Jake: (00:00)
Hi, welcome to Venture Scaler. I’m Sasha, a three-time head of people at venture-backed startups. And I’m Jake three times ops and growth leader from the venture-backed startup circuit as well. And we’re here dropping all of our best tips on how to scale your startup.

Sasha: (00:16)
Hi everybody. Thank you so much for joining Jake and I on Venture Scaler today, we are joined today by Tom Spengler, one of my favorite people in the entire world. He supports my sour Skittles addiction and buys me coffee when I need it. Intro done. But is there anything else pertinent that you would like to share with the folks watching?

Tom: (00:45)
Oh, um, I love working with Sasha and Jake as well. Uh, they’re incredible, got cheat, great chance to work with you guys at Coplex. And, uh, it was a wonderful time. I learned a lot from both of you. So thank you for that. Um, my background for the audience, I guess, uh, since you guys know it, I was the founder and CEO of Granicus, which is a software company in the public sector, uh, kind of legislative automation, communications, um, 5,000 government agencies. Now I ran that for 15 years, zero to 25 million in re-occurring revenue in San Francisco in the Bay area, um, and started when I was 24. Uh, and as the founder there, so got pretty ambitious and started early. Um, before that I was at Anderson consulting or Accenture. And then, uh, now I’m the executive chairman of another gov tech company, Primegov, which essentially is our kind of 2.0 of Granicus. And, uh, I like to call our those founders, uh, PeopleSoft, they kind of did the same thing. So new tech, a hundred percent in the cloud. Um, but going back to the same buyers in the same market, um, with, uh, with just kind of a new company and a new approach and in between I’ve done my fair share of angel investing and advising for early-stage startups and find that’s where I, I do my best work.

Sasha: (02:08)
Yeah. Let’s not forget your golfing and Star Wars Legos.

Tom: (02:13)
Wow. I know we’re going to get that personal. Yeah. I’ve I have a wonderful wife, Valerie, and two little kids, Hudson and Savannah, and, they’re four and two. So my life has kind of crazy and we do a lot of Legos and go in the pool and I used to go before I was working so much golf again one day.

Jake: (02:37)
Nice. All right, well, thank you for that. Great intro. Uh, Sasha, one of your best. So Tom, thinking back to your Series A at Granicus, so way back, what was the, what would you say is the single best decision that you made after raising that series A round of funding?

Tom: (02:57)
Yeah. Um, best decision afterward. Um, well let me give a little bit of context of where we were at, you know, our story, uh, we, we were founded in December of 99. So to give you guys the way back dates, this is a great story. I’m excited for this one again. No, we left, we left our jobs like a month before the.com crash. So all of a sudden we were these like, 24-year-old founders with this, these big ideas about streaming video, especially live video, being a disruptive technology. And, um, and then we couldn’t raise any money. We, we raised a $200,000 friends and family round that we’d kind of had committed. And of course, our expectation was like everyone else psycho, just 60 days after that we’ll raise like a $40 million series a, because that’s like what everyone was doing, like over a weekend.

Tom: (03:49)
Um, so we had to bootstrap really hard. And, we tried a couple of different markets. We landed on government, um, for our technology. And, um, I started kind of opening up CRE creating transparency for public meetings. Uh, and we were down to, you know, we were up to 10 people at one point and then down to really nobody, we were on unemployment for, for a year, uh, just the three founders and we just kept, we just kept going. Right. And so then we finally got product-market fit. The economy came back and from 2003 to 2008, we were 300% year over year growers, which, um, was like that. That’s probably like one of the most exciting times in my life because the business that we’d been working so hard on for three years, that was basically a failure. All of a sudden turned the corner and, um, to grow at that rate, you’re going from like three to nine to 27 to, you know, 54 to my masks going to get bad now. But all of a sudden we’re like 130 people and we had to move offices every year. And that’s when we raised our series a, so we were, we were, um, late to the series a and we had just, I figured we’ll just keep doing the organic growth. And we actually were lucky that all of these people started knocking on our doors and, and to be Frank, they’d all told us to kind of, you know, go away, uh, when we want to raise money in 2000. And so I was just like, screw you.

