Fastest-Growing Startups Have Some Things in Common

"While good luck always seems to be present on the deck of the Good Ship Success when startups strike it big, that is never the whole story. There are many patterns that can be discerned from the experience of top venture-backed companies, according to Index Ventures partner Martin Mignot, who led a research project on 200 examples.

"We kept on getting asked the same questions and the main topic was the team. 'Who do I hire next and at what level and in what role and how do I organize them?'" said Mignot, who joined Index in 2010 and has invested in companies such as fintech upstart Revolut and food-delivery company Deliveroo.

Index addressed those questions in a 300-plus page volume of data and anecdotes titled "Scaling Through Chaos: The Founder's Guide to Building and Leading Teams From 0 to 1,000," which is meant to be used as a reference guide for startup founders.

One takeaway is how much time the best founders spend on internal people-related matters.

"Regardless of the size of the team -- it can be 10 employees or 1,000 -- founders will spend the same amount of time, just about 50%, on people," Mignot said.

There are only a few hundred startups at any one time that have the potential to grow from zero to 1,000 people in five years, but every one that does will experience chaos, according to Mignot.

 Companies growing that rapidly can wind up with more employees who have worked there for less than a year than who have been there longer, so there are challenges with communications and process.

"The takeaway was really around the importance of valuing performance over loyalty," Mignot said. The skills needed to launch a startup aren't the same skills needed to scale it, let alone optimize a full-blown enterprise, should it emerge from that process.

Take cloud-security startup Wiz, which already employs more than 1,200 people and aims to achieve $1 billion in annual recurring revenue within the next year, on the way to its goal of an initial public offering. Google was in discussion earlier this year to acquire the company for $23 billion, although the talks fell apart.

Wiz Chief Executive Assaf Rappaport and his co-founders sold their first startup, Adallom, to Microsoft and worked there for a time. They left to launch Wiz in early 2020 -- just in time for the pandemic.

Rappaport, speaking earlier this year at an Index event, said his mother couldn't understand why he had traded a leadership role at Microsoft to launch a new company in a crowded market. But the abrupt shift to remote work during the pandemic was providential for a company focused on cloud security.

Unlike many startups, Wiz was built from the start to be a global company, according to Rappaport. "We didn't invent cloud security," he said.

There were dozens of companies in the field, including unicorns. 

Wiz's technology and products were in flux, "but basically we knew that we're going to build an infrastructure to scale to support the Fortune 100, the Fortune 500 and it was very beneficial for us," Rappaport said.

Investors such as Cyberstarts, Index and Sequoia Capital helped Wiz work closely with corporate cybersecurity leaders to develop products and technology.

Wiz pivoted repeatedly until it had the right product market fit with large companies. It quickly expanded the range of capabilities on its platform for large companies.

As CEO, Rappaport has focused on the development of the team, assessing when to step aside from a particular role and bring in new people, so that leadership capabilities can scale along with the company.

Technology and sales came naturally to Wiz, but it quickly became clear that it struggled with marketing, according to Rappaport. Part of the problem, he said, was his own lack of expertise in the discipline. He felt his own efforts at marketing were fluffy, and that "I failed with recruiting and retaining the right people in the marketing team."

His solution was to tap Raaz Herzberg, the company's vice president of product, as the next leader of marketing. She might have seemed to some observers like an unconventional choice, because she had previously been in product management at Microsoft, a software engineer at Google and an intelligence and technology analyst in the Israel Defense Forces.

But Herzberg was able to market the company's products in a convincing way precisely because "she's into the details," Rappaport said.

While many startups continually push themselves to grow faster, Rappaport said he faced the opposite challenge. Wiz was growing so rapidly, it was difficult to understand that it actually wasn't at the upper bound of what it could achieve. Reflecting earlier this year on the company's prior 12 months, in which ARR (Annual Recurring Revenue) hit its targets and exceeded $350 million, Rappaport suggested he still didn't fully appreciate the potential for growth. "I hit the brakes in a way without any reason," he said. "I look at it as a lost year."

To avoid such situations in the future, Wiz expanded its C-suite with an outside executive used to operating large companies. It named Dali Rajic, chief operating officer of cybersecurity company ZScaler, to be its first chief operating officer and president.

"He's exactly the sort of person who would know, 'Hey Assaf, you're not at your limit,'" Rappaport said. "'You're so far from that. We can continue building, trust me.'"

1. Finance & Markets: Fastest-Growing Startups Have Some Things in Common. Rosenbush, Steven.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 Nov 2024: B.10.