The Big 3 Growth Imperatives: Team Building Best Practices (Part I)


Bending the growth curve presents a new set of challenges for your expanding business. We recently touched on The Big 3 imperatives common to almost every growth-stage tech-enabled services (TES) business:

  • Team: Building and developing your team from top to bottom
  • Operational Scaling: Growing the operation and refactoring systems and processes to accomodate scale
  • Demand Generation: Opening up the aperture on the top of the the sales and marketing funnel – efficiently

Today, we’ll dive into the best practices, tools and methods associated with imperative #1: Team Building.  Getting to the right answers starts with asking the right questions:

  • Do we collectively possess the experience and expertise to be successful in this next phase?

  • If not, how do we architect, hire and nurture a high performance team to meet our goals?

  • Are all of our team members, especially our best and brightest, in the most effective roles?

  • How do we preserve the company’s culture as the business grows both inside and out?

As an owner-operator, you’ve successfully bootstrapped a business built upon a healthy respect for capital. The challenge ahead is how to expand your “bend the curve” team while preserving the company’s special attributes that got you here.

Team members that don’t scale, even one bad hire or unforeseen issues with team dynamics will divert your energies and the company’s focus from the task at hand. Furthermore, having to deal with the necessary course corrections will almost certainly waste precious growth capital.

Team Building Best Practices

There are best practices that cover every aspect of team-building from hiring to esprit de corps to leadership development. While there are many paths, choosing the approach and supporting tools that fit your particular situation is the special sauce. We’ve found that the most successful companies:

  • Common Language: Develop a common vocabulary and promoting consistent team communications. It’s been said that 95% of the issues you’ll face are rooted in communications.
  • Strategic Alignment: Are strategically aligned from top to bottom around “success”. You might be surprised how often teams aren’t unified on the long-term goals. Getting this right will streamline your hiring process, lead to better execution quality and feed a maniacal focus on achieving that “success”.
  • Focus on Performance Not Size: Build small, high performance teams. Company building begins and ends with elite teams. They are the foundation for sustainable, long-term success. Understanding the key attributes of high performing teams, starting with trust, and applying an effective operating model will produce the desired results. It will also promote and nurture leadership competencies throughout the organization.
  • Hiring: Hire well. A recruiting imperative for every growth-stage TES business is the ability to get candidates to reveal their strengths and weaker points from every job and to highlight their successes, failures, key decisions, and key relationships throughout their career. Mastering this approach can avoid misfires with strategic hires and identify potential high performers for front-line through manager roles that fit your team’s chemistry and company’s culture.
  • Psychology of Leadership: Great leaders really “get” their team members. Progressive leaders also focus on understanding their team’s conative faculties – the actions that result from their natural instincts which enable them to be the most productive. A simple assessment and collaborative tool can be used to improve organizational dynamics and hiring.
  • Prioritize: Prioritize continuous improvement. An important steps is transitioning from “the team you have” to “the team you want” through a continuous cycle of planned activities including:
    • 360-degree feedback
    • Creative on-the-job development of functional and communications skills
    • Action-learning team projects
    • Senior to junior level mentoring

The secret to all of this isn’t just figuring out what hurdles lie ahead but rather what “growth elixir” works best for your business. Then, follow through in the most expedient, capital efficient and sustainable way possible. In doing so you’ll also help ensure that every invested dollar in growth will generate the highest returns.

Next time, we’ll be discussing the 2nd imperative, Operational Scaling and how to proactively overcome the systems and process scaling challenges associated with doubling, tripling or even quadrupling your revenue. You can learn more about our views regarding The Big 3 Scaling Imperatives and the difference between building Unicorns and Workhorses at Don’t Die Trying.

The Big 3: Company-Scaling Imperatives

If you’re the owner-operator of a tech-enabled services (TES) business that’s growing at over 20% and approaching profitability…..savor the ride because you’re flying in rarefied air. It’s not every day an entrepreneur “bootstraps” their way from the risk and uncertainty of the “fuzzy front-end” to demonstrating a strong value prop and product-market fit on little to no institutional capital.

