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Lessons - How Founders Become The Best Investors | Karl Alomar - Serial Entrepreneur, Investor & Managing Partner at M13 · Success Story with Scott Clary

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  In this lessons episode, discover how precise growth forecasting shapes scalable business strategies,
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  learn why effective organizational structure and talent management are critical to sustaining
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  rapid growth and understand how strategic hires and clear communication transform cultural challenges
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  into long-term success.
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  You mentioned a few things there, so you mentioned, like, is it scalable and you forecasted out
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  and the economics made sense, obviously, and you were working with these people for two months,
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  so you started, you knew the people you were working with as well. But one thing is interesting,
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  so you modeled it out and I'm assuming regular forecasts, you figure out TAM and you do all
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  the things you'd figure out for a regular model. But how do you scale at that, what's the
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  playbook to scale at that velocity when you've never done it yourself before? How do you forecast
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  out a model? This is still early days, like, now digital ocean compete with AWS and then it's
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  like a very, now it competes at that level, but when you're building out a competitor to AWS,
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  I don't know how you would model out a similar growth trajectory when there's nothing else out there
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  that has really achieved that scale before. Yeah, yeah. It's on the stage of the business,
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  so again, we do two tips and types of investment. We'll invest in our core deals that actually
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  have validation, which means they have data, their history, and in those situations, which is
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  probably we were in the earlier stages of added dishwasher when I started working, but I could see
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  it in real time, like I could see patterns being created. Do you recognize the patterns? Where
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  are you sourcing your customers from? How much of it is organic? How can you drive those organic
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  channels? Ultimately, all the model is a set of assumptions, a set of growth assumptions.
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  So if you just set up, if you just have an understanding of every customer I bring in,
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  for every one customer I bring in, I'm going to get 0.1 referral or whatever that number is.
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  For every customer that comes in, this is the average price thing in the start spending.
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  This is the growth rate of that spend over time based upon what I've seen or what I've experienced.
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  You start putting those little pieces together with some companies where they have
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  market growth strategies and they're market by market. What's the trend of a market launch?
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  And then how can you layer new markets on top to see how that grows over time?
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  So there's just different methods. You've just got to be creative from a perspective of how
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  you imagine the business is going to grow and translate that into a set of assumptions that
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  drive the numbers. And then you just roll the numbers out. And so it's ironic, you could get one
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  assumption wrong, and your numbers will be way off. Ironically, the disruption for the first three
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  years of business, we hit our number literally within one or two percent. I don't know how it happened.
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  Wasn't so easy. It was impressive. Fixed. But years one through three, it was so spot on. It was
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  it was incredible. And so it's just, you know, I guess I was lucky that in that business,
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  specifically, those assumptions were really obvious, were really clear for me at least. And so
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  documenting those and building model against them turned out to be very, very real.
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  And, you know, there's always a difficult and new business as we've never done it before. But,
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  you know, it is, it's an odd as much as it is a skill like you have to actually build the ability
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  to kind of predict what's going to happen, how customers will react and know what those assumptions
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  are that are going to drive you business. But I will say from an investment standpoint,
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  when I look at somebody's model, I'm more focused on how they're thinking,
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  than what the model's telling me, because I understand that a model could be way
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  else and they could be completely wrong. But if you actually look at the numbers and look at
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  the assumptions and you say, okay, so this is how you see your business. You think these are the
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  key drivers. You think these are the things going to affect your business. It allows me to
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  understand the entrepreneur better. And for me, the question is, is this person thinking about
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  the business correctly? Like, do they have the right head on their shoulders to think correctly,
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  iterate and adjust those assumptions as needed? You know, build a real kind of business and
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  got to feed into the true assumptions that are going to really drive that business.
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  So, so walk me through like some of the, because I want to, I want to understand some of the
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  things that M13 is working on now with organizations. But walk me through some of like,
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  pick a few key lessons as you grew digital ocean, because that was probably, that was the largest
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  organization that you were, you were an operator in. So, the key lessons that now you bring over to
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  some of the portfolio companies in terms of growth, scaling, we already spoke about how to project,
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  that's fine. But as you actually deploy the strategy, what are some of those lessons?
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  Yeah, so many. I know there's a lot. That's a lot. I was like, do we have,
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  I, you know, if I try and encapsulate it into some key things, I think the first thing I really
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  loved was growth is not all about just growing revenue. It's about so much of it and being in a
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  CLO role was this was key for me. How do you actually manage the growth of the organization to support it?
