Why Leadership In Startups Can Sometimes Feel Impossible & How To Thrive Anyway

In a high-growth startup, nothing stands still. Every new hire, new function, new customer, and new product surfaces the need for processes, systems, and workflows that don’t exist yet. Most of the way teams are going about their work isn’t right and will need to change. Temporary fixes that inevitably need to be iterated can make it feel like you’re spinning your wheels. And the change you need changes because the company is so small, you can double the number of customers, employees, or initiatives within a matter of months, if not less. There’s pressure from the board at the top of the organization because they have their own set of expectations for what success is that may no longer align with reality, and there’s equal pressure (sometimes more) at the bottom of the organization because the team at that level lacks the control and context to be fully aligned with your decisions.

What’s worse is that as a leader, no consultant or mentor or management book is going to help all that much because everything you’re doing is new. Management is situational, and you’re facing a new situation in almost every way. Even the most seasoned managers, to some degree, actually have no clue what they’re doing.

For these reasons, even the best-run companies feel chaotic because, by definition, the creation of something new must start with chaos. It’s this chaos that becomes a sort of workshop where ideas are created, tested, iterated, and, through multiple cycles, turned into stability and order. The turbulence inside a startup isn’t a side effect; it’s the thing that ultimately shapes the company.

One day, you’re telling your team you believe in a product strategy, and you get the team rowing in that direction, only to have to tell them you’re changing the plan (again) and heading in another direction. You make a decision, then change your mind. Every situation is unique, and everyone sees only a piece of the picture; and many don’t see their picture the way you do. People will think they can do things better than you. And they’re telling each other. And they might be right.

The reason all of this can feel so painful for leaders is our human nature. Humans want to belong. And when you’re making fast decisions on behalf of other people in an unfamiliar, dynamic environment, you can become an outcast. In addition, humans want stability. And as a leader in a startup, given the above, it’s almost impossible to provide your team with consistent stability.

Here are some ways to thrive through all of this chaos, and maybe even enjoy it:

1/ Get the team focused on three things (or fewer). There are multiple books written on how to set goals, OKRs, etc., so I won’t dive into that here. But in short, I like to have three company-level goals that everyone knows by heart. I worked at a company a while back that would walk around with a drink cart on Friday afternoon and ask people what the three company-level goals were. If they answered correctly, they’d get a free drink. The idea here is that when things get crazy, and people are thinking, “What are we doing?”, they know to point back to those three things. 

2/ Context, context, context. I’ve written about this at length here in the past, but this is so important. I’ve often made the mistake of assuming people think what I think or know what I know. You have an obligation to get out there and communicate decisions and the context around decisions. People need to hear it over and over. It’s safe to assume you’re never doing this as well as you could. Also, it’s a good idea to build alliances with a few of your senior managers or influencers within the company that can help you with this. Different people are going to be more effective than you are at communicating certain things. 

3/ Make decisions with 75% confidence. In this kind of environment, speed is so much more important than perfection. Your cost of capital is too high to be idle.

4/ Be vulnerable. This is probably the hardest one of them all, given the points around human nature. People want to look like they know what they’re doing even when they don’t. And you don’t want the team to lose confidence in you. Regardless, I’ve found that leaning on the vulnerable side is far more effective than the opposite. I can assure you that if you try to pretend you have all the answers, your team will see right through it. As you grow, there’ll be several people who disagree with your decisions and many who don’t like you personally. It comes with the job. Get comfortable with this.

5/ Create tight operating rhythms and tie everything back to metrics. I really believe that the effectiveness with which a company runs its OKR or goal-setting/management process is directly correlated with the success of the company. Companies that do this really well are almost always run really well. It can be a trap, though, because taking it really seriously welcomes analysis paralysis and too much time talking and not executing. Obsessing over goals also allows people to hide because it becomes philosophical instead of practical. Police this dynamic personally and very carefully. Insist on creating the perfect balance between great management of goals and keeping the team focused on producing. Be very active here.

6/ Create a publicly available, easy-to-access strategy document. Similar to the ‘three most important things’, everyone should understand the company’s strategy; that is, “how you’re  going to accomplish what you want to accomplish.” This will change a lot. So, find a place or a mechanism to update the team on it regularly and describe why it’s changing. 

