The Top Tough Management Lessons – and Mistakes – from Founding a $3.8 Billion Market Leader (Video + Transcript)


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Auren Hoffman is the CEO of SafeGraph and Co-Founder and former CEO of Live Ramp. Hear his top tough management lessons and mistakes he learned along the way to founding what is now a $3.8 Billion company. Live Ramp, a middleware company that connects marketing applications was acquired by Acxiom in 2014 for $310 million. Want to see more content like this? Join us at SaaStr Annual 2020.   Auren Hoffman | CEO of SafeGraph and Co-Founder and former CEO of Live Ramp FULL TRANSCRIPT BELOW All right. How you all doing? Wait, are we at just an average B2B software company? How are all you doing? All right. We’re at SaaStr. Okay, awesome. Awesome. Okay. Now, just a trigger warning. This is going to be pretty controversial, so you can still leave, you can still go away. We’re going to actually really dissect and go through a lot
the conventional wisdom of how to run a SaaS company and we’ll do that together. Now, before I begin, if you have any questions, you can just tweet at Auren, A-U-R-E-N. I promise to answer any questions of anyone who follows me. You can always unfollow me after I answer the question if you’re worried about following too many people. So feel free to answer any questions. I will answer them by the end of the day today. All right, so what are we going to talk about today? We’re basically going to talk about the seven “people” things that nobody tells you when you scale a B2B company. So we’re going to talk about them. Now, this is not going to be conventional. I think you should maybe listen to one of the seven things that I tell you because most of the things you probably shouldn’t listen to, but we’ll go through them together and happy to answer more of your questions on Twitter. All right. The first thing is, and this is a little crazy, but recruitment is incredibly overrated. How many people out here spend more than a third of your time recruiting?

Tough Management Lesson #1

Okay, wow, that’s a lot. A lot of CEOs spend over half their time recruiting people. And imagine if you can have that time back and actually focus on all the other parts of your business. Now, if you talked to the average venture capitalist or the average person in SaaS or the average CEO they’ll say, no, recruiting is essential. You need to have all of these people in your company humming so that you can run a great company. But we’re going to talk about how to actually build a company today with as few people as possible. The best companies in the future are going to have very, very few people. The more people you have, the more problems you have, the more communications issues you have, the more HR issues you have. The very best companies in the world have, let’s say, an n over two communication problem where n is the number of employees at a company. The worst run companies in the world, maybe having an n squared communication problem. Now, first of all, there’s no reason why any of you are going to have the best run company. So maybe you’re going to have an n over two, maybe you’ll have an n communication problem, depending on how well run your company is. But even if it was the best run company, an n over two communication problem is a lot, is a huge problem. Every time you add somebody you’re going to have more and more communication issues that are happening in your company. One of the best ways to scale a company is to have figured out a way to do it with as few people as possible. And one good metric, I think, of a very good healthy company is revenue per employee. So the revenue per employee of your company should be going up over time. And once you hit about 10 million ARR, that revenue per employee should be going up drastically over time. That’s how you know you have a good business. There’s a lot of SaaS companies that are doing a 100 million ARR and they have 1000 people. And then they do 200 million ARR and they have 2000 people. That’s really a business with very little leverage and that’s really a business where people are powering it. And while if you look at that business, you think, well, the profit margins are good and the margins are good and all these other things, it actually really means the margins are not very good. This is probably a business that is going to be very, very difficult to scale. So the more you can focus on revenue per employee and really making sure that’s going up every quarter, that’s how you know you’ve got a business that’s doing really, really well. Now, I’ve made plenty of mistakes and as I go through these, I’m going to go through my mistakes as well, and I’ve classically overhired as well, probably like most of you.