Tom: (05:19)
Which I don’t think they normally hear that often, but we had a good business and so we ended up bringing in, in jail and my equity. Um, they ended up being a great partner for us and we brought it in, in like January of 2008. Um, so that was right before the recession. Um, and I think we actually probably made a lot of bad decisions with our series a so, um, um, we, we were ramping, we wanted ramp even yeah, faster, you know, 300 a year over year growth wasn’t enough. So we hired really heavily into the recession. Um, and then we had to cut them back. And I think the number one that we got out of the, out of the series, a, which was about $5 million on the balance sheet, but we raised tens. We did a recap, uh, and some liquidity, which is pretty common, but, uh, was that we had the money to make those mistakes at that point and respond to this, um, you know, terrible economic situation in Oh eight that essentially stopped her sales. Uh, for like two years, we were just, you know, kind of down in very flat on the sales side. Um, there, it did allow us to do a couple of acquisitions. So I think on the good side we bought web, we have seen.com. We bought a company called legis star, uh, or a Daystar company that has a product called led to star, which was one of the best in the market. And, um, we were able to do really well with that acquisition in terms of sort of the kind of ROI. So,

Jake: (06:46)
So quick follow up there on that story. So you’re thinking about raising the round back in 99, everything fell apart, couldn’t raise the round and then you bootstrapped and didn’t raise a formal institutional round until 2008, almost 10 years later, I guess, at that point. Why, why raise that, that round or go to go to PE at that point?

Tom: (07:13)
Yeah, I think we just thought, all right, there are these like, world-class, you know, great Silicon Valley investors, you know, knocking on our doors. Like we’re kind of being idiots by just shutting them. And then, you know, you start to kind of understand what you could do with additional capital, right? Like if at that point, we, what was happening for us is we were the only solution in the market. We had, we had created the market, like a lot of startups do, but we were starting to see some copycats and we would, we would not win some deals because we just didn’t have coverage. You know, we, weren’t talking to somebody, some say you would sign up for something else. We believe pretty strongly that if they would have spoken to us, we would have won the deal. Um, you know, that’s kind of how I always think, but, um, so we were like, well, we got to go get the whole market.

Tom: (08:05)
And then we started thinking internationally. And so that was kind of the reason behind is that we had that product market fit and we just needed capital to grow even faster. Um, and we were, we were having to stay really lean, you know, through that growth. I mean, we were hiring a lot of young people at entry-level salaries. We’re having to coach people up. We probably, at that point needed a little more senior management team, uh, that we could bring in to really scale up. So, so it was just, it was creating optionality around our future, accelerating some of the things that were working and then probably let us, you know, make a couple of bats on other things to, to really grow the business. And unfortunately, you know, the timing ended up being bad for some of the bats. Um, but, um, you know, it all turned out pretty good. I think a good cost per sale. Again, we, I exited in, uh, 2014 end of 2014 and, um, Vista private equity owns it and that’s for sale for over a billion dollars now. So that’s kinda cool.

Jake: (09:08)
That’s incredible. So now fast forward to today. So you’re at prime gov. You, there’s already quite a bit of capital. That’s already been put into the company likely through like the founders on the co-founders, but you’re nearing your first instance, an institutional round of capital. You’re starting to think about a more formal series a round. So what are the things that you’re thinking about now that you’ll need to do in the next 12 to 18 months once you raise that round to a, to scale?

Tom: (09:42)
Yeah, that’s great. So I think the prime gov story is just a little bit unique because, um, we, we essentially have like a corporate partner who’s been helping kind of fund the business. Um, so we’re, we’re really like on track for a series a from all of our, uh, kind of unit economics in terms of like error under contract and bookings, bookings, growth size of the team, et cetera. Um, and so kind of a traditional series, a maybe five to $7 million raise, um, on, let’s say 15 to 20, maybe mid-twenties. Um, and, uh, yeah, so it, it’s, uh, it’s exciting to think about what we could do kind of for the capital. I mean, for us preparing for it, um, you know, we’re leading our story with the team, right? So, uh, the same team that’s built the market-leading company, um, and the space is pretty attractive.