7/ Get comfortable saying ‘no’. The old saying about “knowing what not to focus on” is very, very true. There will be an endless number of ideas, opportunities, and distractions. Bad leaders let these sit out there and frustrate their team by not making a call. A culture where this happens regularly is much worse than missing a big opportunity. People don’t work well when they’re in limbo.

8/ Encourage debate. This is so easy to say and so rarely done. If people across the organization are not comfortable respectfully debating important topics with leadership, that is a blatant failure of leadership, and your company will be much worse off for it. If you or the leadership team around you don’t encourage debate, don’t change their mind, and don’t admit mistakes or poor decisions, everyone in the company will know about it, and they won’t like working for you. Creating a safe, respectful environment around debate is crucial in a startup. You must give this to employees. In return, their obligation is to disagree and commit. Once the decision is made, they’ve got to move on and chase after it. That’s the trade.

9/ Celebrate wins and highlight failures. Given the crises you’ll inevitably go through, it’s really important to have systems in place to celebrate wins, highlight the best contributors, and the big exciting events. People want to work for winning companies, so make sure when you win, people know about it. On the other hand, people also want to work for a company that is balanced and tells one another the truth. So have regular retros on failures. At a team meeting, have a “win of the month” and a “loss of the month.” Failures scale more than wins because you learn from them, and humans tend to avoid future failures more than they do chase future success.

10/ Zoom out. Refer back to the beginning of this post. By creating something new, you’re breaking ground and leading the charge to create something special that may live on long after you’re gone. Most people never get that opportunity. Take pride in that. And remember that the stress you’re feeling is a structural requirement of creating something new. Nobody has all the answers, and right or wrong, someone has to make the hard decisions and drive action. That’s you. ‘It’s not the critic who counts’ applies here.

Take care of yourself, be proud of your work, and try to enjoy it. 

Mean Reversion In Decision Making

One misunderstanding of leadership I’ve observed is what I call “mean reversion in decision making.”

When faced with a difficult decision, executives often gather information and call a meeting with impacted stakeholders. Good leaders ask thoughtful questions and listen carefully. But too often, they then take everyone’s opinions and settle on the average — the compromise that makes the most people moderately happy.

That’s management malpractice. A leader’s job isn’t to satisfy the majority; it’s to do what’s right for the business. And the right decision, especially a tough one, is often far from the mean.

Doing unpopular things is hard — but that’s the job. If you find your hardest decisions are generally fairly popular with your team, you might be doing it wrong.

Management Advice

“The only good generic startup advice is that there is no good generic startup advice.”
-Elad Gil

The same goes for management advice. It’s all situational. It’s dependent on your company’s stage, size, personalities, industry norms, relationships, power dynamics, cultural context, and a dozen other factors that make every situation unique.

I thought of this the other day when I came across an article on Business Insider where Mark Zuckerberg announced that he doesn’t do 1:1s with his direct reports and prefers to engage in spontaneous conversations as needed.

The article was promptly reposted all over social media by worn-out managers, justifying their decision to stop doing 1:1s or explaining why they never started them in the first place. “Kill the standing 1:1,” many of them said.

This reminded me of another profile of Zuckerberg from several years ago in Inc. Magazine titled, “Why Mark Zuckerberg Thinks One-on-One Meetings Are the Best Way to Lead.” Zuckerberg described his standing 1:1s with his direct reports as “a really key way in which we share information and keep stuff moving forward.”

Zuckerberg has modified his approach to 1:1s because the situation he’s in today is different from the situation he was in back in 2017. And it’s safe to say most managers are not in the same situation as Zuckerberg — running a company with possibly the best business model in tech history, still growing over 20% annually on more than $160 billion in revenue. His situation is remarkably unique, so I’d be cautious about copying almost anything he does from a management perspective.

I’m not defending the 1:1 or any other management tool. The point of this post is simply a tweak on Elad Gil’s quote above: “the only good generic management advice is that there’s no such thing as good generic management advice.”

Skilled leadership isn’t about applying management tools; it’s about applying the right management tool to the right situation in the right context at the right time.

Aligning Your Sales Plan With Your Growth Plan

One of the most common mistakes I see in B2B tech companies is a lack of clear alignment between their annual plan for growth, their sales team headcount, and their sales team quotas. I thought I’d lay out how I've done this in the past that’s worked really well. I certainly welcome any feedback on it. 