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  And there's plenty of examples of companies that just outgrew their ability to actually execute.
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  And so, definitely in an organization like digital ocean, which was highly complex,
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  we had to think about infrastructure, DevOps, data, support, you know, talent,
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  organizational structure, culture, all these different competitors that all have
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  individually the ability to implode a business if they're not executed correctly.
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  And so, probably the biggest piece that has the most immediate effect when you really start
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  seeing that growth, one thing that we we talked about a lot back in those days was a quote that I
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  think came from Mark Andreessen, which was the software is eating the world. And also this whole
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  concept that software is the world was the driver for why people need to cloud. And then the
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  concept that when you have product markets, then it's, you know, you're not trying to find growth,
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  you're trying to keep up with it. It's you're just basically running as fast as you can to keep
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  up with the growth because you have product market then that's all we had. And so, what do you do?
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  Have to build quicker, you have to hire quicker, you have to do, you know, a lot of things to build
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  an organization that can support it. We in the space of the second year I was there, so I joined
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  in 2013, early 2013 and in 2014, we added 100 people to the organization 80% of which were engineers,
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  just in a completely flat disorganized way. I will say that there was not my choice to do it that
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  way we had lots of battles about how to do it. But the ultimate, you know, understanding was we
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  need as much resources we can and, you know, different powers and that be we're kind of driving to
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  say, let's just hire, hire, hire, we just need people at the table. And my biggest fears came
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  through which was you put a melee of people into a basically a mosh pit and just say go get
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  stuff done. No one has direction. No one has a target. No one has motivation. There's no reference to
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  who's the better engineer who's the worst engineer who's taken care of what it all tries to self-organize
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  and the idea is oh, it's a utopian world. They're going to figure it out. The reality is they don't
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  and there's two things that happen. One, because now you're in a situation we have so many people
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  you cannot create a human connection with every one of them, culture gets lost. So whatever it was
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  that was seeding the business and creating the magic begins to fade because you are just
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  disappointed on happy people and you're not able to really deliver culture. And what culture is
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  designed to do is to optimize the performance of the team. And secondly, because there was no structure,
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  the people who were true performers felt that they couldn't deliver and because that makes them
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  unhappy, they leave. And you're left with the people who are lower performers who aren't necessarily
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  as good at delivering so they're not as affected by lack of delivery. So it became really,
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  like we got into like this what we would call a cultural crisis by the end of 2014. And we had like
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  like an intervention of sorts in the very beginning of 2015 and said this needs to all change.
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  And so at that point we totally restructured the organization, built layering and organization
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  around that the engineering team has built management structures and they're brought in Matt Hoffman
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  who's still watching out at M13 to run talent and start building a culture program. And literally a year
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  later I think we were voted best place to work in New York or like one of those ratings. So we
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  went from cultural you know, a bis to best place to work. And it was all very very structured of
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  current. And you know, we did we totally changed our communication strategy. We created by weekly,
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  what we called AMAs, which will ask me anything, which the idea of it was, you know, put the
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  executives in front of the whole company and just also whatever question they have, how hard it is.
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  And just being vulnerable and opening up just creates that bond and even though you've got a
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  bigger organization. And so what I learned was that you know, but growing pains are the things that
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  can kill at least at minimum hold back your company. And so think about your head of talent higher
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  early. Think about them as someone that's going to optimize the performance of your team, not just
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  higher people or not just give people things that they like. It's how do I optimize for it's how do
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  I hide the best people on board them as as good as possible and keep them so engaged and tied into
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  the culture and the mission of the business that they are delivering at 110% every day. And
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  that's the ultimate, you know, talent leader. And most, most y'all entrepreneurs were like,
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  oh, we're 30, 40 people. We don't need a talent leader. Now we can grow a double triple before we
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  knew and or maybe we just hire a recruiter. We don't need a talent person that ultimately everybody
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  that we've invested in that's higher to talent leader has come back free six. Mosleto said that's
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  the best how we could ever make because it just increased it before. And there's a handful of other
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  roles and other structural things. I like technical program managers is another thing that most people
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  don't realize that they need. But I learn about all the little nuances in an organization that
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  make an organization perform that and that I think that's probably the single greatest lesson that
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  I know in that in that holds. Thanks for tuning in. If you found this valuable, don't forget to hit
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  that subscribe button so you never miss an episode. And if you want to dive deeper into this
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  conversation, check out the links in the description to watch the full episode. See you in the next one.