum for non-emotional conversations around what went poorly, different teams have the opportunity to learn what to do better next time, but also to address questions or things that did not work head on.

  Product management conversion and training

  When I was at Twitter, a number of the early product managers had been converted to product from other functions (design, sales, business operations, engineering, partner services, etc.). While a number of these individuals ended up having a thriving career in product management, others flailed poorly and had to leave the role once the organization was upgraded.

  Before considering the conversion of a non-PM into a PM role, you should optimally have (1) an interview or trial process to check if someone should convert, (2) core product management processes in place so the new PM will have guardrails on how to function, (3) a VP product in place to manage the individual and ensure they are trained, and (4) some seasoned senior PMs in place to mentor and support the development of the new PM. Just as your company provides some onboarding and mentorship to junior or new sales people or engineers, the same is useful for product.

  “For all hires, referencechecking is incredibly important.”

  —Elad Gil

  At many high-growth startups, there is a common pattern for early product team evolution. This pattern is most common at startups where the founders did not have work experience at a major technology company before starting their own:

  The CEO or one of the founders is playing the role of product manager. As the company balloons they delegate to other employees already in place to take on product management. This may lead to the conversion of designers, business operations, marketers, engineers, or others into early product managers.

  With a lack of product management process and infrastructure in place and no senior PMs around, these individuals are left to fend for themselves. Some may default to playing a project management role versus a product role. For example, their time may get spent on execution and checklists versus setting product vision and road maps or troubleshooting cross-functional issues. This may lead to ongoing discounting of the role in product in the organization until a more experienced organization is built.

  A VP product is hired, restarts the product team, sets processes, and the company integrates product management in as its own discipline. It may take a year or more to recruit and empower senior PMs and to reshape organizational processes to scale the function and its impact internally.

  Google is a good example of a company that experienced this pattern. Among the first product managers at Google were conversions such as Marissa Mayer (a former engineer), Susan Wojcicki (marketing), Georges Harik (engineer), and Salar Kamander (general operations). These four were complemented by some senior product management hires and Jonathan Rosenberg, an experienced VP product who came in and established a number of processes. Rosenberg also implemented a hiring and training program for new grads (the famous Google APM program). Rosenberg was a necessary component to bring stability and best practices to Google product development.

  Product to distribution mindset

  Startups tend to succeed by building a product that is so compelling and differentiated that it causes large number of customers to adopt it over an incumbent. This large customer base becomes a major asset for the company going forward. Products can be cross-sold to these customers, and the company’s share of time or wallet can expand.

  Since focusing on product is what caused initial success, founders of breakout companies often think product development is their primary competency and asset. In reality, the distribution channel and customer base derived from their first product is now one of the biggest go-forward advantages and differentiators the company has.

  This pattern of distribution as moat and competitive advantage was used ruthlessly by the prior generation of technology companies. Microsoft bought or built multiple franchises including Office (Word, Powerpoint, Excel were all stand-alone companies or market segments), Internet Explorer, and other products and then pushed them down common business and consumer channels. Cisco has purchased dozens of companies that were then repositioned or resold to their enterprise and telecom channels.54 SAP and Oracle have exhibited similar patterns of success.

  Of the most recent crop of technology giants, Facebook and Google realized the power and importance of distribution early in their respective li
ves. While Google’s reputation is that of organic growth, in reality the company bought placement on the Firefox homepage, as well as paid hundreds of millions of dollars per year to have Google search toolbars distributed via download with other applications and also paid laptop manufacturers to set Google as the default search engine. Google then used its search customer base to bootstrap other products and distribute Maps (Where2 acquisition55), Gmail, Chrome, Docs (Writely and other acquisitions), and other products. Similarly, Facebook invested heavily in growth efforts and acquired multiple companies for email scraping to be able to find people you should invite to the service (Octazen), low end feature phone distribution (the Snaptu acquisition allowed Facebook to acquire 100 million feature phone users onto its platform who they would not have gotten on the desktop alone), and other approaches. It then used this distribution to help accelerate acquisitions like Instagram to the global market.

  In all cases, the steps to success have been:

  1. Build a product so good that customers will use you over an incumbent. Build a large user base on the back of this first product.

  2. Be aggressive rather than complacent about customer growth early. Outsized companies like Google, Facebook, and Uber were aggressive and calculating about growth from their earliest days. In contrast, non-metric-driven, less aggressive companies failed to reach the next level of success. Too many companies get complacent about distribution if their core product “just works.”

  3. Realize your customer channels are a primary asset of the company. Build new products or buy companies and push them down your sales channel. Uber has been trying to do this more recently with Uber Eats and its Jump acquisition.

  4. Realize that your company will not be able to build everything itself. Buy more companies and push them down the channel. Most companies need to overcome internal resistance to buying companies. A common set of arguments are made 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.

  The smartest companies realize they are also in the distribution business, and will buy (or build) and then redistribute a range of products.

  * * *

  52 Ben Horowitz has a classic post on this topic. See eladgil.com. [https://a16z.com/2012/06/15/good-product-managerbad-product-manager/]

  53 Ben Horowitz has a good post on this, although it is focused on 1990s enterprise-PMs. See link on eladgil.com. [https://a16z.com/2012/06/15/good-product-managerbad-product-manager/]

  54 See eladgil.com for a link to a comprehensive list. [https://en.wikipedia.org/wiki/List_of_acquisitions_by_Cisco_Systems]

  55 See “The untold story about the founding of Google Maps.” Link on eladgil.com. [https://medium.com/@lewgus/the-untold-story-about-the-founding-of-google-maps-e4a5430aec92]

  CHAPTER 8

  Financing and valuation

  Money money money

  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.)

