Scaling Ventures: Linking Strategy and Execution - Wharton School School

it's really great to see everyone I'm Karl Ulrich I'm vice dean of entrepreneurship and innovation at Wharton and I also oversee the wharton san francisco campus this is the sixth session of wharton scale school scale school was an initiative we started just 18 months ago and it's just been hugely heartwarming to see the show of support from our alumni and friends who have come out to share with us a discussion around important topics in scaling new ventures I want to take a moment to thank arena again Irina wave you can wave there Irina Irina oversees the entrepreneurial programs here in San Francisco and also in Greater China and is really my right-hand person in in the entrepreneurial programs out here and Irina organizes these events so we're really grateful to Irina the plan for this evening is I'm first gonna inter introduce our moderator and then he'll introduce our distinguished guests we will run until I want to set expectations I think our I think we we we probably be done at 8:30 our plan is to end here at around 8:15 that'll leave 15 minutes for following up with the speakers and informally with with each other so I'd first like to introduce god alone professor GAD alone who is the Geoffrey caslen professor of operations information and decisions at the Wharton School that happens to be my home department so I'm very thrilled that God's it's just a few doors down for me in huntsmen hall at Wharton I want to say just a few words about God God's expertise is in operation strategy and more specifically in scaling operations which is really the topic of our of this evening's discussion what I want to say about God is it's it's actually extremely rare that we at Wharton hire a tenured professor from outside of the Wharton School but GAD we were able to lure away from Northwestern from Kellogg last year to join the Wharton School he came to Wharton to be to be a leading figure in operations and also our management and Technology program which is really the flagship undergraduate program at the University of Pennsylvania really an amazing program GAD is a native of Israel where he did his undergraduate degree and then got his PhD at Columbia University before spending quite a bit of time as a professor at Kellogg before we were able to lure him to Wharton so dad is going to say give a few introductory remarks and some framework and then introduce our distinguished guests so with that let's welcome professor GAD along Thank You Carl a good evening thank you aim as Carl said what we'll try to do my name is gadelle on what we try to do today is talk about scaling and primarily talking about linking strategy and execution there ever were to do that I'm going to start initially with only 15 minutes of introduction a just allowing us a little bit to conceptualize even understand what do we mean by scaling a scaling and growth we use the terms interchangeably what's the difference between them what are the main challenges we'll spend 15 minutes with that then an hour really for the main dish for today the main term that's their panel and we have a a very interesting discussion it's going to evolve here based on that and so we're going to have an hour of discussion then 15 minutes for Q&A at the end but as I'll talk about in a few minutes we would love to have you interrupt with questions but I said earlier let's start with just a little bit conceptualizing and talking about what do you mean by scaling why do we need to link execution strategy what would well if you need to take one or two things for today what do you want to take even from this part so so if I'll say in general that if you ask every manager that is trying to grow their firm they will say that it's a formidable challenge to try to continuously grow and while there is this elusive notion of continuous linear scales you know forget about linear continuous exponential scale this is very seldom the case and very seldom you have just continuous grow growth that comes without any interruptions and then when you try to understand why you very quickly realized that usually it's exactly the set of scales that brought you to where you are that's going to be the obstacle for pushing you to the next level and managers that can identify these in advance and identify these challenges in advance and recognize them and build organization around them can whether these in a way that it looks on the outside is if it's really indeed continuous growth and what I'll try to do today is really highlight some of these challenges and talk about some of the concepts that we use to try to think about them it's not going to be a full lecture so we're not going to expect to see any spreadsheets or anything here but we do want to think about how we think about it rigorously rather than beyond just this statement so if I'll start with that and say that when I think about strategy and execution usually I think about strategy as of a long-term plan and the execution is really a decision on systems people process is what comes around with terms of what you have in the background to try to support that and the challenges are really the challenges that that are around these so when I think about one of the key challenges that the firm face is how do you move from an opportunity to strategy because at the early stage the only thing you need you're really looking for opportunities you're trying to fetch and find an opportunity and comes the point where you need to make it into a strategy for me to build scalable strategy the same we're going to be four systems how do I move from a short-term thinking in the trenches to thinking long-term what do i what does that even mean from people to processes will be empowerment probably one of the most important elements we were to discuss here is the fact if you think what most organizations usually have a group of founders and this group of founders are usually driven by passion by knowledge of a specific topic but usually they have also a limited set of skills and they're limited by themselves meaning I cannot replicate them and so in one point I'm coming in what they need to do usually I come and I start creating processes and when I create processes I need to basically take then what the founder is doing I start codifying it codifying em what else do I do qualify standardize qualify standards simplify try to replicate the issue is that most of us probably can have seen that that passion and processes cannot coexist I mean theoretically they can but they usually do not meaning the moment you start standardizing things you start crowding out passion innovation a the feeling that you have control over what you do and on one side we understand we need to start creating processes the way to scale at the same time we have the issue that the very core of what we brought you here is not that it cannot be done cannot or doesn't want to live with the process that we have and so how do we really balance between these two in and to some extent that self we're going to be the main a take away it's exactly the probe what brought you there it's exactly the skills and that the passion and the drive has brought you to that stage that you need to have think and try to build and in many ways reinvent yourself every time you come to a different stage and we'll talk about different stages firms face and when we talk about scalability but do you mean by that but let me start with a very simple question well you see the word scale a overused misused so let's try to clarify first of all volume by scale so let me maybe ask you maybe like quick show of a know it's not a class and I'm going to call call anyone even though I do want to what does the word scale means yes again from 1 to n okay very good moving from 1 to n a agree/disagree anyone wants to add that's one very good definition moving from 1 to N so let me try to add to that a little bit but let me say that that will be my definition of growth to me at least scale is definitely want to add more demand I'll say to me scalability is the ability of a system network or a firm so I'm trying to be general does it have to be a firm can be you're trying to scale your specific division you're trying to scale a specific product the ability of a system a network or a firm to handle growing amount of work sales or demand again I'm it doesn't have to be that you're selling more you're selling the same amount but you're just significant more amount of work because of that in a capable and cost-effective manner the word capable is not with a quote unquote but supposed to be when I say capable I mean in a way that the customers feel that you're still serving them the way they thought they want to be served meaning you retain the same quality return the same cost structure as you grow because just growing without control for cost is easy to do so that's a complex definition let me show you is slightly the better definition not the one that I wrote so it's slightly better was slightly clearer that's from a blog one fundable it said growing means you're adding resource at the same rate that you're adding revenues so the model you know that's the model we see in consulting right you sell more you add more people clearly a very successful model just not what I call scale that's not scaling that's just growing scaling is about adding revenues at an exponential rate while all they all only adding research at an incremental rate I mean the exponential here doesn't matter but really more about the idea that you are adding with its inventory or resources or people in a slower pace than the pace by which you grow your demand simply enough much right if we can do it in a much slower pace even better so let me show you three firm that most of us are interacting with Facebook Twitter and snap familiar somewhat with them but if you have an identity or in facebook if you are politically inclined you're in Twitter and if you're millennial you're in snapchat so let's see how whether they scale so let me show you graphs I did not prepare this graph that's from a blog called strategery a and what he did there the former student of mine it took the as1 and build a graph based on that for these three firms so the timeline is going backwards from their IPO and let me explain what we see here we see we have daily active users increasing linearly I mean first of all the thing nice to see it's linearly we hear a lot about exponential linearly then I put here cost of revenues per user total cost per user and profit and revenue here profit so if you look at that what was your vote will be your first reaction so it's good that they're growing or grew up to that hump at that point you look at the cost of revenue per user if it's really scaling how would you expect that to see down does it go down does it go down no the answer I mean I just see some of you are still hesitating it doesn't it's flat it's absolutely flat I'm not saying it's