The Common Mistakes that Hold Startups Back with Mona Sabet

0:00Today I speak with Mona Sabay about common mistakes in growing startups from launch all the way to exit. And if you're a founder, if you work for a founder as part of a startup, you're going to love this episode. Mona is an engineer turned lawyer turned technology executive, and she's written a book called Sale to Scale, which is advice for founders based on common mistakes that hold companies back. Thanks for listening.

0:29Hi, Mona. How are you? Great to see you. Yeah, really nice to see you, John. Thanks for the invite. You got it. I'm really excited to talk to you about startups, building businesses. But I'd love to first talk about how you got here, because when I started to look at your background, you have a really unique path. Engineering, law degree, technology executive, not a lot, unconventional, I would say. Maybe you could talk about your path and how you were motivated. Was it by a love of learning? Was it a hunger to find the perfect role for you? Or was it something else? Yeah, it looks a little schizophrenic, but I'm actually a techie at heart.

1:08So, I mean, I knew early on that I wanted to do my undergraduate degree in engineering. I've been called an accidental lawyer by people. You know, I went to law school because I realized that in my last year of engineering, I realized that I was never going to be really a great technology innovator. So, you know, I was looking around the class and the people who seemed to be going somewhere, I'd say, on the technical side, they had an enduring curiosity about the details of how things worked. And, you know, I was doing my labs and, you know, I was just following the instructions, but I wasn't terribly motivated by those details.

1:50And when we were graduating, half of my class went off to do an MBA and the other went off to do a postgraduate degree in engineering or work or something like that. And I guess I'm a little bit of a contrarian, so I didn't want to do either one of those things that everybody else was doing. So I went to law school hoping that I could get into business sideways, which actually eventually happened. But I've always said this to people who asked me this question. Retrospectively, I think that the experience of law school has been really critical to whatever success I've achieved because engineering taught me like black and white.

2:25There's always a right answer. Right. And law was really hard for me at the beginning coming out of engineering because it teaches you shades of gray. Like I, you know, my first semester in law school, I was like, okay, well, here's the answer. And then I got a C and like, well, but you know, why? And the thing is people in society, we are all shades of gray. We're like, we're, I like to say that we're analog building a digital world around us. So business is about people. And I'd like, I think I learned how to be a better business person, I guess, because I learned how to operate in the gray.

2:57Wow, that's a really fascinating answer. And so you went to law school specifically to get into business. Tell me, you're thinking more about that. Were you thinking originally about being like a general counsel or using that as a way to think through partnerships and biz Deb and some of the other parts of business that deal with contracts? I wasn't smart enough in law school to think that far ahead, but I knew that there was business law. I knew that there was corporate law. And, you know, everything I did in my first 10 years of my career, which shows you how old I am, in the legal field was technology transactions.

3:36So I sought out work in that space. I did end up becoming a general counsel. And it was probably in that role where I first got the opportunity to do other things outside of being a lawyer. And so we were in a startup. It was a Series A startup. It was, you know, the kind of thing that I talk about a lot right now, which is you can't just have someone do one thing because you've got to play all over the place. There's so much to do. and I was just really good at being able to pick up some business development work and to pick up some marketing work and to pick up some other things in the company that needed to get done and you know that was probably when I realized that for me that was a little bit more satisfying than just staying and doing technology transactions and corporate transactions I did a few IPOs they sound really sexy and they are when you're on the business side they're very repetitive when you're on the legal side.

4:38I can imagine that's true. You know, that echoes some of my experience when I've worked at really small startups is I remember my first one, all of a sudden I owned customer service answering, answering the phones, which tells you how old I am answering the phones and, and other stuff I had no, I had no intention of doing when I took the job and ended up learning everything about a business in that way. You spend a lot of your time today advising startup founders and smaller companies. I want to talk more about that, but what's your attraction to helping folks that are at that unique part of building a business?

5:19I find that, and this is sort of a result of all of my years of experience, that I have made the same mistakes over and over again in the many companies that I've been at. And when I've worked with other companies or founders or startups, I see them making the same mistakes. And so really, a lot of my passion has been around now that I'm more experienced in my career, I'd like to say positively, being able to take those mistakes that I've seen made over and over again, and then try and help founders sort of, you have to sort of make your own mistakes, but you can make them a little bit and then get through them well, or you can make them and then they really sort of, you know, destroy the future of your company.

6:05And I've just got a lot of passion about being able to identify those most common mistakes and help founders get to the next level and get through them. You've literally written a book about this. Yes, part of my passion. And we'll put the book in the, it's called Sale to Scale. We'll put that in the show notes so people can go and check it out. And I wanna sort of talk about how you've organized the book and the different types of mistakes that founders make. But one of the things that you sort of say is you advise startup founders once they've found product market fit. And I think that's a really important thing to talk about.