Let’s assume you have $20M in contracted ARR (annual recurring revenue), and by the end of the year, you want to get up to $32M (60% growth). For simplicity, let’s assume you’ll have no churn. So you have a sales bookings target of $12M for the year. 

Let’s say you’re selling into large enterprises, and you have confidence that a talented, hard-working seller can reasonably generate $1M per year. However, on average, because of attrition, rep ramp-up time, and underperformance by some sellers, the average seller's attainment rate in a year is 80% ($800k). 

That means, to get to a $12M booking target, you’re going to need 15 sellers on staff at the beginning of the fiscal year. 

In order to recruit and retain 15 high-quality sellers, market comparables for your industry, stage, and geography, say that you need to pay each of them a total base salary of $100k and an on-target commission of $150k, meaning that if they hit their $1M quota, they have a total on-target earnings for the year of $250k. 

I’ve included these numbers in thetable below. The numbers in red are the numbers you need to fill in; the numbers in black are formulas.

So you see that to build your bookings plan, you need to know the following for your company:

1. Annual Bookings Target

2. Achievable Seller Quota

3. Seller Attainment Rate

4. Seller Base Salary (market-based)

5. Seller On-target Commission (market-based)

As you fill in these numbers, you’ll likely find that the math doesn’t work. Your quotas aren’t high enough to hit your target. You don’t have enough reps, etc. 

Ideally, you fix those things. Lower the bookings number, quickly hire more salespeople, etc. 

But in many cases, that won’t be realistic. The board won’t approve a lower number or you don’t have budget to hire more salespeople, etc. 

That means your booking plan is broken. That’s the one thing you should take away from this post. You don’t have a bookings plan that lines up with reality. Putting your numbers in a simple model like this makes this clear.

Now comes the hard part. You have to start making tradeoffs. If you can’t change the bookings target and you can’t hire more salespeople to make the model work and hit your target, your only other levers are to increase quotas or increase the seller attainment rate.

But that is akin to taking money out of your sales team’s pocket. The effect of this is that you’re telling them that, in order to make the money they’re worth, they need to pull off something you don’t actually think they can accomplish. That’s like calling someone on your HR team or your finance team and telling them you’ve decided to pay them less than you told them you would pay them. This is a really serious decision. As a leader, you’re taking pressure off of yourself so that you don’t have to have a hard conversation with your board, and you’re moving that pressure to your sales team by reducing their earning potential. Great salespeople don’t think of commission as an extra bonus; they think of it like other employees think of their salaries. It’s what they’re worth; it’s what they’re owed if they do their job, just like any other employee. By shifting the pressure to them, you’re risking serious engagement and retention problems. And that should be treated with the same seriousness as a difficult conversation with the board.

Obviously, every leader wants a clean model that works, but that won’t always be the case. Great leaders manage the hard tradeoffs to get to the best answer and clearly communicate their thinking along the way.

Some caveats:

• The model assumes you know all of your numbers with certainty. That won’t be the case, especially in the early days. You have to put a stake in the ground and your best educated guess for each of them based on the data you have.

• Negotiating your annual bookings target is a highly complex conversation that depends on your specific situation. I’ll likely write a post on that soon. The usefulness of the model is that it’s a framework to use in the conversation so the board is aware of the tradeoffs you’re dealing with and provides input. Whatever tradeoffs you make, I’d highly encourage you to disclose them. 

• Consider a base-case bookings plan that the board is happy with and a high-case plan that the internal team rallies around.

• Don’t stress that your model doesn’t work perfectly; this is true for most early-stage companies. But do focus on how to best manage it. The really big mistake here would be either not knowing that your model doesn’t work or not managing its tradeoffs. Being able to explain the gaps and your plan to fix them is the most important thing. 

Shaping Company Culture

A very common question I’ve received from job candidates over the years is: "What is your company's culture like?"

I've taken two different approaches to answering this question:

The first is to talk about my company's values that our leadership team created, the initiatives we're running that quarter or year around employee engagement or work-life balance, the fun events we do after work, or the employee development initiatives we've invested in.

