Startups must use investors’ operational expertise to solve inefficiencies and scale up fast
A founder’s relationship with their investors should be about more than just financing. Investors bring expertise from their prior careers as COOs, CFOs, or other operational roles. Also, multiple board seats give them insights into how best-of-breed companies scale. Tapping into this knowledge lets one spot operational inefficiencies that might otherwise be missed, enabling faster growth for the company.
However, navigating conversations with investors in their areas of operational expertise isn’t always straightforward. It’s not always clear where a board member’s responsibilities should start and end. Overlapping areas of expertise can muddy internal decision-making and confuse strategy. Egos also get in the way, keeping both sides from hearing each other’s honest feedback. I keep the following principles in mind to avoid these pitfalls and get the most out of investors’ operational knowledge and experience.
When it comes to tough feedback, put your ego aside
Too often, I’ve seen founders let their egos prevent them from being able to receive investors’ critiques. Rather than thinking about how the feedback reflects on you and your performance, focus on the broader goal of company success. You want your investors to poke holes in your assumptions because that’s how you’ll fix inefficiencies and proactively address concerns about scalability that will inevitably arise as your business matures.
For example, in the early days of Egnyte, my chief growth officer and I were the de facto sales leaders, and we both thought we were pretty good at it. We evaluated sales success based on quarterly revenue attainment and hit our goals quarter after quarter. Then, one of our investors asked us to dive deeper. What would happen if we broke down the percentage of our sales reps hitting 50%, 80%, or even 100% of their quota?
Too often, I’ve seen founders let their egos prevent them from being able to receive investors’ critiques.
While it’s hard to hear someone pick apart the sales numbers I was so proud of, I knew he had helped dozens of SaaS startups scale. He knew the pitfalls to watch out for that we’d never see coming. So, I swallowed my pride and pulled out the data he requested.
A handful of reps were carrying the majority of the sales load for our team, making 2x or even 3x their quota. Meanwhile, most of the other reps needed their targets every quarter. Our numbers looked good on paper, but unless we could democratize sales success, our efforts wouldn’t scale. By changing the structure of the sales team and educating the underperformers on how to improve close rates, we were able to close the gap. And now we include a slide with this rep-by-rep quota breakdown in every board presentation, named after the investor who asked about it.