6:44So maybe to set the stage for the rest of our conversation, do you have a definition or test that tells you that a business has truly achieved that? And then why do you focus on that inflection point? I do. And again, because I spend a lot of time talking to founders about this, and I really tell them that they've got to look for three things to show that they've nailed product market fit. So the first thing is that your product is A, in market. So it has to be in market first. And it's satisfying what I like to call a critical customer need, as opposed to a customer curiosity. So what does that mean?

7:19The common trope is to say that your product is a painkiller and rather than a vitamin. I've worked with startups who thought that they've hit product market fit because they found some customers who are in love with those products. I love the Crossing the Chasm, Jeffrey Moore, you know, construct. And what I tell founders is when you found your first set of customers, they are most likely the innovators in that trajectory. They're like teenagers. They're like my teenagers. right? They love experiencing new things. They are risk takers. They like toys. But getting a few innovators as customers doesn't prove that you've got product market fit.

7:59It's not enough to grow a scaled company. It's certainly enough to grow a business if you don't want to take venture capital financing. And I always remind founders there are options in how you want to build a business. But a lot of the tech startups I work with, the first thing they're thinking about is getting a VC investment and then growing and then scaling. And you're not going to get that off of the innovators. So that brings us to the second requirement that I always tell them, and that's that you have to identify a need that is satisfying a widespread set of customers. And I often refer to, I don't know if you use Superhuman or if you've heard of the Superhuman email tool.

8:44But CEO Rahul Vora, he's the CEO of Superhuman, and he defines widespread in a way that I'd like to repeat. He says that when 40 % of your users tell you that they'd be very disappointed if they had to stop using a product, then you've probably hit that widespread need. And very disappointed is a pretty high bar, right? It starts showing you that you're solving a pain point rather than just being a vitamin or a toy for someone. So, okay. So now you have, in theory, the painkiller and you believe that it's widespread. But then the last one, and this is the one that really gets you over this product market phase and into the next phase is that you're targeting a customer segment that you can deliver to repeatedly and efficiently.

9:36And what I mean by that is that you've identified a sufficient number of customers that are similar enough in their needs or their processes or how they use your tool that they're satisfied by the same set of features in your product. So, so often when I'm talking to founders, they are, you know, they've got one customer over here and they want it a certain way and then they find another customer over there and it's like, oh, but we need to build something for them. But I'm sure we can use that for other people. And then they've got their third customer and it's a tiny bit different over there.

10:05And they're like, yeah, but we've got six customers. That's fantastic. But they all need a little bit of a different thing. And that's not going to be scale. So you're not into the scale stage when you're that far. You really need something that you can sell multiple times, repeatedly and efficiently, to the same kind of customer who's using it in the same way. And I think that those are basically the three things that I look for to see if a startup has gotten beyond that. And that's not a low bar. Those are significant things, at least as I'm digesting them. What do you say to get back to the painkiller versus vitamin?

10:43What do you say to someone, I see this a lot in tech, that I'm creating a category. It's a new category of things. How would you react to that? I mean, I think it's hard to go from zero to category. So you still have to have a path to get there. You could certainly be the kind of founder that has multiple exits that can go and get a large amount of investment to be able to create a category and not take. And, you know, this product market fit thing. I mean, we write things as if they apply to 100 percent of all companies all the time. And that is absolutely not true. There are always companies that get there through a different path.

11:28And my only response when someone gives me that example is like, that's the one out of a thousand or maybe more. And that's probably not a good strategy for you to follow. Right. So I worked for a company called User Testing, which I talk about a lot in the book also. And we were also trying to create a specific category, but we didn't try creating that category until we actually had a product market fit and we were starting to scale. So you still have to find people at the beginning who just want to use a product. Otherwise, you know, you're not going to last that long unless you have hundreds of millions of dollars in the bank.

12:06And so let's segue that into the different phases that early stage companies go through. And and look, and I think I have these right. But the ones that you outline in the book organized as launch, pivot, scale and exit. Is that right? Yeah. And so let's start. We'll go through them one by one, but maybe in the launch phase. And when you're talking about launch, I think you might. Are you talking about pre-product market fit there? Yeah, really up to when you've achieved product market fit. Yeah. Okay. And maybe I know there's not just one mistake that people make or that I've made when I've worked at companies and that, but maybe you can choose one as an example for how you think through advising people and how the book is structured about a mistake that you've seen.

12:48Why does it happen? And what advice would you give? These days, I guess I'm just speaking from recent experience. My most often discussion with founders is the mistake around being in love with their solution. And that is a mistake we talk about in the launch wave of our book. So most people want to start a company and then they look for something that they can build that they think people will buy. And it's especially true for technical founders. They know a technology area well, and they're often very creative and they can come up with a lot of applications for that technology. And I've learned over many experiences that this is sort of backwards thinking, right?

