Part II: The failure points from $5m to $100m in ARR

I had the privilege of leading PlanGrid to $100M in ARR before I stepped down as CEO and passed the baton to Autodesk Construction. I’ve had years to dissect the mistakes I have made in my first startup, and I’ve now taken my lessons learned to TigerEye.

Regardless of what industry you build for, or where you are at in your startup’s growth towards a $100M journey, there are many things that will likely fail. This post breaks down PlanGrid’s key failure points and what I’ve learned from them. If these reflections help even one founder make one less mistake, I would consider this post worthwhile. 

Our failure points: 

#1: Org structure and communication failure

As first-time founders we were too creative about organizational structure. We had a flat management hierarchy in the early years, and we bragged that we ran our startup like Star Trek — you were either in engineering or operations, and everyone reported to a founder. This was cute, until it quickly stopped working. People care about titles and career paths, and if you want to retain great people, you have to care about these things too. 

In Year Three, we tripled from 30 to 90 people, then doubled the team to 180 a year later. Those were the most painful years, because we went from a high-execution team to one that felt like it was stuck in molasses. We didn’t know how to hire giants, so we recruited several mediocre managers who in turn recruited more mediocre people. Meanwhile, communication gets a lot harder with more people, and I  did a poor job communicating the direction of the company. We had a first-mover advantage in a category we created but lost our position during these years of slow execution.

Takeaways: Be creative on how you’re solving problems for your customer — don’t be creative about org structures. Hire a great HR leader as a business partner to help recruit and retain the right team, and architect a good communication flow. And remember that A players can recruit other A players, but B players usually end up recruiting C players.

#2: Internal conflict

Our trickiest inflection point was hitting Dunbar’s number — at 150 people, everything went to chaos. Hierarchy is a factor. At 10, 20, or 30 people, everyone can report into a founder — at 150, just based on basic management ratios, there's now three to four degrees from the frontline team member to the founders.  

Not feeling like a unified team becomes dangerous when we don’t hit revenue targets or product milestones. When there is a mismatch on velocity and performance, it’s easy for those who feel like they’re performing to blame any slowdown on everyone else. There are natural tensions between sales and marketing, support and product, and product and engineering, and everything becomes magnified with more people simply because communication gets harder.

Another heartbreaking side effect with growth is that the people who helped get the company to its current success may not be the right people to grow it the next five years. 

Takeaways: Fight for your company's core values. If you don’t like the ones you’ve written, rewrite them so you can live by them. Hire and fire by these core values. Anything less will send the signal that it’s all bullshit.

#3: An executive not working out

My biggest mistake was hiring a big-public-company tech executive with a fancy resume who had never worked at a startup. And although everything in my gut told me that they were the wrong fit, I felt so underwater with work that I convinced myself that my life would suck less if they were just in the building. 

The big tech exec came from a sweet life with an established brand, big budgets, unlimited perks and fully built-out recruiting, engineering, marketing, sales and customer success teams. Being at a startup is hard in a way that is almost indescribable to anyone who hasn’t experienced it. The only way a big tech exec can be successful at a small startup is if they had been at one before, and they willingly volunteer to roll up their sleeves and get in the trenches again. 

As we grew to nearly 500 people, we would have several versions of the executive bench. The best indicator of an executive’s success is that they have already done the thing you want them to do at exactly the same stage that you are in and want to grow to. With that said, I do believe a first-time executive with raw talent and a growth mindset can be successful. In my case, at my first startup, it felt risky to be learning on the job as a CEO and be surrounded by other leaders who were learning on the job as well. Luckily it worked out for us. 

Another good indicator of how execs will be to work with is what their former colleagues, bosses and direct reports say about them. After hiring and firing several wrong VPs, I tripled the number of reference calls on any serious candidate. With over 10 references across the board — people who they have reported to, people who reported to them and their peers — you start to see a good picture of who they are and what it would be like to work with them.

Here is a brief list of red flags on an executive who isn’t working out:

1. They frequently use the wrong pronoun “I” followed by “[contribution to the company]”.
2. You dread having 1-1s with them.
3. They blame you or their peers.
4. They complain laterally and downwards.

There are certain decisions that only the CEO or founders can make.  When executive red flags show up, try to fix them quickly.

Takeaway: Always trust your gut on people.  

#4: Losing product market fit

Construction people used our software because they loved us.  If construction folks were using our competitors' software it was because they were told to. In enterprise software, the best product doesn’t necessarily win, and there is a long trail of great enterprise software under tombstones.

Although we skipped the corporate buyer completely in the early years of PlanGrid to much success ($50M in ARR), in order to get to $100M in ARR, we needed to go upstream toward the enterprise segment and build products for the corporate buyers who would never touch our core product. 

Selling to the enterprise requires a series of features and products that have nothing to do with making the end-user happy. There is security red tape that the non-user buyer cares about: RBAC, SOC2 Type 2, ISO270002, Admin Consoles, SSO and more.

As more VCs came up with predictions around mobile technology disrupting the construction industry, hundreds of millions of dollars of venture capital was poured into our competitors. Copycats showed up around the world. Within a few years the category we created became a category that the corporate buyer cared about. Our product was not built for this buyer. They saw us as a point solution, which pushed us into a never-ending feature battle against platforms. 

Prior to PlanGrid’s acquisition, in my last years of leading the company, our growth slowed to high double percentage year-over-year growth while our competitor’s growth was rumored to be triple digits. We needed additional growth levers. We pushed towards internationalizing our product. We launched two new product lines with small scrum teams and slim budgets. Concurrently, we were knee-deep in technical debt and our Vice President of Engineering quit with no notice. These were rough years. But through hard work and great people who continued to pour their heart and soul into the company and customers, we hit almost all our milestones and secured the attention of Autodesk, our future acquirer. 

Takeaways: It is completely possible to have product-market fit one year and lose it the next because the world, the market and the competition shifts over time. Always go towards where it hurts the most and try to fix that problem because it’s not going away. Looking back, it was obvious that we needed to launch more products and build for the enterprise, but we were too slow at executing on that strategy. 

#5: Life happens

I’ve come to believe that a big part of our jobs as founders is to manage our own emotions. It doesn’t matter how well we were doing; it never got easier. Life doesn’t stop just because we’re doing the hardest thing we’ve ever done before.

I remember how excited we were to get accepted into YC’s Winter 2012 batch. As we were launching our product into the world, living the entrepreneurial dream and sleeping and working out of our Silicon Valley hacker house, we were also experiencing the cruelness of life. In between demos and code commits, we greeted hospice care at our doorsteps. We watched our cofounder battle, and ultimately succumb, to cancer at age 29.

As our team grew to hundreds of people worldwide, it felt like sad stuff was a constant: family getting cancer, partners and parents dying suddenly and children getting terribly sick. This is the human condition. It bleeds into our startup journey, because it's impossible to separate our personal lives from our professional ones. The best we can do is to be as generous as we can for our teammates.  And sometimes just being by their side and witnessing their loss is enough. 

Takeaways: Life is short and hard even for the most fortunate of us. And that’s why, whatever you have chosen to work on, it has to be worthy of your time here. Because if you have any success at all, it will take up at least a decade of your life. And if you’re really lucky, you get to work on it for multiple decades. 

This article was previously published in TechCrunch+  last week. It’s the second post of a three-part series focused on lessons learned from my days leading PlanGrid. Part one is here. The last post will be about what I discovered during the $100m ARR to acquisition period — stay tuned.

Writer's note, essay has been updated to "B players usually end up recruiting C players" after receiving good feedback from the community.