Tough Management Lesson #2

The second thing we’re talking about is what is the most important skill in the 21st century? Well, the most important skill in the 20th century was the ability to recruit, manage, and retain really high quality people. If you could do that, that was the most important business skill of the 20th century. And while that skill is still important, and we’ll talk about some of those things in the future, the most important skill in the 21st century is the ability to select and manage vendors. Almost every single company has more vendors than people. I would guess that almost everybody here has more vendors than people in your company. Even companies with just 20 people sometimes can have 200, 300 vendors. If you think of all the technology vendors that you use, all the software vendors, your lawyer, all these other types of vendors. And it’s really important that you’re able to have these vendors work with each other, that you can move data between these vendors, and that you can actually use these vendors together to get some sort of solution. The more you can rely on these vendors, the less you have to actually build yourself. When I was at Live RAM, even six years ago at Live RAM, I went through all the engineering things we did six years ago at Live RAM. 90% of the things that we spent engineering time on six years ago, today could all be replaced with some sort of API or vendor. So you need fewer people. And the number one area where you could have fewer people in your company is engineers. So most people think hiring engineers is the most important thing that you can do, but actually you can get a lot done with a small number of really, really talented engineers and giving them a really big budget to use vendors so they can get a lot of leverage. A lot of companies have figured this out. WhatsApp had under 60 people at the time of acquisition. It was the highest market cap per person company in history. Instagram had 16 people. And you’re probably thinking, well, those are B2C companies. They have it easy. B2B companies … Yeah, okay. Maybe you’re not going to end up with $500 million market cap per person in your company, but you can have a very high market cap per person. You can certainly have $5 to $50 million market cap per person in your company if you really focus on leverage. You guys familiar with Kylie Jenner? I see a lot of Kylie Jenner fans out there. She has seven people in her company doing over a billion in revenue. VIZIO got to 2 billion in revenue with just 80 employees. There are ways to use vendors to be able to do that and it’s not about saving money. You will likely not save money by having fewer people. Vendors are expensive. Technology is expensive, but it’s about moving quickly and it’s about really increasing that communication loop within your company. Of course, my mistake here is that I’ve always overhired. It is a classic mistake that every single CEO makes. Almost every company today, especially every SaaS company, probably has four x the number of people that they need to have. You could literally run your company with probably 25% of the people that you have today. And if you could do that well, you could move much, much, much faster.

Tough Management Lesson #3

The third thing is that unbalanced teams beat balanced teams. They’re only going to be really good in a small number of areas. Maybe you’re great at marketing. Maybe you’re great at engineering. Maybe you’re great at design. Maybe you’re great at HR. Maybe you’re great at some sort of core algorithmic work that you’re going to be doing. You’re only going to be great at anywhere between one to three areas. There’s no company that’s great at more than three areas. You might be able to get to good, but you’re almost never going to get to great. And the winners and all the rents go to people who are great. So you want to get to great and you want to stay at great. And almost certainly the areas that you’re going to be great at are the areas that the first few people in the company are already great at. You almost never get great at anything beyond that. So if you think of Salesforce, Salesforce is an amazing company. What is Salesforce great at? Salesforce is the best marketing company around. They do B2B marketing better than anyone ever. Now, why are they great at marketing? Well, the CEO already was one of the best marketers before he started Salesforce. So it’s really the DNA of the CEO of the company and the founder of the company has permeated throughout the company. Now, is Salesforce good at UI? No, they’re terrible at UI, but it hasn’t hurt their success. They’ve focused on being great at a small number of things. And guess what? If you hire for things you’re already great at, you’re probably going to hire really well. If you’re great at marketing, you’re probably really good at hiring people who do marketing. If you’re great at engineering, you’re probably really good at hiring people who do engineering. If you’re great at sales, you’re probably really good at hiring people that do sales. If you’re not great at sales and you try to hire people who are good at sales, well, you’re probably not going to do a good job. If you’re not great at … So if you hire people where already great and you triple down, you quadruple down on that, you’re going to be better and better and better. My mistake, of course, is that I’ve always tried to fill the gaps instead of doubling down and tripling down in the areas that we’ve already been really good at.