  In the 2000s, the timeline to IPO lengthened significantly with some companies taking up to a decade or more to go public. With this shift in time horizons has come a shift in financing strategies and capital sources to fund them. 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.

  In this section we cover new sources of capital for late stage financings, secondary stock sales and tenders, and initial public offerings. I am not a lawyer and this is not intended to be legal advice so talk with your attorney about these topics.

  Late-stage financing: who should you be talking to?

  As your company grows, the range of investors who can fund your next round shifts. While some venture firms (such as Benchmark, True Ventures, and Upfront) focus largely on series A financings, many traditional venture firms have either expanded their scope to include later stages or raised stand-alone growth funds to fuel later-stage high-growth companies. This includes funds such as 8vc, Accel, Andreessen Horowitz, Bessemer, CRV, DFJ, Felicis, Foresite, Founders Fund, General Catalyst, Greylock, Google Ventures, Index Ventures, Khosla Ventures, KPCB, Lightspeed, Matrix, Maverick, Menlo, Mayfield, NEA, Norwest, Redpoint, Scale, Sequoia, Shasta, SignalFire, Social+Capital, Spark, Sutter Hill Ventures, Thrive Capital, Trinity, USV, Venrock, and others.56 In general, the larger the fund the more likely they are to do late-stage investments.

  In parallel, there is a whole class of later-stage funds that have traditionally focused on the growth stage such as Capital G (Google Capital), GGV, GCVC, IVP, Insight, Meritech, Summit, and the like. Newer funds, like DST, Tiger, VY have also emerged to take an entrepreneur-friendly approach to late-stage investing.

  A more recent development over the last few years is the emergence of public market investors, or family offices, as direct investors in later-stage companies. This includes firms like BlackRock, T. Rowe Price, Fidelity, and Wellington, as well as hedge funds like Point72 and TriplePoint Capital. Some hedge funds, like Viking and Matrix, have focused on life sciences and digital health investments at the later stages. Sovereign wealth funds like ADIA, EDBI, GIC, Mubadala, Temasek, and others have also done direct investments in companies, while Softbank has emerged as an investing giant fueled with capital from Saudi Arabia and other sources. Private equity or crossover funds like KKR, TPG, Warburg Pincus, Blackstone, Goldman Sachs, JP Morgan, Morgan Stanley, and others have set up private tech-specific funds or efforts. A number of billionaires have also started to write large checks from their family offices to invest directly in exciting technology companies.

  Finally, you have additional options later in the company’s life such as strategic investors and angel-led special-purpose vehicles, which are one-off funds raised specifically to invest in your company. The proliferation of late-stage capital sources suggests now is one of the best times for an entrepreneur to raise late-stage rounds.

  Types of late-stage investors

  Type of investor: Traditional VC

  Individual check sizes: Up to $50M in a single round (bigger numbers usually out of a growth fund)

  Valuations for investment: Traditional VCs will not usually lead rounds above mid-hundred-million-dollar valuations. However, a number of funds have now rolled out growth funds that will invest at $1B plus.

  Benefits: May be able to provide operating or scaling advice, depending on VC partner.

  Drawbacks: More likely to ask for a board seat (which can also be a benefit, depending on the VC). If you have already raised money from VCs, may not broaden network much.

  What they will look for: While traditional VCs will be interested in underlying business metrics, they will often be more focused on macro market trends, unit economics, and broader company strategy and differentiation. These investors will often focus on the “moat” the company is building as a point of strategic defensibility and ongoing sustainability.

  Type of investor: Growth/mezzanine fund

  Individual check sizes: $25M to $500M

  Valuations for investment: $100M to $10B.

  Benefits: May be hands-off investors. Depending on investor subtype, may bring different network to the table.

  Drawbacks: May be less operationally inclined, even though emphasis is later stage. May be very numbers driven, so will spend a lot o
f time focused on financials, long term moats, and the like.

  What they will look for: These types of investors tend to be very numbers-driven. They will focus on growth rates, margin, user adoption, costumer acquisition costs, and other key metrics around unit economics and core company metrics.

  Type of investor: Hedge fund

  Individual check sizes: $10M to $500M

  Valuations for investment: Mainly later-stage rounds in the $500M-plus range, although a number of hedge funds have done series A or even seed rounds.

  Benefits: In some cases, may have a great understanding of the industry or market based on their investments in public companies in your space. For example, Viking is a savvy genomics investor. May be valuation insensitive, although this is not always true and depends on the hedge fund. May care less about taking a board seat, which can be helpful if you already have multiple investor board members.

  Drawbacks: Usually don’t understand the challenges and uncertainty of a startup. May send a “low quality” signal to later investors if a hedge fund comes in early (this depends deeply on the hedge fund and how much they have invested in the industry in the past. Some are known as quite savvy).

  What they will look for: Leaders in large markets. These are often financially driven investors who focus on underlying numbers and longer-term cash flows. More likely to think (and assess investment opportunities) like a public market investor rather than a venture one.