Tom: (10:46)
So a lot of investors like that, I would say, you know, for other entrepreneurs that are out there, like assembling a team that has high credibility in your market, you know, one, uh, we really leveraged that domain expertise to be good at the work we’re doing to create value for our customers, but the investors really, really liked that as well. Um, you know, I think in terms of looking at getting the unit economics, right, you know, the CAC to LTV, um, view for us is, is really top of mind. Uh, the win rate is really top of mind, the size on ARR under contract churn, um, are all things that, that we’re kind of highlighting in the business. Um, one interesting caveat JQ would appreciate this is, um, in speaking to some investors in gov tech, especially later stage, they actually believe that like a dollar spent for 50 cents back on first-year contract is like a really good ratio because they’re assuming they’re giving you credit for nine on the contract and their model.

Tom: (11:54)
That’s all right. So taking that, you know, times, times nine. And so now you’re, uh, you’re like one to four on actual LTV, but it’s over a much longer period of time. So we’re at like one to 1.3, 1.4. We want to be at 1.5, but it turns out that’s a really aggressive number and that’s not on the value of the contract, but actually in the first year, right. And most of our contracts are three years long. So if you tripled the number, it would be, you know, it’s not, it’s no quick, but it would be up there. And to, you know, some of the better numbers or maybe no training

Jake: (12:35)
Government that the governments are going to, because it’s in the government space that the turn rates going to be a lot, lot lower, like the stickiness is way higher. So they’re giving you a little bit more credit on those unit economics. Is that what it is?

Tom: (12:47)
Yeah. And it’s just, you know, it’s a proven outnumber across all the, all the companies, you know, it’s, it’s, um, uh, granted grandkids, we were zero turn for eight years, which is just insane, right? Like zero, like we didn’t lose a single dollar and contracted revenue for eight years, um,

Jake: (13:02)
Or a logo. I think

Tom: (13:05)
That’s probably a world record. I mean, video, that’s done better. Please send him an email.

Jake: (13:15)
She’ll forward it on. But, um,

Tom: (13:18)
So, and then when we brought the private equity and our kind of brand or process to sell it, 15 years later, it was 99%, you know, so we were losing like 1% a year on a $25 million number. And so that’s why the upfront and our model is more expensive because the sales cycles are really long. And then the backend is also more valuable, I think, because people just don’t want to switch, even when they’re out of contract, um, they’ll renew with you at a, at a high probability. Um, so that’s good. Now the opportunity for us is that, um, the current, a lot of the current companies we’ve been bought up by big kind of P they’ve lost some of their focus. So this domain expertise that we bring plays really strongly, um, to the market buyer. And then, um, they’ve also, you know, really maximized for EBITDA.

Tom: (14:13)
So they’ve, they’ve been, they’ve been pushing and testing the profit margin with allowable churn. And you know, that frustration that that is being created in the marketplace becomes your competitors opportunity. Right? And so we’re, we’re talking to a lot of customers who are like, Hey, we’ve kind of had enough of, of, uh, you know, kind of testing that thesis of how long will we stay, stay around, you know, these government contracts, how long do we stay up? But even with that, I would say the churn levels for, for other vendors in the space are still low compared to traditional markets, other markets, enterprise, or whatever. So

Sasha: (14:52)
Very cool, well, something Jake and I talk about a lot is that when you’re building companies, there’s different people for different stages. So the person that gets you from zero to one may not be the person that gets you from one to 10 and 10 to 25, but you happen to be a founder CEO that was the zero to 25, which is incredible. So I’d be curious how your role as the CEO changed over the course of your time with Granicus over the 15 year tenure, you had that.