So what does the road ahead look like? You may feel that your best and maybe most challenging work within the business is still to come. Bending the growth curve presents a new set of problems for you and your team to tackle. How do we become the category leader in our market niche? How do we double, triple or quadruple our revenue over the next several years? How do we grow our profitability at the same time? How do we preserve the company’s culture as the business expands both inside and out?

The good news is that all of these questions represent “high-class problems” and you are certainly not alone. Almost every TES business at this stage in every segment of the market faces the same growth challenges; you can think of them as “The Big 3”.

So what are “The Big 3”?

  • Team: Building and developing your team from top to bottom
  • Operational Scaling: Growing the operation as you approach unchartered territory
  • Demand Generation: Finding and expanding the number high quality customer prospects at the top of the sales funnel – efficiently

There’s no rocket science here. You’ve probably been dealing with the first two since you launched the business and chances are you’re losing sleep thinking about next year’s demand gen. The secret sauce isn’t in figuring out what the hurdles are but rather how to take up the gauntlet for these critical success factors in the most expedient, capital efficient and sustainable way. In doing so you’ll also help ensure that every invested and/or re-invested dollar in the business will generate the highest returns.

Companies that successfully address these company-building imperatives head-on will be well on their way to achieving the long term value creation milestones for their business.

In future posts, we’ll explore the best practices, tools and methods for each of “The Big 3”.

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Workhorse Capital Invests in Datavail

DatavailWorkhorse Capital is pleased to announce the completion of its first investment; a $7.2 million investment in Datavail Corporation. Datavail is the largest independent provider of remote database administration managed services in North America. Workhorse’s investment in Datavail is part of a $47.0 million growth recapitalization led by new investor, Catalyst Investors. New investor, Lumerity Capital and existing investors, Meritage Funds and Boulder Ventures also participated in the financing.

My relationship with Datavail started through my work at Meritage Funds. Meritage led Datavail’s Series C financing in 2011. I became more deeply involved with the company in 2013 upon my return to Meritage after having run a portfolio company for 16 months. At the time, Datavail had executed several acquisitions of smaller database managed services providers. The working thesis at the time had been to scale the business primarily through acquisition based growth. The acquisitions that the company made were certainly worthwhile, particularly in helping the business to achieve minimum efficient scale. However, it was clear that acquisition based growth strategy would ultimately become limiting and expensive and that the company would have to execute on other growth vectors if it was to achieve its highest potential.

Early in my involvement, it became apparent that Datavail had developed an under-appreciated core competency, the ability to predictably and profitably acquire enterprise class database administration customers at low cost. Datavail has always excelled in customer satisfaction and delivery. Adding a repeatable and scaleable organic customer acquisition capability to the core operating and delivery platform had the potential to create significant value. Through Mark Perlsetein (CEO) and the team’s superb execution, the Company proved its organic growth capabilities, and was able to garner additional internal financing to invest more aggressively in organic growth initiatives. The results is that the company has grown meaningfully over the past two years and with an attractive LTV/CAC ratio.

My relationship with Mark Perlstein, Datavail’s very capable Chief Executive Officer was cemented during our work on the organic growth strategy. We worked together to put the metrics, measurements and decision-tools in place to support the company’s organic growth aspirations. Getting the building blocks right on the front end has helped the business to direct its organic growth investments toward the most productive channels. It is great to see that work proving its worth.

As exited as I am about Datavail’s recent performance, I’m even more excited about the company’s prospect going forward. There are a number of reasons to be optimistic.

  • World-class Team: Mark Perlstein (CEO), Datavail’s CEO has put together an A-quality team across the board. Mark, Keenan Phelan (COO), and Andrew Evans (CEO) do a fantastic job making the business strategically relevant while also making sure the trains run on time. Robin Caputo (CMO) and David Boyle (SVP Sales) constantly improve the customer acquisition process and drive the revenue generation machine with a high degree of precision.
  • High Quality Scaleable Service Delivery Platform: Datavail has built a world-class service delivery operation and infrastructure. With 24×7, global delivery, the Company can meet its customers needs in any location and in any time zone. The company has really differentiated itself in the marketplace in its ability to serve a broad array of needs of mid-market and large enterprise customers.
  • Repeatable and Scaleable Organic Customer Acquisition: Datavail has not only built a world class service delivery platform but also a machine-like customer acquisition engine. With an LTV to CAC in excess of 5.0x, Datavail is poised to continue to grow as it enhances its investments in organic growth.
  • Great Partners: I’ve known the team at Catalyst Investors for many years. Tyler Newton, who led the financing on behalf of Catalyst is a capable and thoughtful investor. Matt Kim of Lumerity is also a long-time friend and colleague in the business. I’m pleased to have Tyler, the entire Catalyst team and Matt as a partners in this investment. I’m also looking forward to continuing to work with Jack Tankersley of Meritage Funds and Peter Roshko of Boulder Ventures. The investor group shares a common purpose to support this management team in taking Datavail to the next level.