not scalable it's not they don't they're not demonstrating scale so I mean I mean the point I'm showing if I would not show you here Facebook and I'll say that this is Walmart your party want to believe me more because the belief is that is a digital product they must scale the the marginal cost is zero but it's not it's not there is a cost for serving customers there is a cost for acquiring there is a cause for cloud there are many many costs but that's so that's one firm the second firm I want to show you is Twitter now you expect Twitter to be much worse much better so unfortunately it's very much the same with one caveat for Facebook they were making money Twitter doesn't but we don't beyond that the graphs are pretty identical they grow their demand their cost of revenue is flat I mean pretty much the same I mean if you we tend to talk about Twitter is a very inefficient firm when they don't make money I mean that's not a secret but beyond that the economics of making money is identical both are not that scalable at least I mean they're scalable but they're not demonstrating scale but really the reason I show you these two are really to contrast these two snap because to me when I look at that that's where I'm a little bit worried because let me just translate very quickly snap does the demand active user go up does it go up yes cause of revenues that's the cause of revenues per user that's mean how much does it cost them to serve a user per user you don't you're not as shocked that you should be yeah I mean and right and and then you look at the total cost this is absolutely sky rock that's the cost per user that's that's not the way scalable model look like that's not about the way it's a scale model the variant I mean you want you to see decreasing if you read the news if you read about the fact that there are no distribution cost anymore the cost would be zero we don't see that evidence but we do see an evidence now people know anyone has an explanation here again it's not a an exam but what can be an explanation for why the cost of revenue is increasing no one wants to take the risk in Instagram is the reason why the demand is you're right this is where stories was introduced so the demand flattens but it doesn't explain the cost I will leave that question but hmm hardware's won butt's not big enough yet second one is there cloud expenses they unlike Facebook and Twitter outsource their cloud to whom Google one of the big decisions they had to make in the last few weeks was whether they're going to keep it in-house keep it outdoors or in-house that's exactly the set of question we would like to think about here to some extent I mean the relationship between your strategy and how you execute it a go-to matter a lot in your ability to move one step after the other when you try to scale so what's the I mean so scaling sounds good so what's the biggest risk the biggest risk we want to talk about is the notion of premature scaling what does the notion of premature scaling I mean you've probably seen this graph before this slide before in other instance of the world this is essentially the firm the stages firms go to as they grow they start from discovery ideation I mean then you go to validation you basically try to see are there indeed people that are willing to buy that what we call product market fit then you try to see can I now can I make it more efficient can I start making the sales process more efficient can I start this process of selling that more efficient serving the customer more efficient because if it is more efficient what can I do now now you can scale and as we're going to talk about the portal the one of the risks is jumping through this this efficiency step saying I have an idea I have a willing customer every willing VC let's try to grow and one thing we'll try to argue here is that this step I mean if you jump through that that's what we call premature scanning so what is pretty much you're scaling by the way we're going to send a slide at the end slide deck at the end a by email I see many people taking pictures you're still willing you can do that I to say it now rather than at the end but you were going to send by email if you want to get them absolutely okay with that aim so what the core pretty much were scaling is this notion of putting the cart before the proverbial horse and in the case of startups that can be potentially related to both engineering operations I like the quote at the end that this is by the way quote from a Michael a Jackson that's not Michael Jackson in case your daddy invention money can be like putting a rocket engine on the back of a car scaling comes down to making sure the machine is ready to handle the speed before hitting the accelerator that's really what we're going to talk about a lot about how do you want to how do you time it well because what's the risk now I should say research on startups is always very hard to do and really because what we call survivability bias most startups don't survive so by looking at those who survive in trying to study for them you get a very very biased study B so take the next slide with a grain of salt don't take here everything it's written here is like truth but what this is part of it Genome Project was trying to look at many startups and try to codify that and they say that 74% of the high-growth internet startups fail due to premature scaling but more importantly what does that mean it means that for example they hire a inclusive step-out outsource for five times as much of their product to a compared to consistent start-up at the same time the tie this time the team size of star but scale premature is three times bigger then the conceive startup so they hire more people they hire a shorter faster than other other they outsource more even though they have more people so they make all the possible mistakes primarily because at this stage they think that they are in the scaling stage but they're still in very much in a premature stage yes and scale properly grow 20 times faster yes so I think that's actually talking about their team this is about their size meaning their demand this is about their team size so one of the one of the biggest issues and to some extent you want to talk about is you know you have a strategy and now you need to go about executing that you need to hire again system people processes one of the biggest issue that we say many times firms that get access to capital too early is rather than to think about where you really need people you start hiring people in some building a team that is excessive for the type of risk you are facing at that stage which in fact means that you many time develop features that you don't need you're putting R&D ahead of the ability to sell that and your while you're scaling slower you actually have a team size that is much much bigger for that need in that stage does that make sense good question aim so again I'm gonna get you into more details so that that but I'll say that if you have to teach a course now by that I'll spend the whole quite a bit of time on why we believe a firm should scale firms should scale because we resource we pull resources we pull inventory we pull risk we have many many things that actually are working in favor but this light to some extent will be also a good way almost to finish because to be able to enjoy these I need to plan my strategy from the beginning to some extent we have here a game between choosing where to play in choosing how to play and the truth is in neither here nor there so for example one of the things that we're asking is and I'll just give one example how do i scale my strategy to me when I think about scaling my strategy if I want to give a counter example for that I'll talk about Webvan beautiful weapon weapon was a story for a firm that managed to burn 800 million dollar within 18 months we don't call it burning money for incinerating cash it's pretty hard to do it's not easy even if you'll try and one was it so when we talk about one would think we said I'm not it to go to the tools but really the principle is make sure it you have you you scale your you're allowing your oppression your strategy you make sure you really that your position is defensible and more importantly that your growth plan is financially viable but if I'll go back and say that let me actually in fact run almost to the end I think that would be in terms of time useful a initially run just for a second talk about this example I think this is actually a good example to talk a little bit about the challenges you would like to talk about here and so this is kasper people firmly Casper so you know that the feeling always is that really what's missing the main constraint that is holding me back from trying to scale is going to be demand I would say that's and when I say the feeling that's usually true usually the biggest challenge a firm has is really the ability to attract enough demand to be able to scale a but for most organizations immediately afterwards if you get to the stage in which you need to scale come to the stage in which there is going to be some shortage of some sorts if you manage to scale well and in fact the ability to plan and to move to a systematized thinking on risk and cyst or network is going to be crucial so this example I'm giving here is a Casper Casper a very successful launch managed to grow much faster than anticipated had huge shortages initially and I'm putting here this triangle here as concept to think about how do you interact with customers when you have risk about your customers behavior and so in this case what I'm basically saying there are three ways to solve it either you solve it by having excess capacity so other you have enough capacity to solve that you have excess inventory not every time you can have a case inventory if you are selling a cloud services then excess inventory is not going to help you but if you're selling a product and we'll have a product person here as well I mean then a product then excess inventory is great but if you cannot have these two or at least 6 capacities too expensive or inventory is not available or too expensive then you have time when I say time time whose time your customers time all right and in fact the solution they found at the end was to try to offer much more transparency to their customers on where things are in their supply chain we'll ask joy today what the situation and then out joy how you deal with a situation where you have XA is a launch product that you might have a shortage of in fact if you ask about Apple and you see that Apple usually starts where it's I know it's not really started but where does a people usually start who do they have access capital where would you so I one thing I want you to do is really think about your organization organization you're familiar with so where would you put Apple for example Apple at launch is a time right I mean all of us when I say all of us I mean some of us and