I was fortunate to get some time to talk with Jason Mendelson, one of Foundry’s managing Directors. Foundry Group is a Boulder based venture capital firm which invests in entrepreneurs across the country to help them turn great ideas into sustainable businesses which define and lead markets. Recent investments include Trada which aims to revolutionize search marketing through crowd sourcing and SendGrid which utilizes a cloud based email platform that makes transactional email delivery easier for companies. The focus of our time together was on managing the growth phase of a company, which I like to call the teenage phase of business. Here’s what he had to say.
Once you’ve invested, how far into the life cycle of the business do you go?
All the way through. However, the roles change over time. In the beginning I focus on the product and building out the management team. Once the product is well developed, I focus on making sure the team is functional and milestones are being met. In this phase of business I become somewhat of an armchair psychologist. Sometimes.
What is the biggest mistake you see companies make in the growth stage?
Hiring sales people too early. If your CEO can’t credibly sell—you don’t have something to sell. Also in the sales realm, companies can have too much business development but not enough sales. Meaning—they have lots in the pipeline but they’re not closing enough. From a sales perspective, a business needs to differentiate its audience and determine the top few prospects that are most likely to buy and knock them down. Then go after the next set of prospects likely to buy.
What are other common mistakes you often see?
Holding on to the wrong employees too long. Businesses often need to change out people faster. It’s like love. If you fall out of love, the chance of falling back in love are minimal. So it's likely you won’t get that love back. Holding on to people like this can be damaging to the rest of the staff and weigh on morale.
How do you know when it’s time to let someone go? What are the parameters you use?
It’s never easy to do and even less able to determine the right course of action before it’s obvious, but there are a couple of filters that I use. First, if the person becomes unenthusiastic or disconnected from the business, that is usually a sign of something greater. Also, if the team around a person becomes dysfunctional, that is also a telling sign. Changes in behavior, performance issues, etc., are all early signs. I wouldn’t suggest any of these leading to an instant termination. Everyone deserves a transparent and open conversation, but it’s rare that you lose confidence in a person and they gain it back.
Which company gets the growth phase right?
Rally Software. Tim Miller and Ryan Martens have a well functioning team, a great product, they understand their customers and the sales cycle and are willing to make the hard choices. They’re the gold standard.