13:34The startups with the highest chances of success. And again, there are certainly a number of startups that have started that way and succeeded. but the highest chances of success are the ones where the founder has personally experienced a really painful problem themselves in a particular industry that they've been really close to. And then they've decided, I've got to solve this problem. I've got to go find a solution for it. And so you start with the problem, not the solution, because so oftentimes the first solution you bring to market isn't the right one. We always talk about experimenting in this launch phase as you're trying to find your MVP and your product market fit.

14:12It might be too hard for users to use, or it might be targeting too small of a user base, right? So even though you found someone who loves it, you just can't scale a company off of it. In any case, if you start with what you want to build or which is the solution, you're less likely to be open to throwing away that solution. Or, you know, maybe you just came from that entire industry and you don't know anything else rather than starting with a problem. And, you know, the best positive story I can tell you is the opening story of the book, which is the user testing founding story. So the founders actually started a completely different company.

14:52And during the process of trying to launch their company, they were really finding it challenging to get real feedback from people that weren't their friends and family on how they liked their product. And it felt like such a pain for them that they realized that, well, they started building a solution so that they could get feedback for their other company and then realized that this was a bigger and better problem for them to solve. So they were willing to let go of that solution that they were originally building and really pivot into this new company. 14 years later, user testing became one of the less than 1 % of startups that managed to go public.

15:32That's really cool. You know, I've heard, I've heard about what you were talking about at the beginning, kind of expressed as like founder market fit, which to me is like, is like being able to effectively answer the question, why are you uniquely able to address this problem? And, and like, what, why do you know more about this problem space than anyone else? And you have the passion, the entrepreneurial skills, the, the, the whatever. The next phase is the pivot phase. And when I was sort of prepping how I'm going to ask you about this, my question was, do founders have a problem letting go of their baby?

16:09But I'm maybe asking about this in the wrong phase. How do you define pivot? And what's one of the big problems you see there? It's always hard for founders to let go of their baby. But I think in the pivot wave, it's the founder more than almost anybody else or the founders that are willing to pivot because it usually happens when they're struggling, when the company's struggling to get to the next level. They haven't been able to achieve product market fit, or perhaps they have and they're in the scale wave, but they haven't been able to scale effectively. And they're starting to not be able to keep the boat, like we say, afloat, because they're spending too much money and they can't achieve scale.

16:54So whatever the phase is, it's the founders or the leadership that's struggling. And so therefore, I found that they're actually more willing to pivot than the other employees. Now, you know, the challenge is that the founder has to invest as much energy in keeping their employees committed during the change as they are in actually making the change. And so often, almost categorically, founders are focused on the implementation of the pivot and not the bringing the entire team along with the pivot. And so we call that false commitment. When I'm talking to a founder, I like to say, you know, you're thinking about things from a founder's perspective.

17:38I need you to think about things from your employees' perspective. So, you know, you've been and most of them have been employees at other companies in the past. Some of them have not. And when we have been employees in companies, we absolutely know what happens when you have this one strategy and everybody's so invested in achieving that strategy and you've been working 24 hours a day and everything is about this. And then next year, leadership comes and declares a completely different strategy. Right. And we all know how that makes us feel like employees. Usually what happens is we start wondering.

18:13This is where you start questioning. Well, do they really know what they're doing? That's when the gossip starts happening, right? I've seen this so often. Well, interview employees and they'll say, well, you know, this too shall pass. I'm just going to keep doing what I'm doing. And so all of this is your team is not going to follow you into the pivot. And I think it's one of the biggest things that founders make mistakes on when they're trying to pivot. They've got to bring their team along also. There's an expression about when you're joining a startup, joining any company, like, are you drinking the Kool-Aid?

18:49And oftentimes when you're signing up, you're impressed, excited about the founder, the founder's vision. That's why you do it. That's why you tell your friends, et cetera. What advice would you give to founders? Because I've seen this pattern too, that when in a pivot, what is the founder maybe most excited about, particularly in a technology company working on this, the technology change, like working on the thing. But for many founders, maybe it's more appropriate in the scale phase, like their superpower isn't standing up in front of employees and motivating them. I mean, we all can't be great at everything.

19:29So what do you recommend that a founder actually does if they don't have the innate tool set around, you know, motivating and so on? How do you, what do you recommend that they do? Perhaps we think in, you know, our culture, Silicon Valley culture, that there's one way to motivate. And I don't think that there is. There's many different ways to motivate. And I've seen people and I myself have been motivated by very, very different personalities. So I think that the biggest thing that, you know, a founder needs to do is, and I've seen this happen with a particular CEO that I've worked with before and learned a lot from, starting off by telling your employee base that what we're in for in this experience is change and the ability to adapt.