I’m really pleased that Datavail is the first investment for Workhorse Capital. I’d go so far as to say I’m proud of it. The investment nicely fits Workhorse’s core focus of investing in growth-stage technology-enabled services businesses. Less than six months after Workhorse Capital’s launch, I’m grateful for the opportunity to be an investor in such a high-caliber company and with the quality management and investment partners around the table.

Congratulations to the entire Datavail team!

A Pedestal for Bootstrappers

There are many ways to capitalize a tech-enabled service business in its formative stages. Angel capital and venture capital are frequently sought after, but sometimes difficult to come by sources of capital. Angel capital and venture capital are appropriate for many early-stage businesses, particularly in winner-takes all markets where an early product, user base or other competitive advantage can compound over time leading to a disproportionate market share.

As a growth-stage investor, we see a large number of previously venture backed businesses whose performance ranges from floundering to crushing it.  It is admittedly difficult for us to structure an investment in a previously venture backed company that “works” for the management team and the prior investors. In the case of a floundering venture backed businesses, the existing investors are more likely than not “under-water” on their investment, but reticent to recapitalize by converting preferred stock with liquidating preferences to common stock.  In the case of a venture backed business that is crushing it, the investors may have valuation expectations that are odds with ours.

It is no surprise that, over time, these dynamics have naturally shifted our investment efforts toward entrepreneurs that have – either by choice or lack of access to venture capital – chosen to bootstrap their business. We have tremendous admiration for all entrepreneurs, but bootstrappers have a special place on the pedestal we’ve reserved for entrepreneurs.

There are so many attributes of bootstrappers that I admire. A short list follows:

  • Engagement in Customer Success: I have consistently seen that bootstrapped businesses are engaged in the success of their customers at a very high level. After all, when your only source of capital is your customers, you will do anything and everything in your power to make sure that source of capital is well-served.
  • Focus: Bootstrappers typically have a maniacal focus on the small number of things that matter most to their business. Bootstrappers don’t have the time or money to do frills. But they get the basics that matter to their business really right.
  • Humility: Bootstrappers aren’t in it for the notoriety or glory. They are in it to build a fundamentally sound business. I’ve consistently seen high-levels of humility from entrepreneurs who have bootstrapped.
  • Respect for Capital: Well covered by Jack and David’s thoughts but worth repeating.

Many entrepreneurs exhibit these characteristics, whether they access venture backing or decide to bootstrap, so this isn’t an indictment of venture backed companies or entrepreneurs. However, when we engage with an entrepreneur that has bootstrapped their business, we find we spend less time qualifying the entrepreneur’s motivations and objectives than we would otherwise.

The other dynamic we like about bootstrapped businesses is that they don’t need to take capital. As a result, when an entrepreneur running a bootstrapped business considers taking growth capital, there is a great built-in self-selection bias at work. A bootstrapped entrepreneur will only take growth capital if they believe that the access to capital will help them create more value for themselves than if they pass-over the opportunity. A bootstrap entrepreneur who takes growth capital is saying:

I can create more value for myself with this capital than I could otherwise create.

Conversely, an entrepreneur who chooses not to take growth capital is saying:

I cannot create more value for myself with this capital than I can otherwise create.

This built-in check makes our job evaluating investment opportunities just a little bit easier.

A sidebar: The guys at Basecamp (formerly 37 signals) have been long-time proponents of bootstrapping, despite their proximity to the epicenter of the venture capital world, silicon valley. They even have a list of bootstrapped businesses that are Bootstrapped, Profitable and Proud.

Cheers to all entrepreneurs. And to you bootstrapers, you have a special place on our pedestal.