Lessons - How Founders Become The Best Investors | Karl Alomar - Serial Entrepreneur, Investor & Managing Partner at M13

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