actually I mean most of us are going to be waiting for iPhone 10 we can pretend not but we will that's that's during launch that your launch but after launch usually they start moving more and more towards inventory and capacity and usually the mixture of the two and good then what'll argue that as a firm depending on the stage you're in depending on where you are you need to choose the right position in in that place I'm not going to belabor I think we have an interest of time at happy to discuss blue apron and what they were issued in the strike how they struggle they actually have a graph that looks great in terms of the cost of revenues so they are becoming more and more efficient what's the biggest issue they have someone said it the view churn and because of that their total cost is actually going up because for every custard day so the way they said here is that we are always one bad experience from losing a customer so even though the to reduce the cause of this of the services and even though they managed to do become a much more efficient in the way they do things and provides better quality it's not there and it's not enough to be able to get to the level where customers are consistent in their behavior so I will stop with that and then say the same you can talk about people and about the issue with that a and then I'll just want to leave you maybe a few principles that I want to use here that I just cover know these are the principle I'm leaving my students with when I'm finishing this is a class and I usually say the first thing that to some extent a you know one book that we always like to give our students to read is the goal and if you've not read it when you leave today you have to read it you just have to I mean it's not it's not a choice and one of the main ideas there is a very simple idea it's not the book is not about scaling it's not about startups but it's the very simple idea that in any point in time there is really one or two simple constraint that are limiting your ability to grow we tend to think that the world is very complex we tend to think that there are many many issues that it's the communication we don't have the right people and we don't have the right staff and the demand is not there and the marketing doesn't work but if you really think about there is one or two things that are really that if you had to be there or you had to spend your next dollar that's got to be that place and thinking through that is really in any point time is the crucial step and that's exactly where you as the founder need to be and that's exactly where your extra dollar need to be and think it's where that simplifies the way we think about that containing cost I usually several as you scale it cannot be too quickly to be a fit to try to be efficient efficiency is the luxury to some extent of a firm the ability to invest in efficiency but containing cost and saying about how do I contain costs as I grow is going to be crucial containing costs primarily because you saw for Facebook and Twitter and snapchat that that's a challenge how do I think about controlling processes hedging against tree and only and the last thing is about building networks what we know that what does came well our networks the more I can think about networks we had they I just so study a few days ago that looked at the first time the firm introduces an API to their product and the impact it has on their market share on their sari market cap you ask well these are two unrelated things right API is a technical appeal when I say P I could know what I mean by API yes no and it was interesting but the main idea behind the study the moment you make your firm into a network of outside people can come and utilize and iterate on the resources you have you bring outside innovation you bring outside resources you bring other outside thinking that allows you to potentially capture a much bigger market share in a much higher market cap then what you could do by yourself a and having this way of thinking is going to be crucial moving forward is the way to enjoy many of these scaling benefits what they want to do now is to stop here and invite a my three panelists introduce them a and then start with the question so Steve Ravi and enjoy please joining me so quickly introduced so if a Steve Polsky so Steve Fox is the founder of a joo voz a in mobile firm that specialized in financial services a worldwide currently in four continents you tell more about it in a second sure a stiva is a graduate of the Amenti program did your own fishermen t for those of you not familiar it's a undergraduate degree dual degree at pan but itself you know self serving a so Steve I think you have quite a bit of experience both on in firms that are more in the technical side so it's if as patents in networks and a network architecture but was also the founding and the CEO of many firms from many many of them were you're familiar with like Flixter and a in rotten tomatoes a and the firm just raised recently around forty million dollars from NEA so thank you and that leads me today my next my next day a panelist a Ravi with no bottom is a General Partner at any a a Ravi also has an undergraduate from a pen a PhD from UCSB and then a Wharton MBA a before any a Ravi was at Goldman Sachs and McKinsey with among the firm's that Ravi is a living in investing in was you know some of the familiar firms like you know played a design to learn in our in gladly that has a lot so no word on connections in it a but also you know you had experience also in material sciences as a as an engineer one thing that I realized I didn't plan it like that but as I went through the CVS I realized that way we have four engineers here on the stage but finally I had and then that brings me to joy a joy a joy is filling your the CEO and founder of all birds because I tell my students the most comfortable shoes right there pretty good I tell the story I heard the bottom for the first time so Carl told me then we spoke with the joint and I left on a flight back from Philly to further back for some proceeded to Philly in half of the flight and what even exaggerating we counted there was another Wharton faculty have the flight at all bird him so right joy you have a undergraduate from in engineering again from a from Berkeley MBA from a from Wharton after a your undergrad a spending in Deloitte yep right and then after that after your MBA you're a VP of Sales sales strategy well I did some investing right and I did the biotech the ng based products yeah right and so one of the first questions I want to ask is you come from very different perspectives and and in fact on purpose we brought both firms that are of mobile products physical products and an investor to try really to get through the different challenges that firms face in different stages but also how is that being viewed from an investor point of view so so maybe the first question that I want to ask you come from different stages you have different firms a water maybe you can introduce again that they've talked a little bit about the firm word for a minute or two a but then really spend some time talking about what are they one or two skills that are needed in your domain to be able to grow in scale so maybe even Steve we'll start with you in the learner sure all right first of all you're always working hard at a startup just always trying to get to next phase and then listening to your presentation about a scale I felt it was even more for me to work on now Juve oh I gotta get to work but no so two minutes on Juve on then I'll answer your question so look our premise is we see tremendous opportunity to walk hundreds of millions of people around the world up a pathway to financial services but starting with their everyday usage of their smartphone right so just some stats so you know the seventy-seven percent of the world is on prepaid phones most of these have no access to financial services and we believe that people top up you know so frequently buying mobile services by the day that using cloud technology we can walk people up a pathway to building a financial identity and onwards to financial services and we're we've grown we're in 24 countries now over the course of the past three and a half years so growing quickly but like look scale is like inherent in our business like our belief is that it is now you know possible to reach a billion people on their smartphones right it's a distribution scaling distribution is a fundamental goal of the company that we're going after right and also that we're really building an asset and expertise around data right the ability to scale massive amounts of data the whole concept that you can credit score the whole effectively the whole country of Indonesia now in real-time which was not possible for before using cloud computing so we're when I think about scaling in and the core things our business its scaling distribution scaling data as at the heart of what we're trying to do and and we talk more about data later on but eh can you elaborate about that what does that mean to scale data so we I mean look part of it is it's about like what's possible now so why for Juve align ow like five years ago you really could not do what we're doing unless you're really we're Facebook or Google frankly right and it's like the availability of the data the data science and big data tools that are now available on Amazon it lets us do what is possible right just elastic computing and the tools that just make it possible to ingest tremendous amounts of data may be making individuals decisions effectively about almost anyone in the world and walking them up and individualized pathway mm-hmm so that's what averaging maybe for YouTube lead the question the same question but both in terms of for an investor and some of the scales but also the firm's you see yeah sure so just a little bit about any a were about 40 years old we're a large firm so I think with the largest venture capital firm in the country about 20 billion under management and so we're 40 years old but halfway through our life today about 20 years ago we made a fundamental we made two fundamental strategic initiatives one of which is very relevant here one is being global matters hence our in investing in juvey oh and we have investments all over the world the other is being at scale matters so 2000-2001 when folks actually were going smaller because of the dot-com crash falling web man we went a different direction we've got bigger so our funds are rather large the last one we just raised four months ago is 3.3 billion so for venture capital that's a massive amount of money and the reason we do that is we do lot we do healthcare and IT I'm a general partner in the enterprise software practice but our view is we invest seed all the way to growth and what we try to do is take companies from that are very young and scale them that's really we do and our view is our model works best in building funding and