Scaling Your Startup? Focus More on People

What sets apart a founder who scales successfully? Many say it’s shifting focus from building a product to managing people. Shikhar Ghosh and Nick Grouf explore how investing in human capital—hiring and terminating appropriately—and delegating work, provide keys to scaling a startup. A serial entrepreneur, investor, and philanthropist, Grouf has more than two decades of experience in finance and technology. After founding, scaling, and leading billion-dollar exits for his tech-startups, Grouf shares core insights on why founders need to focus more on people, especially as the scale their businesses. “No great company is built by a single individual,” he underscores.

From HBS to Unicorn Builder

In the past decade, Grouf founded Clementine Capital, a technology-based incubator and Alpha Edison, a venture capital fund. But he launched his first successful company while attending HBS. His first venture was Firefly, which Microsoft eventually acquired. The company “pioneered personalization on the Internet,” he explains. “We invented collaborative filtering. If you go to Amazon it recommends books or Netflix recommends movies, that was our core tech.”

After the acquisition, he joined Softbank as an Entrepreneur-in-Residence and started a second company, PeoplePC. Grouf took his second venture, which merged with EarthLink, public for a little over a billion dollars. After overseeing the technology for John Kerry’s presidential campaign, he started another company, Spot Runner, in the advertising space.

After selling Spor Runner, he shares, “I wanted to see if I could start more than one company at a time.” He purchased a warehouse building out in Los Angeles and started incubating ventures based on his own ideas and those of entrepreneurs he respected. That accelerator started about a dozen companies, including one of the fastest-growing companies in the US. He shares, “We bootstrapped it on $25,000, did 4 million dollars of revenue year one.” By the third year, they earned $120 million in revenue.

Launching successful ventures led Grouf to question and reconceptualize the venture capital model. He started a new company, he explains, “We try to think about venture and investing in a different way.”

Shifting Focus from Product to People

When rapidly scaling startups take off, as Grouf’s have done, many experts people say that good founder-CEO must shift from product to people. What has he observed that founders do to manage the process of scaling successfully?

Hire Strategically

“Everybody talks about this,” Grouf notes, “but you can’t say it enough. Your job is to hire people who are better than you.” Founders have a unique role, vision, and courage to start the business, he remarks. You should aspire to “hire people that are dramatically better than you.”

Your job is to hire people who are better than you.

Nick Grouf

He elaborates, “A great example of that is Mark Zuckerberg making the decision to bring in Sheryl early on. That took tremendous courage. They’re very different personalities. That is a difficult thing to do. But I think that it is often directly correlated to success.”

Know Your Weaknesses

Grouf began his first company in his mid-twenties, while still in graduate school. He recalls discussing the idea with a professor who initially questioned Grouf’s qualifications. Eventually, his mentor advised him, “I think you can do this but you have one responsibility and that job is to know what you do not know and then surround yourself with people who really do have the knowledge that you’re missing.”

Know what you do not know and then surround yourself with people who really do have the knowledge that you’re missing.

Nick Grouf

The advice stayed with Grouf who believes, “I think that’s the job of anyone who is operating in a business or other sort of organization in society. Know what you don’t know, recognize that. Know when you’re playing to your strengths. Know when you’re working on your weaknesses.” And frame your weakness as opportunities to develop. He stresses, “Don’t be afraid of asking for help because no great company is built by a single individual. That is proven over and over again. And anybody who’s at the top of a company who is trying to cultivate a sense that that’s true is just not telling the truth.”

Don’t be afraid of asking for help because no great company is built by a single individual. Anybody who’s at the top of a company who is trying to cultivate a sense that that’s true is just not telling the truth.

Nick Grouf

Recognize that People Grow in Stages, Not a Steady Line

As you scale, successful founder-CEOs build a process of investing in human capital. That starts with hiring and retaining talent and identifying when transitions are necessary. Sometimes, a startup’s growth will outpace an individual’s ability to keep up.

Scaling companies try to map growth in a linear fashion. But “people tend to grow in a step function. So there’s this moment of growth and then a period of digestion of the knowledge, and then a new moment of growth.” What happens when the company grows faster than the people involved with the business? “I think it’s a responsibility of everybody around a company to try to identify when that’s happening and have a candid conversation about it,” Grouf advises.

Always Treat People with Respect When Terminating

“Too often when people are terminated they’re not seen as potential ambassadors for the company as they leave. And the fact that they were not the right person for the role at the time is often confused with they shouldn’t leave with their dignity.” When you do need to let an employee go, do it in a way that conveys respect for the individual.

There are lots of ways to let people go in a way that their head is held high. So  they continue to feel a part of the company that they were involved with building and become extensions of that.

Nick Grouf

Often, because of anxiety, dread, or just rushing through the process, founders “let people go in a way that is not respectful.” But such an approach is short-sighted. Ghosh observes, “The valley is full of people who’ve been let go from other people then become incredibly successful. And the way they feel about you and about the organization that they left makes such a huge difference.” If you’re facing the decision to fire an employee, CEOs share tips on how to frame a decision to fire a staff member and prepare for the conversation in our Recruiting and Retention section.

Part of succeeding as you scale your venture is helping your team to adjust. Every work experience, even ones that end with termination, provide an opportunity for growth, Grouf shares. Successful founders and CEO embrace that knowledge and help their staff to see that perspective. “Few of us have only been in one romantic relationship,” he analogizes. “Romantic relationships often don’t succeed. And somebody once said to me that you do the most growing between those relationships. Really growing the understanding of who you are and who you want to be.”

Similarly, profound professional growth can occur between jobs. Losing a position can be an opportunity to take stock and think about who you are and who you want to be. He notes, “Tremendous growth happens there. And too often we don’t look at that as an opportunity when it happens. And it happens to everybody.”

In-between periods are really opportunities to take stock and think about who you are and who you want to be. Tremendous growth happens there.

Nick Grouf

The Founder’s Role during Scaling

In many cases, to avert risk, boards will decide to replace a founder-CEO with a professional CEO as a company scales. Grouf notes, the “decision to change the leadership of the company is conflated with the decision of whether somebody should be with the company or not with the company.”

But, he believes, founders provide the DNA for the company. “Founders have an extraordinarily important role inside a company at all times. Most founding CEOs are better equipped to suffer through the challenges of a business and to really not only have the vision for the initial opportunity but all the derivative opportunities.”

Empowering Others as You Scale

But, he highlights, to successfully scale a company, the founder’s role must change dramatically. To underscore the evolving role, Grouf wrote a piece called 1000 Hats.

When you start a company you’re wearing a 1000 hats. Your job is to sort of delegate that work and hand these hats off to other people as you scale and grow.

Nick Grouf

Eventually, he notes, founders are “left with one hat and a lot of people think if they hand off that hat it’s a sign of failure. But the truth is that if you can hand that hat off and the company is successful that is a real sign of success.”

This is an edited transcript. To hear Grouf’s thoughts on VCs are looking for, team composition, and the importance of board selection, see the full interview.

Shikhar Ghosh

Posted by Shikhar Ghosh

Shikhar Ghosh is a serial entrepreneur, angel investor, and Professor of Management Practice at HBS. Named one of the "Best Entrepreneurs in the US," by Businessweek, Ghosh has led some most innovative tech-based companies in the US and advised hundreds of entrepreneurs.