The second, and much more sincere and accurate, way I've answered this is to take a step back and try to be an impartial observer of my company and talk about what I see every day: trends in the way people behave, how they treat customers, how they treat each other, what the company is good at and what it is bad at, what makes us unique, the sense of mission, and the interesting things that I see inside the company that I don't see in other companies—good and bad.

Often, what I've seen as an objective observer isn't the same as the culture we wanted to create from a top-down perspective.

This is because, at a certain scale, a company's culture stops being what leadership wants it to be and starts becoming the actual, on-the-ground, higher-profile, and consistent behaviors of the broader team. These things very often don't relate at all to work-life balance programs or team outings at the local bowling alley.

These behaviors are directly tied to the high-status people inside your organization—that is, the people you reward and promote. Your teams are watching the behaviors of these people very closely, far more closely than they’re paying attention to any top-down initiative.

If you promote one high-profile salesperson who overpromises and lies about the competition, people will get on board and do the same, or they'll opt out of your company, and that’ll be a part of your culture. If you promote leaders in your company who aren't willing to admit they got something wrong in front of their team, people will emulate that behavior. If leaders don't hold their employees accountable for results, this will spread, and you'll have a culture that isn't accountable.

This is rooted in social learning theory and a concept called “status signaling,” where people learn the optimal way to behave by watching and emulating others with higher internal professional status. In my experience, this is an extremely powerful force that drives culture more than any other aspect.

Quite simply, your culture isn’t driven by what you say it is or what you want it to be; more than anything, it’s driven by the values and behaviors of those that you reward and promote. Do so carefully.

Systems Thinking

Last week, I wrote about the importance of leaders creating cultures that embrace transparency and context. An equally important skill for all great leaders is high proficiency in systems thinking.

From Wikipedia:

“Systems thinking is a holistic approach to problem-solving that views issues as part of a larger, interconnected system, focusing on understanding the relationships, interactions, and interdependencies between different components within that system, rather than just analyzing individual parts in isolation; it prioritizes seeing how elements within a system influence each other to produce emergent behaviors.”

Most of the problems an executive needs to solve are complex and involve several components interacting with one another. People who are good at systems thinking can zoom out and grasp all of these components and empathize with all of these stakeholders, rationalize the complexity, and make good decisions. This is sort of the opposite of linear thinking, where an individual component is thought through without strongly considering interconnections with other components or the broader context of the problem being solved.

A simple example of this is creating a sales commission plan. You might want to pay employees when the deal signs immediately in their next paycheck. Reward the seller immediately, as it’s more likely to drive the sales behavior you want. This makes sense. Simple cause and effect. That’s linear thinking.

Systems thinking encourages you to step back, think more broadly, and ask lots of questions. Questions like: If we pay the seller on the signature, what if the implementation team can’t get the customer to onboard quickly, why would the seller help with that if they’ve already been paid? Who’s going to collect the money from the customer? If the seller isn’t incentivized to help, do we need a larger accounts receivable team? How much will that cost? What will delays in collection do to our working capital? What effect does that decrease in working capital have on our ability to invest in new products? Conversely, do we want salespeople worried about collections? We don’t pay other teams so quickly; what cultural effect might this have?

Systems thinkers can quickly gather all these points in their minds, consider them, and come up with a good recommendation. You know this skill when you see it. And you know when you don’t.

I think this skill comes naturally to some people, but it also can be learned, and it improves as you work on more complex problems. Linear thinking works well with tasks that follow a clear, sequential progression with predictable cause-and-effect relationships. So, if you’re following a clear set of instructions all day, you’re not going to get lots of experience with systems thinking. But if you’re managing a large organization in a multi-stakeholder, regulated, fast-changing, competitive business environment, then you better get good at it really quickly.

To get good at this, I’ve found it’s a lot about having high amounts of empathy, being curious, and asking good questions. As an example, if a competitor releases a new product, don’t just think about how you will position your product pitch against theirs. Think about the larger system. Think about your company’s unique strengths, your long-term plan, what you’re incentivizing, what the competitor’s product strategy is, how other competitors might react, how customers might react, and what advantages their focus on this particular thing might give you. Don’t just react to what you see, think about the systems that led to the thing you see.