growing large market defining market changing iconic companies and that's kind of our premise and it's been the premise from from day one and we're bicoastal and I think we have we funded over a thousand company so I could fill weeks in this classroom with all the mistakes we've made over the years then they're massive our current portfolio is 450 companies so it's a rather large portfolio but again even how we operate ourselves we feel that there's scale benefits the fact that we have operations in Asia significant operations in Asia can be helpful to Juba similarly and I'd say that two things should change your questions specifically gadd as we look at our companies it's more of an art than a science right because anytime you try to make it scientific something always breaks that algorithm part of it probably the number one thing is people is the team because I'll talk more about it but when we're scaling our company you scale for us is growing 2 to 3x a year and then you get to scale and then you that obviously the growth rate decreases but if you're growing at that scale then within a year or two you may have outgrown the team you had so a lot of it is just finding the right teams and the right people and the knowing when to over build your network your over build your team right that's one team is a big one the other is and this is the biggest art piece is for us we live and die by product market fit finding a great product and a market that can take this that can support this product in a sustainable way and really honing in it's usually the last ten percent that product market of fit that's really the the lever that you have and in some of these situations you can see when that's happening or you you have you have the early indications and you're taking a leap of faith but you have that product market fit if you have that team that's when we think we can really scale mm-hmm so those are two big things for us the dictate success or failure in our compounds cool so what about us is important to scale and maybe a quick really quick background and since we need to liven things up here I'll start with just a very quick poll so first of all before you guys got here how many people in the room heard of all birds okay this is a good audience that's the most I've ever seen all right that's great so and how many people here have feet so Joey's gonna buy around the world exactly the exciting thing about that and why I really start with that is is whenever when we first raise capital no one ever asked us the market size and for good reason ever ever and every one has feet and and Americans buy eight pairs of shoes per year and so that's about two and a half billion pairs of shoes bought and sold every single year for eighty billion dollars of retail value and what we saw when we started the business I have a co-founder named Tim Brown he's really like a very significant component of our inspiration of the of the concept so what we saw was two things one is about timing and one is about product market fit and first maybe I'm on product market fit what we saw was there was a complete shift in consumer behavior and I think everyone lives it every single day you might even be some of you doing it right the second we're working on our mobile phones we're not doing a nine-to-five job and then going home and slipping into something else and having a drink and you know going back to work the next day and lightbulb on and off it doesn't work like that and what we found was that apparel had kept up with that trend really well and there's some great iconic brands and apparel that have done a phenomenal job of keeping up with some of those turns I think Lululemon it's a great example of that on the female side and shoes really had not so we saw this amazing opportunity where everyone needs to have shoes that are comfortable to take them throughout their day and go into in and out of all different kinds of activity and have utility when you're living life in this different way yet there was really not a shoe that was out there that really delivered that on trend and on in the way that consumers wanted so we felt like there was this amazing opportunity to optimize for the one attribute that everyone buys shoes for it's the most important thing it turns out and that's comfort and you have to strip down and take the simplicity out of into design and take that reduction area approach when you're designing a shoe to create something that has utility across activities that takes out the seems there's no logos on our shoes no big screaming logos and when you couple that reduction of design with comfort and then you enable it with something like a highly sustainable and renewable material and you really innovate around the material science you can create something quite special and we felt like people would really respond well to innovation first and foremost but also that focus on comfort and and removing what we saw is kind of just blazing logos that were good for the company but not good for the consumer so that was around product market today what we thought and from a timing perspective eighty billion dollar industry there's not a single company that's in this market that's direct-to-consumer lead that's above call it 20 or 50 million dollars not a single one and that completely changes the dynamic for a company and every single one of their customers for the most part are failing and their business models are in pain because of Amazon and e-commerce in general so the wholesale channel being struggling means that all these brands also feel the pain because they're getting pressure on cost and they're not investing as much in innovation they're investing on marketing and cost-cutting and so we felt like this was an incredibly opportune time to match product market fit with the channel decision around going direct to consumer and so we took our our business and we decided to go directly to consumer with every single interaction whether that be offline or online is less important but it was going to be from our company to our consumer and the consumers thriving and by buying more shoes than they ever have so we thought it was a great opportunity so we we decided to jump in and start a shoe company and I guess just to answer your question around scale the things that are I think most important in our industry I mean design scale is incredibly well Apple famously has probably less than 20 designers we have really we had one for a very long time and now we have two and so I think design scales significantly and the capability of continuing to innovate and we do that through material science and then how that interacts with the design of a shoe is the thing that keeps us the ability to scale and keep on doing that and eventually as we do that we think the one and most important differentiator that allows us to protect that moat is going to be the brand and so all of this ladders up to creating a competitive advantage around brand that allows us to to really scale them and defend that position but the way we will allow for if you have a clarifying question we leave time for Q&A at the end but if you have a clarifying question you want to ask right away happy to do that a just raise your hand yes yeah we have tons of others tons of others I was talking specifically about like product design for first shoes yeah no no we put a lot we put a lot of money and energy into it a lot of designers yeah yeah so one a I think both views of style with the skills you need one question that we hear from people is how do these change over time so Ravi maybe I'll start with you you know you look at decade a decade ago or maybe to a how things change in a way that maybe enabled or hindered a scale and growth with it about market technology customers suppliers a you know if you can comment a little bit about from firms that you see and then no Steven joy if you can comment allez-vous so I spend most of my time in the enterprise space which is nice to have a complement there's consumer a lot of consumer representation here I would say the biggest change in the last ten years a lot of enterprise software is really software as a service is the sophistication in metrics so 10 years ago you were still in the very it was the birth of sass Salesforce and WebEx are still youngish companies 10-15 years ago now you're kind of in the third decade second decade of that and so there's real sophistication on metrics in these metrics the youth there's usual growth metrics like revenue but also I call it the efficiency metrics which is something called magic number which is how much you pour into sales and marketing what you get out so those efficiency metrics are important because in the early days people would just look at the the top-line metrics and then you would have situations where you have companies that try to go public we had top-line growth but the cost curve was at a higher slope right and so there was no operating leverage II was in verse so now what's happened is the sophistication is the public markets and institutional investors really won't put up with that so it's getting into profitable growth efficient it's kind of the anti Webvan and you're seeing the public markets are kind of the great arbiter so when they go to the public markets you'll see exactly I mean Warren you put it up there that's that's a real-time example so I feel like that those sophistication in those metrics has helped us a lot it actually gives us a lot of comfort because inherently when right when we're about to scale we're taking two big leaps of faith one is on the team like I mentioned can this team whether the existing team or new members of team handle this scale and the second is capital because we're always investing well in advance of that scale I mean that's just how I works you pour in a lot of capital and then you you hope that your instincts are correct we have a lot more sophistication these models it's that that actually helps us there's still tons of ways you can you can go wrong but I would say that's probably least in the areas that I invention that's that's been the number one defining feature in the last 10-15 years Steven Lee you can come into that as well I mean from you've done firms in different areas right are the challenges the same challenges or the benefits the same benefits accrue and if you look throughout these years I think about the mistakes and things have learned along the way like you know I did the tools we have available up today to us today to scale are so much better than they were years ago right I feel like there's so much we can accomplish like they outsource tools for me when I look when I think about scaling it's uh I go back to one each light it's like scaling the right things at the right time in a company right I couldn't agree more on like product market fit I mean we look we spent the first pretty much the first two years of our company like heads down for working with our first two customers