High Growth Handbook: Scaling Startups From 10 to 10,000 People

by Elad Gil

Since 2004, I’ve participated in nearly every stage of the startup life cycle, as either an operator or an investor. I joined Google somewhere between 1,500 and 2,000 employees and left when it was at 15,000, close to four years later. I then started a company, Mixer Labs, that Twitter acquired when Twitter was around 90 people. As a vice president at Twitter, my job was to scale the company from 100 to over 1,000 people. I left two-and-a-half years later, when Twitter hit roughly 1,500 employees, and then stuck around as an advisor to the CEO and COO for another year, by which point the company had reached roughly 2,500 people. At Twitter, I was involved at various times with product, platform, internationalization, user growth, M&A, recruiting, organizational process, culture, and other aspects of scaling. I am also an investor in a number of breakout or high-growth companies: Airbnb, Coinbase, Gusto, Instacart, OpenDoor, Pinterest, Stripe, Square, Wish, and others. In some cases I have helped companies in meaningful ways, in others I have been a mere observer along for the ride.

Once there’s product/market fit, then 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. And that company tends to be all the value that gets created in that sector, from a return standpoint. That company also tends to have all the resources to do everything else that they want to do, including build new products. So winning the market is the big thing. The thing that is so essential that people need to understand is that the world is a really big place. The good news is that markets are bigger than ever. There are more consumers on the internet than ever before. There are more businesses that use software than ever before. There are more sectors of the economy where this stuff all matters. And so the markets are bigger than before. But that means that the challenge of building an organization, a model, and a distribution capability that can actually get the product to all the customers is an intense challenge. And of course the personality type of the technical founder who creates a breakthrough product, they don’t necessarily intuitively understand that that next part involves taking down the market.

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. That has led to the rise of these giant companies over the last fifty, sixty, seventy years, like IBM, Microsoft, Cisco, and many others.

One of the things you see crystal clearly in VC is how much competition emerges whenever anything works. Every single time we say, “Oh, this startup is unique. There’s some unique product here and there’s not going to be competition,” invariably six months later there are 20 venture-backed competitors doing the exact same thing. And so at some point, if the early guys don’t get to the other 95% of the market, somebody else is going to go take it away. And whoever has 95% of the market, number one they’re going to get all the value.

Cisco is one of the great case studies in the Valley. It’s a very successful, very big, very established company, and a very large percentage of that has been M&A. And then obviously Google. Probably an under-told part of the Google story is how M&A built Google. People, I think, don’t even necessarily remember the number of things that Google bought that turned into what you think of today as Google-originated products.

Would you rather have another two years’ lead on product, or a two years’ lead on having a state-of-the-art growth effort? I think the answer for a lot of consumer products is actually that you’d rather have the growth effort.

I’m always urging founders to raise prices, raise prices, raise prices. 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. And so number one, it’s just a good way to flesh out that topic and really expose it to sunlight. And then number two, 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. And the companies that charge more therefore tend to grow faster. That’s counterintuitive to a lot of engineers. A lot of engineers think there’s a one-dimensional relationship between price and value. They have this mental model of commerce like they’re selling rice or something. It’s like, “My product is magical and nobody can replicate it, and I need to price it like it’s a commodity.” No, you don’t. In fact, quite the opposite. If you price it high, then you can fund a much more expensive sales and marketing effort, which means you’re much more likely to win the market, which means you’re much more likely to be able afford to do all the R&D and acquisitions you’re going to want to do. And so we always try to snap people into a two-dimensional mindset, where higher prices equals faster growth.

Google had a 70-20-10 framework. Do you think frameworks like that work? Marc: I don’t really like the numeric version of the answer because it’s kind of what big, dumb companies do. They say, well, we invest R&D as a percentage. But anybody who’s actually worked in R&D knows it’s not really a question of money. It’s not really a question of percentage of spend. It’s who’s doing it.

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 what is happening in the company. Information starts to get filtered by middle managers or hires from big companies, who view their job in part as shielding the CEO from “unimportant” information. The problem is that they may wind up shielding you from ideas that you consider quite important to know. In a skip-level meeting, you meet with employees who work for your reports or are further down in the organizational chart. Often extremely bright junior people may have their fingers on the pulse of the market, or may be alert to key new ideas or information. You’ll benefit from hearing from them, and these promising people will also benefit from learning how you think about your company, product, market, and culture. Skip-level meetings help you: Create open lines of communication. Identify and nurture new talent. Get new ideas from people at the front lines of the company.

Elad: Another thing that I’ve seen a lot of companies do as they scale is implement more day-to-day processes. Because there’s a huge difference between running a 100-person company and a 1,000-person company, particularly if you have a large product and engineering org. Are there two or three things like that that you view as the most crucial processes as a company starts to grow, and that help free up executive time? Claire: Yes. I would say that it’s a combination of what I would call “operating structures,” which are things like documenting your operating principles and processes. Operating structures are not tied to any one particular process, but instead explain, “This is what we expect of ourselves, in terms of how we work.” And when you document things like that, new leaders, new managers, new people in the organization can say, “Ah, this is what’s important. Let me adapt my behavior as we scale to follow along in this structure.” And then you have things like launch processes or what-have-you. 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 l...

One thing I’ve been talking a lot about with our engineering team is that usually your company’s plans and incentives and metrics structures aren’t built to stop things, or to stop and redo things. So if there is a need to pay down some technical debt or make a really hard call on stopping a project, you need a leadership voice, or even a CEO, to say, “Hey, we’re just not doing this anymore.” 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.

Elad: It’s interesting because on the employee side of that, getting re-orged every three to six months because the company is growing so quickly can feel very chaotic and uncertain. Claire: That’s exactly right. So how do you manage expectations and actually celebrate some of what is chaotic about what you’re going through? That’s my advice: figure out a way to get ahead of that and get people ready for inevitable changes so that you don’t have fears or concerns that are unfounded.

People with that much commitment are also willing to take more risks. Because all startups, they go through “valley of the shadow” moments, where everyone’s saying, “Oh, that’s really screwed up, that’s in a bad space, that’s really dumb.” Does this person say, “Well, hey, it wasn’t my idea?” That’s a professional manager. A founder goes, “No, I know I can make this work. I’m going to make it work. I’m going to take the extra risk, the extra difficulty, the sweat, the criticism. I’m going to play it through.” So those are the traits that you need.

“People always say that the CEO’s job is not to run out of money, and what they usually mean by that is fundraising. But the other way you can do that is to make money.” —Sam Altman

One technique I learned, actually from Brian Chesky at Airbnb, is to 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. And so you should use your board, your investors, any connections you have to get introduced to the five best people, and then spend some time.