As leaders, honing our systems thinking skills can set us apart in an increasingly complex and interconnected world where the ability to get our arms around complex problems and connect dots is more difficult (and critical) than ever.

High Context Companies

One of the more interesting insights in The Nvidia Way, the book on Nvidia’s rise under CEO Jensen Huang, is his use of the weekly Top 5 Things emails (T5Ts). In these emails, employees across the company send him their top five updates about their work, observations, and priorities, providing Huang with an unfiltered view of what’s happening. The book notes that he pours a glass of scotch every Sunday night and reads hundreds of them. 

A while back, a mentor explained to me that one of the most important attributes of a leader is their ability to see the company through the eyes of the people who aren’t in the room. If you can’t do this well, you’ll lose the trust of your team, and their engagement will fall. And you’ll probably make a lot of bad decisions. Tools like the T5T and things like skip-level meetings, mini town halls with Q&A, engagement surveys, and insisting on a culture of transparency and openness where people feel comfortable telling hard truths can help leaders get their arms around the problems and opportunities on the ground and ensure they’re seeing the world accurately.

This goes the other way as well. I’ve written before about how important it is for employees to understand the context around decisions made at high levels. I once had a job where I wasn’t on the senior management team, but I had a lot of access to the senior management team. I’d often hear employees at lower levels being very critical of decisions being made at the top. I remember thinking, “These people just don’t have the context; I wish they could somehow get it...” It’s crucial that leaders take the time to give their teams the context around their decisions. The aspiration should be that the lowest-level employee would make the same decision as the highest-level employee because they’re operating with the same information and context.

The key to all of this is that for anyone to make good decisions, they must operate with a strong understanding of the truth — of what’s actually happening. You could probably directly measure an executive's success by how capable they are at this because it’s literally the only way they can make good decisions. This obviously scales to the company, too. I’d bet you could tightly correlate the quality of shared context across an organization directly with its financial success.

It sure is working for Nvidia.

Return on Capital Vs. Cost Of Capital

A company's value is equal to the present value of the cash investors can take out of it over time. Investors want to put their money into things that will provide them with lots of future cash flows. Technically speaking, they want to put money in companies whose return on capital exceeds their cost of capital. For an equity investment, the cost of capital for a company is the return that the investor expects; for a debt investment, the cost of capital is the interest rate the company has to pay.

Early-stage technology companies aren’t yet generating cash for investors. They typically lose money as they build up a set of products that can deliver cash back to shareholders at some point in the future. In the context of a new technology company and how an investor thinks about these financial returns, you could see two phases:

Phase 1: Building something that can deliver cash. Once a new venture has found product/market fit, it starts growing quickly. If you generate $1,000 in revenue in your first year, it's not that difficult to 10x that growth and get to $10,000 the next year. In this phase, companies aren't thinking about delivering cash back to investors; they're using all of their capital to invest in the company to grow their revenue and market share so that someday they have something that can deliver cash returns. In this phase, the cost of capital (the return the investor expects) exceeds the return on capital because there aren’t any returns yet. Investors are ok with this because they’re betting on big returns that will happen in the future.

This is why SaaS companies experiencing high growth don’t really worry too much about profits. They worry about growth so that they know they’re building something big, and they worry about unit economics (the profitability of providing a single unit of their product to a customer versus the cost of providing that unit). So, the high-growth SaaS company is happy to be unprofitable and burning through investor capital as long as it knows that it’s acquiring customers that will generate profits in the long term. So when the company has saturated the market and growth has slowed, they can pull back on sales & marketing expenses and R&D investments, and the unit economics then show up in the actual profitability of the company through previously acquired customers. So, this type of company isn’t yet delivering cash; it’s building something that will someday be able to deliver cash.

Phase 2: Delivering cash. Eventually, growth slows as the market saturates, and it gets harder to grow quickly on a larger base of revenue. Companies then find that continuing to invest investor capital and operating profits back into the business is no longer a good idea. That is, they can’t generate a return on capital that is higher than the cost of that capital. That’s when companies slow down their investments and start returning some cash to shareholders through dividends, share buybacks, or paying down debt, such that the investor can go invest in things that are more likely to exceed their expectations for an investment return.