trying to make sure that things work that they would scale that we could repeat this right and only in the past like past year and a half I've really really been focused on scale it's pretty interesting like like so much focus on product market fit a lot I would say - Mia this feeling about like a like this theoretical scaling like basically a lot of mental exercises to make sure that like and all the things that we're doing it would scale when we were ready to scale but actually not putting that much of it into practice until we were until we had gone through you know a few iterations with a customer right so it's a lot of like scaling the right pieces of the organization at the right time and you've you're feeling overall that this has been consistent throughout the years so they're like if I think for example on no you see what Facebook and and what Twitter and neighbor like for example the fact that the firm like Instagram can come in and take the entire graph from Twitter right puts them in a place where they could scale much faster than any other social network before that right a in the area Tyrion have you seen things that are enabled and by the same time enabling me and that maybe they actually make it harder to scale because I other compete with you know I just think the technical landscape is completely changed like I think that just Flixter when we started that wasn't so long ago right and we were racking computers and building a hosting Center and like maintaining all of that right and now with with juvie like I'd we will I hope to never touch a computer or a cable ever right the computer is only the laptop that our engineers use right the fact that there's so much like so much of this is on demand like the premise that the company is distribution is like we can get distribution throughout the world virtually free and we can scale completely in the cloud without touching it any any computers right so just way beyond the scales and organization is completely that shifted the constraint where it really shifted the shift this is constrained for us I don't think it's look it's it's still I mean the it's for us it's really like getting product market fit right like getting sales and getting customers on boarded correctly is the key thing for us right now beyond that that the business scales tremendously also if we get those two pieces or any sales process yeah essentially joyed do you want the coming through that will sure I'll go real quick I mean I think it's it's to launch a physical product and do it and sell it to a customer to consumer is much much easier than it was five years ago I mean 10 years ago it was virtually impossible and it would take an army we started all birds two years ago a little over maybe a just over two years ago and it took us six months to get to launch the product on in March of last year of 16 and we didn't have a single technology person on staff when we launched there was a team of four really then we added a customer service person at the end to launch it so I mean you can it's we launched on Shopify and it allows the transaction with the consumer which is quite a lot of security and embedded technology inside of something that we were paying $1,000 a month for so I mean it's incredibly easy relative to what it was when some of our peer companies from Wharton and whatever a Casper or warden or Warby Parker as well when they started ten years ago or five years ago it was a lot more challenging so I think it's it's evolving very very quickly so joy I want to come back to you for a you know we discussed a little bit earlier this relationship between operations and marketing right and the thing there is specifically as you grow it civilly if you have a physical product one of the challenges is how do you seize the opportunity for growth while not alienating customers not over-promising mm-hmm can you talk a little bit about the challenges that you're facing and what is being your approach to think about that yeah I mean we've done a I would say a pretty bad job of that and it is incredibly hard I mean we I remember the first first month we launched we were really nervous we wouldn't sell any shoes except to our moms and so we like created a catalog and we sent catalogs to consumers and we were out of almost every single product once the catalog dropped so I mean talk about a waste of money and a bad experience for consumers I think what what has happened for us is particularly cuz it's direct-to-consumer so we don't get bookings from retailers and then make to order against against bookings we have to really just estimate demand and when we started a hundred percent of it its organic we had absolutely no idea what to expect so we we did a really bad job of ordering and then we started to do it tiny bit better when we saw that okay there's this organic completely unpredictable demand that comes from press or meteor an organic acquisition like that then we started to get a little bit of word-of-mouth and then we could see how that was growing and then we got some a little bit of repeat customer so we could see what that was from and then we got a little bit of paid marketing maybe nine months into it where we can see what the response rate would be on that so the predictability starts to get better but today we sit here and our most popular style is a gray color of shoe that we should never be out of stock in and we're back ordered for like two weeks so we're doing a bad job and it's incredibly hard with a length of a supply chain like we have in terms of the lead time for the product and it's things that we're working on but we're innovating around material science which is like you know physical molecules we're not talking about bytes in a cloud and we have to both invest in the development of that and then create a supply chain around a new material which is naturally going to be longer than it will be if we just used off-the-shelf the cheapest and fastest stuff so you know we haven't chosen them an easy battle to fight but but I think it gets better and more predictable as the data gets richer and as we see what kind of demand is and you know now organic demand for media is a lot smaller of a percentage because we're much bigger than what it was when we started when it was a hundred percent so it's just the predictability is increase so we're getting slowly better but building those processes is a hard muscle to learn so in a sense how do you think about the quality of the product that suffering is is you I mean was that time that you had to compromise in one now that that's gotten better every single month I mean we take we've changed the product 27 times by the last count since we launched 18 months ago and we've done that because we get feedback from customers we're always improving every single pio we make running changes and we knew that quality and product market fit and giving a a quality product is the most important thing for us by far if we break the promise to a consumer that it's as you said very comfortable and it doesn't fit it's gonna be a horrible experience so we have focused a huge amount of energy on getting that right and we're in our factories probably a dozen times a year and we have you know 200 200 people probably touch every single shoe to make it which sounds very archaic but that's the 99% of the industry and and if you get one of those wrong it's a scrap and so you need to have standard operating procedures at every single step in that process and we have every single one focused and we're updating at every single every single month and do you think it affected your your speed of growth and then your ability to scale faster now I think what what really affected us is our poor planning I mean we've just consistently left opportunities to give customers a great experience it's really been our own excel models that have been flawed not not our Factory Ravi maybe you can come into the world from the firms that you see on this trade-off that we see is inherent almost for every firm between you know growing fast but but maybe leaving some issues behind in terms of the ability to weigh to support that I mean they I had a co foreign tell me that unless their operational issues things are not right I think I mean something we deal with and we struggle with in our company's marketing which is the demand side which is what you really want in these these young startups and then operations which is ability to fulfill it however you want to define it and that usually it's presumed because what startups you're just begging for that demand side right it's a competitive market so once you get it it's unfathomable that you can't fulfill it or work through it so the only way we can do that again it starts as a team but to really monitor execution excellence in each of those so on the demand side is making sure there's demand and there's there's real demand really honing indices goes to the product market fit piece is it really something that the customers badly want they'll pay for and then on that's the front end and then on the back end making sure that you're able to deliver I mean software it's a little different how we think about that is churn that's a good measure of product market fit an upsell but also down time to make sure the infrastructure works but even in our consumer businesses which is much more fulfilling like e-commerce or or anything like that it is making sure that you have the operation so our greatest example that is jet which is one of our investments and the prior invested so Marc Laura was the founder of jet he was the founder of diapers.com and they came in to present I think it was oh seven oh eight and it was just we didn't understand why we were looking at a company that was produced there was selling diapers we thought there was no tech or technology investors right but his operational precision was just nothing like we'd ever seen and so he just had everything down to just it was an order of magnitude greater than where he'd seen so the operational piece was significant and then he just made sure it was an amazing UI in product design on the front end she got the demand piece so he's able to match that you took that exact and then it got bought by Amazon he spent a couple years in Amazon and he actually uncovered because he was so good at the operations he uncovered all of the inefficiencies of Amazon the e-commerce site and he was crazy enough to start gen right so it's very very difficult he is kind of the you know the one percenter a lot of times you actually have to do it eration fail fast and hope that you fail fast or not slow and then you keep redoing until you get it right yeah yeah we look we're at the heart of it we're okay judo is a b2b to see companies so there's actually two parts to scaling the b2b side and the b2c side right and I said look we touch millions of consumers every day tens of millions consumers the nice thing that we spend enough time upfront in architecture and