Tom: (15:23)
Yeah. That’s it, it’s such a good question. It’s such a smart insight too. So, um, the fact that you are talking about it. Yeah. It’s also my, I, I think a lot of people make this mistake in their hiring is they’re like, Oh, this person’s great. You know, they were great in their last job, but that was, you know, uh, please use Oracle. Um, you know, that was at Oracle where like, especially if I think about salespeople, like you, you have like a team of eight people that do all the work for you, right. Like, you know, Oh, where’s my RFP writer. Where’s my BDR. Where’s my competitive research guy. Where’s my demo, my sales engineer. And you hire that person into a startup as sales rep, number one. And like, they’re just going to fall on their face. Right. Oh, wait, you want me to do all that?

Tom: (16:10)
Oh. And build all the process that was already there when we got there and not to say that Oracle sales rep isn’t incredible. Like these people are making like million dollar plus salaries and bringing in 20, $30 million in revenue. But, um, it’s just, I think you’re right. It’s a very different role. So, um, to answer your question about like my journey and how it’s scaled, you know, I started out, well, first of all, I think I want to say, like I had two incredible founders, uh, Javier and Emery Jones. And the three of us had very different skill sets. Emory was finance and operations and just the kindest, most humble person in the world. And, um, just gave so much care to our customers, but took care of like, you know, all the, all the like back office stuff that for me, like, I would just like procrastinate on forever.

Tom: (17:05)
And then Javier did all the attack, you know, he did, he built the infrastructure, built the software, um, did all of that, that stuff. And, uh, I was really the sales marketing, you know, kind of the inspirational energy spoken, all the conferences, kind of some of the roadmap, Javier and I really collaborated on where the product would go, um, from there. And, um, so that was my, my initial role. And I remember, you know, days where all I would do is put my head down and just work on sales. You know, I would say like, we’re out of money. I’m not going to get paid unless they close a deal. So I’m basically on a, on a no salary comp plan. And so it’s like, just go close deals. And I’m just, that’s all I’m doing is being the sales rep, no process really built because we didn’t need to scale anything.

Tom: (17:55)
And then we started to get this momentum and it’s like, okay, I’ve got to hire some people. And, um, you know, finding people as a CEO that fit well with you, I think is like, is step number one is no, no, have, have real honesty with yourself, like what your strengths and weaknesses are, and then hire people that support, um, you know, fit well with you. So support your weaknesses. Uh, most importantly. And so I ended up hiring a lot of people who were very detail orientated, very process driven, like to build systems because like, I just never took the time to do that. Like, I’m the big picture guy. That’s always like, Oh, if we go over there and we do this, this is going to be a great market and we can win. And then I could sell the customers on that. Um, but to scale the business, I really hired a lot of people that, that knew how to, to kind of scale.

Tom: (18:49)
And I think this is a long-winded way to answer your question. I think the hardest job I’ve ever seen anyone have to do is come in and be the individual contributor and a team become the team lead when you hire the second person and then, um, be hiring additional team members as the lead and building the infrastructure behind it. Right. And in these early stage startups, you’re, you have to do that in every single department is like, okay, I gotta go do the job. Now I earned the right to be the department head, whether you want to call it that a VP or a director or manager or a team lead. And now I’ve got to build all the process. I got to hire the team, I’ve got to train them, I got to get them aligned. And I would say that I see, you know, 25%, maybe 30% of people who are good enough in their job as individual contributors to get that opportunity able to successfully do it.

Tom: (19:41)
Um, and, and I was fortunate to have a handful of those people, Sharifa, Gabe, who’s our CEO of prime gov. Now on the operation side did that Charles Wallins Shea. Um, my old VP of sales did it on the sales side. Um, and that, those are just two great examples of, of people that I’ve seen do it. And now, you know, they’re, they’re kind of writing their own tickets and they can do whatever they want and be CEOs and, you know, head of sales at, at awesome companies. So, um, I think that, I think that’s a huge challenge. Um, in terms of the scale,

Sasha: (20:18)
Did you have a, a stage with Granicus that was your favorite in terms of leading the team? Was it when you were on food stamps really early on when you started to get traction or the late stage when it was more established? Yeah,