Tough Management Lesson #4

Okay, here’s the other kind of controversial thing. Try to never hire in the San Francisco Bay area. This is probably the most obvious one. It’s really hard to attract great people to SaaS in San Francisco. It’s really hard then to keep those great people in SaaS in San Francisco. And there’s probably a huge strategic advantage of not being in San Francisco. There’s great people all over the world who want to work in a dynamic company. Now, my mistake is pretty much everyone I’ve ever hired and everyone I have hired in my current company at SafeGraph all works in San Francisco. So here I’m an extreme hypocrite in giving you this advice. Put off hiring a VP of HR and VP of marketing for as long as possible. Now, 90% of people in marketing are, I would just use the word bad. Are bad. 95% of people in HR are bad. Now, I’ve I’ve just pulled those stats

Tough Management Lesson #5

directly out of my butt so I can’t … but they are directionally right. Almost everyone who works in marketing and HR are bad. Now, there’s a small number of people that work in marketing and HR that are amazing. But if you pull the average person from Google that works in marketing, in HR, a great company, or you pick your great company, you’re likely not going to hire somebody who’s very good. Now, if you pulled the average person from Google that works in product, you’re going to find amazing people. If you put the average person from Google that is an engineer, a core software engineer, you’re going to likely get a really, really talented person. But it’s really hard to find somebody who’s from marketing or HR. There’s very few organizations that you would even know where to pull those people out of. My advice is to hire these executives after you’ve hired all your other executives and wait until at least 100 employees before you have a head of HR. And yeah, my mistake is, yeah, I’ve made this mistake before as well.

Tough Management Lesson #6

Six is that you can hire people too quickly … if you can fire people too quickly. There’s an old adage that says, “You never fired somebody too quickly.” I think that is wrong. A lot of that is really just not being creative enough to find a spot for this person somewhere else in your organization. Now, yeah, if you have three people in your company and somebody is not cutting it, you have to fire them. Because there’s no real way to move them around in your company. But often you hired this person for a reason. You found a spark, you saw something that they’re doing. Now, if someone does something unethical, you have to fire them. But if someone’s not performing in a particular way, there might be a way to move them to another part of the organization to help make them succeed. These people are … they maybe already believe in … they already may believe in the vision of your company. They may be already a really good cultural fit, and just because they might not be performing up to speed in that particular place, maybe they’re in sales and they could move over into a customer success role. Or maybe they’re in customer success and they can move to product. Or maybe they’re in engineering and they can move to marketing. There might be a lot of ways to move them around so that they can be really successful. And the failure is, and this is my failure as well, is just not being creative enough to find a fit for these people in your organization. And the larger your organization, the more likely you should be able to find a fit for this type of person as you move.

Tough Management Lesson #7

And then the last thing is how do you just find these 10 x people. These 10 x people are worth, sometimes they’re worth 50 x, your core employee. They’re so important and everyone tries to figure this out. I’ve never figured out, but I’ll give you some sort of rubric. The classic rubric of a 10 x person is that they’re proactive versus reactive, and that’s maybe the most obvious one. But there’s four other rubrics that I think will be helpful, or four other kinds of things that would be helpful as we think about it. The first one is just understanding do they focus on threats to your company or do they focus on opportunities? I think the really smart people focus on threats. The 10 x-ers focus on opportunities. They focus on what can we … where can we move to the company? Obviously they’re both incredibly important, but the more these folks focus … the more the smart people focused on opportunities the better they are. The second is are they focused on planning or are they focused on doing? The more they actually just get it done, that’s someone who is someone you want in your organization. Then there’s the focus on negativity and focus on positivity. They’re both really important in a company. It’s really important to point out the flaws, but it’s also really important to be positive and they’re both incredibly contagious. So people who are negative, you really can only have a couple of them in your company, otherwise it gets contagious really fast. But people who are positive can also be incredibly contagious as well. And then the last one is, are they focused on the individual or they focused on the team? And that’s maybe more of an obvious one as well. And my mistake is, look, I don’t know how to ID this person. Everyone knows how the ID this person after you’ve been working with this person for six months, but IDing this person during the recruiting process is incredibly difficult. If any of you have ideas, tweet @ Auren. That’s all I wanted to say. I want to thank you guys very much. Appreciate the time and please remember to ask any questions by Twitter. Just send me an @, @Auren, and I will respond to them today. Thank you so much. The post The Top Tough Management Lessons – and Mistakes – from Founding a $3.8 Billion Market Leader (Video + Transcript) appeared first on SaaStr.

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