design and scaling that like we feel pretty confident on the consumer side of our business that we're ready to go to tens hundreds of millions of people which is great right always be something but we feel pretty good about the consumer side of it I think the more operational intentional intensive part of it our business is the b2b side of the business like we we sell to very large mobile operators around the world and it's a long sales cycle long implementation cycle and like reputation matters a lot like if we do a good job that will make the next sale easier if we fail along the way it makes it a lot harder so like we purposely took the approach of really over servicing our first customers right let's let's make sure we're putting a lot of time let's over deliver it let's do as much as we can really not focusing on efficiency at all right and and you know we've had some hiccups along the way but we just jump in and and made good on everything that we're trying to do now we're really the key thing for us is like grow it's like growing the team right trying to get more bill getting graded operations bringing a head of operations bringing a head like building the team around to get more structured so we can service you know then a 50 operator is 100 operators around the world so now we're moving more towards as you say more more from like innovation to into process and making sure we're ready to grow faster and that brings me actually to the next question which is really about talent and organizational design a when you think about staffing when you think about adding more people when you think about building an infrastructure a and buildings of an organization structure to support that what are really your guidelines I'm thinking about that a try to scale and and try to take the culture that you have and try to scale that or the capabilities you haven't scaled that yeah look we're going through a big inflection point right now post our Series B in growth and I think one of the most interesting things to me is kind of like needing a different type of thinking at different stages of the business maybe implies to me and right I realize like I love operating in like ambiguity I like like figuring in outdoor products I like discovering things right and now we're at a point where it is more in process its how are we going to Gail and I realize like I need to bring in the people around me who enjoy and our great part great at that part of the business but that scene kind of met change in thinking almost applies to like to eat different eat all the parts of our organization so I find myself having a lot of conversations now with people around the team like look what like what what are you great at what do you love to do where how's the company growing and where where where where's the best fit for what you're doing and what does the company need so it's like creating room growing the team and making sure in some cases are bringing different people to focus on different things it's a it's actually an interesting conversation because like everyone wants to if I've noticed I way you grow everybody want some bigger and bigger roles in fact when you grow roles tend to get more focused in specific right so trying to just you know make sure we have the right fit with the right personalities and the right skills at different parts in the organization that's a great point I mean that's that's a great point and overall again I come from from Israel where a lot of what you see is many people that are great in starting firms but definitely not staying there a I think a lot is driven by exactly what you said right I mean I think the fact that you like the end the end some people strive better in the end to end thinking right and don't operate well when there is a specific task that they being measured that they like them big Uwe T but they don't like this specific structure I mean the nice thing is when you're grown you have plenty of everything right so it's just actually that making sure people are working on the things that they're the best at and creating room for new people on different areas there every minion firmly to you you invest in and you probably have seen a variety of organizational structure that they had to go through a maybe you can throw at them without names I mean a successful on and wanted in managed to change the organizational structure as a way to succeed to a dude stance of scaling yeah there's there's many of the latter in terms of successful I would say that the the our teams that have done it well and CEOs have done it well they use the term over build your team because if you're growing two to 3x as I'd mentioned your teams are probably growing maybe not that rate but significantly so a 30 percent organs eighteen months can be 100 people right if you're in that hyper-growth hyperscale phase so making sure that you're building out and you could be getting people that may not be it almost seems like this stage is a little too young for them but that's almost okay because within a few months what we're it's not work is when you get the person that's matched exactly right and then three six months later you've already overshot this person so I would say over building that team a couple of key hires that we're pushing them more and more just ahead of people to manage all this to do well and I've actually preached a lot more of this the role the closest terms those is just the CEO oh this person that can just handle a lot of stuff and make the trains go on time as these organizations really start to explode in size you're going to get lots of different teams and at any one point several of them we're not going to be gunning on all cylinders so having someone to help pull that all together the final thing to do is I tell my my CEOs to just make sure that they have a really strong I call it the bunker team who's your executive team and where it goes wrong is when the CEO tries to do too much a lot of times first time CEO they think that they can scale this because they want to prove to everyone including themselves and what happens is to Steve's point they start doing a bunch of things poorly instead of doing one or two things so the ones that do well is I know I'm really good at you know external facing things and internal facing I need to I need to build out so it's those types of things we we do we also as a firm because because of our scale we have a lot of events which just CFO's just CEOs just heads of sales where you have this kind of protected terrain and turf where people can just and they share they just show this is one of the issues I'm going through so if you create that community as well as have some guideposts then you know you can do all your doing all you can still things will break but you know so far it's yeah ours is sounds extremely cliche but I just think about it all the time and live it is very similar to what you said around people we we filled out a leadership team of very experienced executives very early on in our company and we did it kind of like the thing that Tim and I knew the least we would hire the most experienced and the smartest person we could possibly find in that place first and then as we like grew slightly less ignorant all the way down we'd hire in that that kind of order and and we did that every single time every single person on our leadership team Tim or I would for sure work for in a different kind of environment and we've then been able to set pretty stretch objectives and we have a culture that is hyper transparent so our belief is that if you have very smart people and you give them all of the information and you set the context for them to thrive that they will make amazing decisions and they'll surprise you and so the hard part I think as we grow we're about I think we're about 80 people now and as we grow to call it you know next year will will be particularly as we add retail will grow into the hundreds and as we do that the hard part is about making sure that that kind of approach cascades down through multiple levels of the company and that is very hard because not everyone is oriented in the same way as as you know people who who are naturally oriented that way they really it's it's a hard skill to I think make sure people calibrate to feel comfortable that any day they would work for someone who works for them that's a really hard thing to get comfortable with and it requires a lot of self confidence and an understanding of what risk means in a start-up and I think it's it's just a hard thing but we're we're working on doing that because we feel very confident if we're successful at that the whole company can scale with that same mentality which is which makes a really great place to work too so what I want to do now is let the last question that will be a you for you to think about your questions the last question will be what keeps you up at night a you know scaling non scaling a joy we'll start with you well I have three children so that well it's funny you know we have a we have a bunch of knockoffs coming after us now it's happening a little faster than we expected I don't really think about that too much I'm worried about it because it's it's it's kind of different some are big companies that are multi-billion dollar companies but a lot of them are kind of just random companies from Asia that doesn't really concern me too too much it's really about we've always known that that's going to happen so we need to just innovate to a degree that creates newness not just like a new style of the same material like a line extension we need to completely reinvent ourselves and do it in the same way if not better than we did the first time and we feel like we have a pipeline from the day we started we felt like we had a pipeline that could last three to four years and this is like deep material science we're doing big collaborations with multinational chemical companies and text out the textile industry and we felt really good about that but moving and taking the challenge that we're trying to take which is creating comfort through highly renewable products that have never been used in this industry before is something that is it's just non-trivial and building an engine inside of a company with scientists and people that can focus on R&D kind of sounds silly we're a shoe company but this is one of our first before we had ten people we hired a VP of materiel innovation and sustainability and we had to focus on that because these things take years to get off the to get off the paper and onto onto a physical product and so if it keeps me up at night but it's at least the thing that I think if we if we fail that we will fail as a company and we will not be the kind of enduring brand that we're setting out to be so that's the thing that I spend most I'm thinking about Bella that's great yeah I mean obviously all the things we talked about in terms of did you hire the right person is that the company well capitalized