Tom: (20:31)
For me, for me, Sasha, I think it’s all about, I just like winning. I mean, I just like winning, like, I’m one of the most competitive people you’ll meet, you know, this from sitting next to me, I Coplex for, uh, for a year plus. Um, and so the, my favorite part was the three years or the five years where we were 3% growers year after year. And we were winning like virtually every deal that we were in, we won. Um, and you know, we were in the inc 500, I think we were like 18th, fastest growing company in the country. I mean, like we were, we were just ripping it. And, um, that was by far the most fun. And the part that was fun was the winning plus doing it with this team where everybody was all in, you know, I, um, uh, I I’m, I’m just an, uh, focusing effort is the things that I’ve seen make companies successful, right?

Tom: (21:29)
So focus is both your strategy and the business, but also your time as the team. And if I’m trying to do five things at once, it just makes sense that, that I’m not as good at the, one of the things that I want to do. And I’m so focusing tightly on your business and then just putting in the effort and it’s people are in different stages. So I don’t advocate this for everybody, but like we were in our twenties and early third B is when we were building the company, we didn’t have anything else to do, right? Like I had no mortgage, no car payment, no kids, you, I was just like, I could risk everything to build this business. And we were working 80 a hundred hour weeks for like a decade. Um, and to look back at that and think that was like, the time of your life is kind of crazy.

Tom: (22:14)
But, uh, I would say that’s, that’s pretty accurate. Um, in terms of management as a CEO, I remember distinctly when we went about 35 people after we, we grew out of a, uh, a specific office actually that we were in where it was like 35 people. Maybe we bumped up on 40 that’s when I no longer kind of knew what everybody was doing and exactly like able to see their work. And I realized like I have to start working through my team more. Um, and that became my priority was like, how do I support my direct reports? How do I give them clear guidance on what they need to do, but also just make sure they’re being successful and really empower them with like broad targets and just say, go get it down and figure it out. And it’s, it’s your team, it’s your budget.

Tom: (23:07)
Um, you know, kind of go own it. And at first that was a hard transition because I love knowing and being close to everyone on the team, because it’s just a lot of fun, uh, the whole time at Granicus, uh, and you know, Plex pretty much the same way. Like I, I like to interview everybody that’s going to come work there. Um, and so I think as a CEO, it’s a good thing to do. And, and so I liked, I liked helping those employees achieve their personal goal inside of the company as well. Right. That’s when you get this beautiful, um, outcome is when you’ve got everybody aligned for what the company wants, but what they want in life really fits well into that and their role. And they’re, they’re waking up everyday going. I can’t believe I have this opportunity. You know, I’m going to go work my butt off, and this is exactly what I’m going to do with my life. That that becomes really powerful. So I know that was a tangent, but hopefully I answered,

Sasha: (24:01)
I love it. No, we, we, last week we were chatting with Greg Scoresby the CEO of campus logic, and he talked about building a recruiting culture and how he to this day is spending at least half his time on LinkedIn, stalking people, light stocking, or sourcing people. And I think that’s a super important piece of any CEO role. Um, so I’d be curious, like you mentioned making sure everyone’s growth paths and purposes aligned with the business when you were hiring people, how did you ensure that you were hiring the right type of people that would feel that way coming into work every day?

Tom: (24:36)
Yeah, this I think is going to be my favorite question, because I think this is just like where, um, I’ve always been, been successful and, and, uh, building great teams. And so I think it’s a pretty simple formula for me. Um, I think as a CEO, you know, one thing you can do is you can have the, you know, whether it’s your people ops or your direct reports who are hiring for departments, make sure that they’re getting all the functional stuff kind of out of the way. Um, but the three things that I think are are really big, um, for me is one I’m always, especially when you don’t have money, if you’re in a startup, right? Like I’m always looking for hypertension people, right? So the first thing I want to look for is a pattern of success. And so my interviews, as you guys both know, uh, when I interviewed you and when, uh, we got to work together, I always say like, start as far back, as you think is relevant and telling your story, right.