The reason I’m going through all of this context is that one of the hardest things for a company to do, especially a technology company, is to identify the moment when it’s better to start returning cash to shareholders than it is to keep investing in new growth. There’s a saying that “profitable companies that have lots of cash have run out of ideas.” Leaders in companies don’t want to appear like they don’t have new ideas or that they can’t successfully execute them. And not investing in new stuff and just trying to get more profitable to pay out dividends isn’t nearly as fun as deciding to build a self-driving car or placing some other type of big bet. It’s even harder in today’s environment, where so many companies raised capital when growth multiples were super high. Case in point: ServiceTitan, which went public a few weeks ago, priced its IPO share price well below its last round of venture capital financing in 2021. Telling your investors that you think you’ve saturated growth when the company is likely valued less than it was when they invested is a really hard thing to do.

So, hundreds of companies have found themselves between a rock and a hard place. Growth has stalled as they've saturated their core market. But they’re a long way from getting above their last valuation (or “mark” in VC parlance), so they’re continuing to try to grow back into that valuation and, in some cases, destroying shareholder value in the process, where the investments they’re making will not exceed their cost of capital — especially because their cost of capital is now higher as their valuation has dropped. Some companies are betting too aggressively on their ability to produce high growth and are also speculating that if they do deliver on that high growth, the market will value it as it did in previous years. The median public SaaS company is now valued at 6x revenue, a long way from the 20x to 30x multiples of 2021. Getting a company’s valuation above its last mark is a a great thing to try to do, but destructive if done unprofitably.

I’ve simplified this issue a bit, as there are other options besides growing and returning cash. Companies can also invest in efficiency, reposition themselves strategically, and make profitable acquisitions. But all of this comes back to this super important topic of knowing who you are, knowing what’s best for your company right now, and having the courage to pursue that direction. A dollar is a dollar, whether invested in new growth or given back to shareholders as a dividend or share buyback. One approach is not inherently better than the other. As a responsible capital allocator, the key is knowing which one is better for you.

Greatest Strength = Greatest Weakness

Early in my career, managers were traditionally expected to tell their employees their weaknesses and how to improve them. Then, they would check in every few months to discuss their progress. It took me a long time to realize that this was a mistake. Over and over, in my career, I've found that a high-performing person's weaknesses are what actually make them great at what they're great at. Identifying how an individual’s weaknesses actually support their strength can you give a lot of insight into how to best interact with and manage that person.

• People who are perfectionists and demand extremely high work quality spend too much time on unimportant things and have trouble prioritizing.

• People who are great strategic thinkers struggle with on-the-ground execution plans. 

• People who are extremely adaptable and can respond quickly to challenges struggle with focus and stability. 

• People who are really optimistic ignore potential obstacles and can be unprepared for setbacks. 

• People who are highly competitive can create friction in their team and struggle with collaboration.

Hire people who are the best in the world at what they do and let them run after that thing. Spending time having them focus on improving something that they don't do well and probably don't enjoy doing is a low ROI effort. Of course, they should know their weaknesses and how they might impact others and should develop the flexibility and self-awareness to know when to dial them back or complement them with other traits. But doubling down on a high performer’s strengths will lead to much better outcomes and a much happier team.

Benchmarks & Storytelling

The other day, a founder asked me about financial benchmarks for a company at his stage. He asked about the optimal CAC/LTV, gross margin, and revenue per employee. 

Benchmarks are important. Investors, particularly investors who don't have intimate knowledge of your company, will use them as a guide for how to value your company. There's a temptation for founders to optimize against top-tier benchmarks. But I think that's unwise. Optimizing against benchmarks is actually relatively easy. What's really difficult is knowing what your company needs right now and optimizing against that. That's a lot harder.

‘Revenue per employee’ provides a very simple example of this concept. Top-tier SaaS companies have a revenue per employee of around $300k. It's tempting to chase that number. The problem is that the easiest way to grow your current revenue per employee is to stop innovating. Get rid of all the employees working on stuff that won't impact revenue this quarter or this year. But that's likely not at all what your company needs right now for a variety of reasons.

So, in many cases, you actually don't want to optimize revenue per employee. That might not be what your company needs right now.