20:22And so many founders don't start with that. They start with, no, this is it. This is, we've got the solution. This is why we're going to crush it. And it's very, very definitive. and you get yourself in trouble when you're being definitive because the world of startups is all about change, right? So I've seen, again, a CEO come in and say, like almost every quarter at all hands, you know, we are about adapting and changing. And if you get into that mentality, whether you're a really powerful speaker or whether you're demure or whether you prefer sending out notes and emails rather than speaking in front of large audiences.

21:04I think that kind of approach makes a huge difference in the ability to bring your team along. Yeah, that's a great point. I can say at the company that I work for, we were really deliberate. And we're a lot bigger than a startup, but we established guiding principles, that kind of thing that are part of being an employee. And adaptability is one of the three. And it's something that we celebrate. It's one that we talk about at all hands. It's part of the review process. When you're in a really high growth company, it's almost impossible to have a month where it was the exact same as the previous month.

21:44If you're growing more than 20 % a year, it's probably impossible that it is. So, yeah, it's a really, really important part. On the scale phase of a business, I wonder if there are any problems about the types of hires that you make. At least in my experience, folks who are early pioneers aren't necessarily the same people that can operationalize or systematize a function, whether that function is client services or sales or QA or whatever. At least that's what I think when I think about problems of scale. Do you see that as a problem also? Or what's one of the ones that you would pick out from your book?

22:26Yeah, I mean, there's so many. It was really hard to write the scale part of the book because there's just it's a larger, complex problem. And so there's many, many more issues. We did pick out like people as being an entire chapter in the scale phase. There's a few different challenges, I think, with, you know, the people that you hire and the people that you keep in the scale phase. and things that, you know, I'm even experiencing today and where I currently work. One is what I like to call the brewing battle between the old guard and the new guard. So you have a bunch of people who brought you here, and they're incredibly valuable.

23:09But to your point earlier, John, you know, they're the kind of people that do a whole bunch of things, whatever gets thrown at them, And it's fun. And that's what they get a lot of energy out of. They've always been at the table because you've been a small company and they've all done a bunch of things. And then suddenly you have to, to your point, hire people who are skilled in a very specific area. So you need to hire your general counsel. And the general counsel needs to do general counsel work. And, you know, there's too much general counsel work for and they need to be such an expert that they can't go off and do a bunch of other things very easily, maybe over time, but not at the beginning.

23:45And so you have these sort of experts versus the people who have been around and doing everything. And the people who are doing everything start seeing some of the work taken away by these other people that you're hiring. And then the battle starts brewing. And so you really have to deal with that, because if you don't deal with that, then you end up having two cultures in the company and they're at war with each other, essentially. Yeah. Yeah. I've seen that. I've seen that, too. and when a company sort of like grows up, there are all these choices you have to make about whether you treat, you know, you treat, you know, the folks have been there a long time or they grandfathered into certain things or not.

24:25There's just so many different parts of it. There's so much to cover on scale, obviously, but I want to shift and talk about exit. I've been on the buy side and sell side of many deals. Probably you have too, countless deals. And I'm curious about one thing that you might point out about an exit, maybe focused on something that a founder typically doesn't think about? I'm quite passionate about how founders and leaders, because sometimes you're not the founder, but you're the CEO of a company at this point, how they misinterpret what an exit is. And it's our fault, really, because we, the greater tech zeitgeist, tell founders that what they should do is focus on getting customers grow, grow as fast as you can, get more customers, get more customers, and everything good will happen.

25:14And one day you will exit. And if that means that one day you will go IPO, then yes, that's definitely the path forward, as long as you're capable of being a standalone company forever. And that's very rare. So for everybody else, they're probably looking to get acquired. And it's absolutely the wrong advice to just say, you know, get more customers, get more customers, and one day good things will happen and you will get acquired. Because from an acquirer's perspective, and I did run corporate development at public companies and private companies for a long, long time, from an acquirer's perspective, very rarely are they just looking to bolt on a company with a business that has nothing to do with their current strategy.

26:04They're always looking to bolt on or acquire companies that fit within some target of their strategic plan. And so you have to know what that is. I call it inside out thinking. That's the mistake in that I've seen so many founders do this. They're like, you know, in their room, they've got like all of their documents open, they're like, and they're searching the web. And they're like, we would be perfect for this company, this is what we could do for them. They're basically building the strategy for their acquirer without ever having talked to them, which is ridiculous, right? Because you don't know what's going on inside the larger acquisitive company.

26:43And so what I advise founders is two things. First of all, start turning it around, you need outside in thinking, you need to start by talking to people right away, as many potential acquirers as possible, as early as possible. And they don't want to do that, because they're afraid that the acquirer is going to like steal all their I was about to complete the sentence for you. Exactly. Right. You know, everybody, that's the first reaction. And there's a couple of acquirers who might do that. But by and large, you know, I've never been at a company where they have so many free resources that they're like, oh, that's a good idea.