is it over capitalized but as you're building these startups which is hard enough making sure that you pay one eye externally because here's a problem when you have scaled properly then you've earned the right for the big monster multi-billion dollar public companies to take a look at you morning and then they want to squash you right because you're a massive threat to them so while you're building this and there's a torturous journey paying attention to that threat but also the one thing that it's happening you know our company's the gestation period or eight to ten years very long time well here's the problem sometimes product market cycles are less than ten years the three to five years so as you're building this company and you're hoping that AWS doesn't kill your entire enterprise portfolio as a for instance making sure that you don't overshoot or undershoot and we've had companies that are amazing companies and we've reached a great point and we've literally missed the window and that so it's just aside from that it's all great [Laughter] so I think what keeps me up as we're expanding around the world a lot of it is jet lag actually look for the I could feel like I'm the chief where are you at the company's far Tyrol I always think about it all the different problems we could face look at look for right now it's a lot of people as we scale and and look what we're doing applies to about eighty percent of the world so I feel like like companies inherently have like there's a pace that you can grow a company sustainably before like how they onboarding people getting them productive maintaining your culture like there is just a throttle to that on how fast you can go and we're balancing that with like as I was telling you before we came in like should we be launching in Africa should we try to take a run at India like like how really how global should we focus on with our company right how fast it's it's it's a balance of how fast is too fast and I'm like looking at a technology company too your point like the landscape is always changing you're always just making decisions on partial information right and and so we want we think it's a very big opportunity we want to capture as much of it as we can but just trying to make sure that the the wheels stay on and we're and we're maintaining our culture this week grow do you think I mean you know we discussed a little we didn't have time but we'll I want to ask more about like your global expansion right now right can you walk us a little bit just through the your thoughts about that how would you what would that mean did you mention Africa yeah so look I mean look the approach we've taken so far because there were 50 people but we're on four continents right so we is like look we have to have some sort of Australia like sanity to this so we fully pick regions of the world focus on Latin America and Southeast Asia we have activity in Eastern Europe in the United States so it is it's a pretty big undertaking for a 50-person company to say like look let's go set up shop in India like it's a big investment oh you know building a team there same thing with Africa so look we're trying to try to make a thoughtful decision about this right I mean uh and it's in process right now really just about how quickly can we grow yeah yeah yeah I think we discussed earlier I think the challenges some of these technologies translate to other continents and that I think is some I think you'll have to have different set of skills to deal with that a different challenge in time technology in each one of these I'm getting a fast anything is we've seen so far is like at a base level what we're addressing is peak just the need to communicate and it turns out that's Morse different similar than different around the world like the base problem we solve works across like countries at all different you know income levels so that's exciting we can go all around the world right but when you go deeper when you go upstream that's where it gets more like video syncretic to different countries yeah yes what I want to do now is open it to a today audience and I see the first question there hey we have the microphone or but we can try without I will repeat the question what's the healthy tension between the founder and the investor who who takes the charge from strategy and who takes the charge in execution or who takes this charge on making the decision that we will scale whether one likes it or not yeah I believe it's all on the founders and the management team personally I mean you can differ like I I personally believe that our our investors are counting on us to make the right decisions on the company right look actually I at our last board meeting I just asked them to be like a dose of Reason or sanity on us like just tell us when you think we want to go after that as big of an opportunity as we can but be a sounding board for what's too fast if anything push back if you think we're gonna we're going too fast like in others I think you're maybe expecting the reverse I think our board would say would urge us to be cautious about expansion more than us in many ways take the time get it right expand like you know methodically I think were inherently want to build something pretty big yeah but I think it's on us I feel yeah hi my name is Derrick jokes I just graduated last year and my questions for Joey specifically at your time at Penn you might may have had the chance to take Professor Alex class on product design we kind of tear away know where he spoke about like shopping for manufacturers in Asia so I'm really interested in your experience finding a manufacturer and how the relationship has grown as you scale pray more than you expected yeah it is it is hard I mean that is really hard we we raised money and our first like roundest seed capital was August of of 2015 and we told people we were gonna make shoes in Transylvania and we like we did have a factory in Transylvania that like information and so we thought that was the lead horse but we also didn't really want to dig in too deep because we knew that we might find some things that were that were not good lo and behold after the money was in the bank we found some things that were really not good so so we with you know having promised we were gonna launch this six months later we went out and really just scrapped Polly through our networks we went out and we ended up finding three manufacturers there was one in the u.s. one in Korea and the I think the third one was in China and we sent we sent tech packs to each of them and tech packs in in our industry is kind of like all the patterns the last which is the shape of the shoe and some sample outsoles and we said go make us a shoe here's the shoe we want and you know during that time we got their work back so we could see what the sample room was like and a sample room is gonna really indicate what's gonna come out in the production line it's not always a one to one but it's a it's a pretty clear picture to see the professionalism and the quality of the factory and you also through that process get to see how they're gonna treat you are they going to bend over backwards to serve your needs or are they going to kind of brush you off and say well this is the process you kind of got to do it on this timeframe and if you don't like we're not gonna we can't we can do that for you and the the guy we ended up working with name is Michael Jill and he liaised with with the factory for us in a place in Busan Korea and he's now probably one of our most important executive so we've hired him full-time and he runs our Korean operations which is probably about five people now but overseas hundreds of people on exclusive factory and a couple other places and he just stuck out stuck out head and shoulders above the rest by such a long margin that it was it was just abundantly clear that this was the kind of group that we were going to work with it had all the right fundamentals in terms of worker safety and employee health and safety across the gamut of things we were concerned about the quality was high and so we we took a chance and took a risk with them and put our first pio was was uh was like ten thousand pairs of shoes and that's not a lot for a big shoe company for a big for a big shoe factory but they treated us like we were making a million shoes a month and so they were great many designers charity for scaring is question is about water scale when scale and how your skills so from what your health seems what matrix will you use and also is there any good models depends on different industries and their business model so how much time do you have so I would say for sure it depends on different industries and different business models but you know if you think about scaling the biggest thing to ascertain is product market fit because it's not something that is out there you can just it's not like a revenue number right and so you need proxies and so we try to have a proxy so you know a lot of our consumer partners they look at NPS Net Promoter Score how exciting is this product to the to the consumers they they sell - so on the enterprise side which is what I deal with its churn its churn and upsell so how sticky is the product and how much more are they buying of the product right that's a short-term proxy but you know you this is an imperfect science so you have that if that is working then you look at everything else then you have to get to an external check to make sure that the market can sustain scale sometimes you're in a market that's constrained so you pour more money into and you really you hit a ceiling so it's you have to make sure that the market is there and that's pretty straightforward if you go so once you have those two then the next thing we do is the probably the most important thing is the team how is the team and that's probably the number one thing we focus on also get wrong and so one of my favorite anecdotes that a couple these folks know is one of our companies mule softs public company early in its life when we invested CEO is one of the best years of her back Gregg shot he put a bar chart on the on the bulletin board and one of our conference rooms on his revenue plan eighteen thirty forty five etc it was a pretty impressive plane anyone will be thrilled to have that type of growth and one of my partner's Scott and uh you know he had a very it was a bizarre question he said what if he we removed every other bar right which is of course easy for an idiot VC to say they can just say doesn't really happen man locations and literally the CEO looked at us like your idiot VC is you what the hell you're saying but the next hour was really the most important conversation because it forced the CEO into a discussion we actually could really go intro and say okay do I have the systems the people the processes all the things that are on your slides and then he went through one by one and over the next three months he came back to us