The best approach to this problem is to know your metrics and be aware of top-tier benchmarks but to intelligently apply those benchmarks to your business and be able to explain to an investor and your team why that's the right thing for you right now. A great story around why your revenue per employee is lower than a top-tier company because you are thinking about growth 3 to 5 years from now or why your gross margin is low right now because you're overly investing in your early customers, or why your CAC is high because your testing new marketing channels is a lot more impressive than a simple point in time comparison to benchmarks of companies that might need to optimize around something completely different.

AI & Sales

A few weeks ago, Tomas Tunguz from Theory Ventures gave an insightful talk on the state of SaaS Go-to-Market. One key takeaway was the explosive growth of AI use among sales teams. This isn’t surprising. Sales teams, by nature, are quick to adopt new tools because they’re profit centers. Anything that works will be adopted quickly because it impacts the top line. AI is helping sales teams in several areas—lead scoring, customer research, training, follow-up automation, competitive intelligence, and price optimization, to name a few.

Sales leaders are reporting lots of efficiency gains thanks to AI, but despite the boost in productivity, AI hasn’t moved the needle when it comes to deal conversions or bookings growth.

The reality today is that AI in sales — as it is in many functions — is really like having a bunch of productive interns. They can handle lots of grunt work, but their output needs to be checked, they’re tough to train, they lack company and situational context, and they’re not equipped to make important decisions. AI can’t yet do what great salespeople do. It can’t build emotional connections, navigate complex negotiations, leverage intuition, adapt in real-time to low-information situations, or respond to subtle cues or nuanced human emotions surrounded in layers of context. In short, AI is really good when it has lots of great training data to work with, which is the polar opposite of what a good salesperson does: they shine and show their real value when they lack data, and the next step is unclear, and they have to jump over hurdles to acquire more information or rely on their emotional intelligence, intuition, instincts, and human connection to make a good decision without it.

That said, I do believe the efficiency gains AI provides will eventually translate into better conversions and growth. But I’m skeptical how high up the chain it can go in terms of high value sales activity.

AI in sales will be a fun one to watch. Sales results are pretty measurable, and teams will quickly adopt what works. We’ll see.

Fundraising & Incentive Alignment

There was a really interesting discussion on the “state of venture capital” on the BG2 podcast this week. It's definitely worth listening to the entire episode, but here are three key insights for founders that I thought were worth highlighting, along with some brief commentary:

1/ $100M+ exits are incredibly rare but can be life-changing for founders. Taking 15% of a $100M exit is $15M—not bad at all. But if you've raised $100M in venture capital, a $100M exit is off the table due to the preference stack where VCs get paid first. If you've raised $500M, a $500M exit is off the table. $1bn, etc. Raising more money than you need makes great exits harder and harder to achieve. This is also true of valuations: a high valuation sets a new benchmark for success. There's an important trade-off between driving up valuation (so investors take a smaller portion of your company per dollar invested) and setting expectations so high that even a strong exit may not satisfy investors. I wrote a post a while back about how employees should think about this topic when joining a startup.

2/ Raising too much can lead to a loss of focus, spreading talent too thinly across initiatives. Companies often say they won’t use all the capital they raise, but that’s tough to avoid in practice. If you’re an entrepreneur with a bank full of funds and a head full of ideas, you’re likely going to pursue those ideas. The discipline to keep the money in the bank is inconsistent with the mindset of a creative, ambitious, high-growth leader. And early on, focus is everything, and it’s one of the major advantages a startup has. You only have a small team of top performers that can create outsized value, so spreading them too thin can significantly reduce their impact.

3/ The incentive structure in venture capital has shifted a bit, impacting the alignment between VCs and founders. The venture model, traditionally known as "2 and 20," means firms typically charge a 2% management fee and take a 20% carry (their share of profits when a portfolio company exits). In the past, venture capital was sort of a boutique asset class, with a few players managing smaller funds and relying heavily on that 20% carry to make a profit. Today, due to companies going public later and seeing more value creation in the private markets and the fact that starting a company has become much easier, venture capital has become a far larger asset class with more capital, more investments, and lower margins. As a result, that 2% management fee can become a substantial source of income — 2% of a $1 billion fund is $20 million per year. This structure incentivizes VCs to deploy capital more quickly as they don’t earn that management fee until the money is deployed. It's not a huge deal, but this can lead to some incentive misalignment between a VC and founder, so it’s worth being aware of.