he had the he had the market yeah the product market fit he needed some upgrades on the team the capital was taken care of and we actually embarked on that strategy he didn't exactly Skippy everybody but his growth was well ahead so you just have a lot of it is just data ingestion in terms of signals and then making sense of signals and what really helps is having years and years of seeing trends and then you bit and then you make a bet and then a lot of times those bets you know Webvan when they were pouring eight hundred million I bet you they had maybe reasonable conversations and why they think that made sense maybe they didn't have the right signals or didn't they had few signals but they had signals for us it's really signal processing before we embark on that I'll just say a word about your skipper mentality I think that's to some extent and it's a great I think concept and it's really very much thing about what I said earlier about the constraints it's another way to force yourself to ask yourself what if I give you everything all the tools you need to scale I'll give you capital what is that what do you need what more do you need to be able to do that a it in my parents it's a great idea it's a great way to think about that from a fun different direction it sound from the end yes so for us we we talk a lot about trigger points and when you reach a certain trigger then it's time to switch into a different mode so I was curious to hear your experiences with dealing to those points where you say here's here's where I need to change my operations so what are those those triggers in which you've seen and then how do you execute on what you think is the right way to proceed as you hit like you do revenues your customers are all that maybe joy you can let me talk a little bit about it I don't know I wish it was that simple I find that like the triggers are nebulous and you like you know for us particularly in a consumer facing business understanding when newness is gonna fade or something else impacts your market that's gonna change the dynamics that you're seeing you know we try to look at forward forward-looking metrics like MPs and repeat rate and the percent that's coming from word-of-mouth and when do we invest in in something that might cannibalize our existing business and do something that we think recreates some amazing experience it's just kind of an intuitive sense of when is the right time to innovate and scale and that adds complexity and then you need to invest in those people so I you know for us it's been really about taking an intuitive approach to and a feeling for when the right time to do that is we're facing the same questions on international and I think we've had the same experience where our investors and almost everyone who's intelligent in this kind of market has told us not to do it and go really really slow and we're just completely ignoring it so what happens yeah so I think it's it's it's for me it's not it's never been really that clear I would add to that for us again I don't think of points in time that I think as being like constantly trying things and instantly learning right like we literally are always experimenting on a different way we're selling the different way we're delivering the all different iterations of the products it's just a constant constant process for us I get evening thanks for being here first of all and sharing your experience my name is Jen I'm Wharton alumna undergrad and MBA class of oh six and these days a lot of companies market themselves as having a product or service that will help you scale right and including my own company and I'm wondering from your experience so this goes for everyone on stage right now what have been some of the tools that you have employed at your companies or your portfolio firms that have helped them scale solve some of the problems in keeping costs low or increasing sales without you know exploding the budget and also perhaps maintaining the culture of transparency that several of you have mentioned Thanks I'll do a really quick answer here because I just I went to this um I went to this event this week briefly for half a day and there was a bunch of vendor selling into retail and he come and I made the comment cuz I looked around you're getting bombarded with spam emails because you're attending this conference and I felt like if I implemented like you could name doesn't even matter what the vendor was but pick ten of them and I would double my conversion and increase my revenue by like two X just without doing anything so like I take such a cynical view of it because it is so freakin hard to really implement some and it's always so unique to an individual business that our approach has been try to get the best and suss out what the absolute best is in different areas we'll pay people to do great value add services for us and then typically if it's really really good we'll try to learn the best of it and then we'll try to bring it in-house I think it's a very hard time to stand out from the noise I mean it is really quite difficult I can take a crack at that that's probably that's a fun that's the question you know 20 years ago over decades ago I was warned you know teams matter management teams matter which is an obvious thing the best way for me to explain it is when I started in venture 18 years ago this was my definition of world class and this is my definition now and so part of it is just and that's why we are very much our firm operates as a team it's not a much because we realize that there's experiences with people that there's nuances that some of my partner's can can gauge that I can't and vice-versa so that is selection and we have whiffed like I think I've done the statistics I told my partners on VP sales just DP sales hiring in the last four years I met a 50% hit rate which is bad you want to be of course you want to be hundred but some of my partner's are saying you know what that's better than normal so you'll you'll always make mistakes so the most difficult issue is when people leach reach scaling thresholds even more difficult is when that person is a founder right and so you know we pride ourselves on being very entrepreneurial friendly and the best way we do it is at least for me it's this is no algorithm it's just I spend a ton of time with my teams and you build personal deep relationships such that they know that you would do whatever it takes to help the company and so dick crammed llyich was the founder of Nea regarded as one of the whatever ten founders of venture capital he gave me some advice it was really good advice he said whenever you're struggling with a company or a question or a situation just ask yourself this question what's in the best of the company so I've repeated that to lots of folks and so having an intense relationship with folks and then being able to walk through it's not always easy but a lot of times and then you also figure out think like an owner versus an employee an employee you care about your title and your role your owner you care about your equity and making that the most valuable sometimes it's you doing that sometimes it's someone else even with someone else there's other roles for you but I mean this it's about as imperfect a science as it gets and we the number of times I've said we found a world-class exec and they didn't work out or we found something I'm not they're gonna work in their home run its countless that's why it's so difficult yeah I mean just I mean I'll say that that most math methods actually don't do better than 50% but if you look at most methods for selection I mean in fact really the only method that works is having people do the job for a while as a way to demonstrate and in that way we many times say you need to hire slowly in fire fast it sounds very cynical but the reality is that you have to be I mean you have two types of mistakes either you hire someone you have a job that's not filled or you hire someone to early but that doesn't really fit I think the mistake of hire is someone that doesn't feed drive it the very much more than not having someone there yeah you make a good point for us the the best thing we've done is groom talent from within because there you don't have to worry about a culture issue and actually any a so there's 11 general partners ten of the eleven started out as associates do the race so it's something we believe in a lot of our companies one thing that we do a lot when we're attacking a new part of the business or a new challenge is we actually we're very quick to work with consultants in a way right like basically we want to learn right so we try to find experts in different areas and we bring them on for like three months like just learn learn observe absorb and then hire then go to hire the purse sometimes it's the person we brought as a consultant sometimes we just now we know what problem we're solving and the type of person that we need that's been very helpful so it's just proving out in a lot of different areas of the company yeah and that talks a little bit of what you said before but learning Sophie I mean you need absolutely whether it's need we have time for one more question I'm a size ten and a half I saw you I saw you in first burden runners on right now and I appreciate that they're awesome so I think but the mission of half sizes was set a strategic thing to reduce complexity for the initial rollout or what what was sort of a thinking and then maybe a little bit a lot of future roadmap on how sizes yeah we we the read the reason we did it in the beginning was very straightforward and simple is that we were worried about working capital and having way too many skews all at once scared us so we thought we could get away with it because we have a really flexible upper material and what turned out happening is that not only did it save us working capital but it reduced our return rate to a level that was so low because we we realized that it really did accommodate a broad range of feed sizes and so serendipitously people wouldn't go up a full size if it was just a tiny bit snug but if it was a half size they might have returned it and gone up a half size and it didn't take away from the customer experience because it would stretch and be flexible to the foot so we got away with it and I think we'll constantly evaluate it now we have different styles with different lasts and different kind of sum of laces some don't so you know it's challenging we'll figure it out but it is it was it was kind of a lucky hindsight kind of thing and in that tone I would like to thank a word entrepreneur she for organizing that Karl and Irina I want to thank you for coming and I want to thank our three [Applause]

Channel: Wharton School

Views: 16,834

Rating: 4.9093485 out of 5

Keywords: Wharton, The Wharton School, Scale School, Gad Allon, Steve Polsky, Ravi Viswanathan, Joey Zwillinger

Id: FhNyHVJGYz0

Length: 96min 12sec (5772 seconds)

Published: Mon Oct 09 2017