Tom: (25:37)
And people were like, what? Like I’m in this interview. I just want to talk about my current job and how good I am at it. And I’m asking you like stuff from high school or even like before, you know, I mean, w with, with younger hires, it’s a little easier to get back there, but, um, I want, I want to know, like, did you learn how to be successful in winning your life? Did you kind of, um, did you figure that out? And for me it was in high school for basketball. Like I was, I was, uh, all he cared about was basketball. Um, lute Olson, who was the coach at Arizona passed away last night, which was really sad because that was my, that was my team growing up. My grandfather was a coach to the U of a and, and so I got kind of like, I am now a start-ups, I just got completely obsessed with basketball.

Tom: (26:27)
And I learned that if I really worked hard on it and stayed focused, I could, I could cue kind of start passing up people who were better than me the year before and, you know, junior high or whatever. And so that’s where I learned the discipline of kind of my workouts, my training, my focus, that, that made me successful there. And then I was able to apply that to other things, right. So academically in high school, I was like a 2.8 GPA. Right. And people are like, wow. And then I got to college and I decided to apply these same, like patterns to academics as well as basketball. And I had like a 3.9 and my parents were like, wow,

Speaker 4: (27:10)
What is going on? Like, how did you get sick?

Tom: (27:13)
I was actually interested in trying. Um, and so I want to find out people’s pattern of success. Right. Did tell show me times that you’ve been able to apply that the more times the better. And I think what’s really hard for people is that they, um, if you’re hiring younger folks who you don’t have a lot of capital, you just, you have this like really short period of time to figure out if they know how to be successful. Um, and so that, so that’s number one. Number two is I want to, I want your passion as an employee to be in line with the job that we’re asking you to do. Right. And so an easy one on this is, uh, we just hired an awesome marketing director, the shawl at prime gov. And when I asked him, I always ask this question, tell me about your hobbies, what books you’re reading.

Tom: (28:00)
Right. And if, if he’s like, Oh, 50 shades of gray is like, you know, my thing, and this is, this is what I, you know, in Harry Potter, you’re like, Oh, okay, cool. But like his answer courses, all these different marketing books, you know, Oh, I’m reading this and I’ve got these marketing podcasts and it’s like, Oh, you, you actually like the field that you’re good in. And I think we always assume that people are like, Oh, I work in this field. I must like it. But I, I dunno, what do you guys think? Like a third of the people actually like their jobs are like the fields that they’re in. And so I don’t want to hire the person. Who’s good at a job that doesn’t like, it like attorneys is a perfect example.

Speaker 4: (28:42)
No,

Tom: (28:42)
I want to be attorneys, but like, they pay for all that school and they make so much money. So they just keep doing it, but they kind of hate it. So pattern is success. If I see high trajectory, job is in line with, uh, their, their actual life passion. And then number three is really simple. I like to give people an opportunity that other companies wouldn’t right. Like, like if I have, I find a high performer potential, someone that I can really believe that’s going to be an, a player in the making that loves the work that we’re going to have them. Do. I want to give them an opportunity that they can’t believe they got. Right. Um, Lauren Alexander was one of the first people I hired like this we’re hiring a marketing manager and she had just graduated college. And it says on the J it says on the rack three to five years experience and okay, you’re still in college.

Tom: (29:33)
Why are you applying for this job? And it’s like, well, let me show you how I can do the job. And she had those other, those other two things. And we, we hired her and gave her the job. And so of course, it’s like, she’s all in, right? Like, I can’t believe I have this job. I’m going to go work as hard as I can. Um, and this is going to be exciting for me. So, so that’s, that’s basically my hiring plan is, uh, is to find those three things. If, if you, you know, they need to be able to do certain hard skills. So you got to get that checked off the list. I usually didn’t have to be the one checking that off the list. Um, I would get the, you know, top three candidates and I’d be looking for these, these things. But, um, yeah, there you go.

Sasha: (30:15)
I love your hiring philosophy. It was a beautiful, um, I’d be curious, uh, as you hired people and you grew the company, how did your comp your compensation philosophy change over time? Or did you have a similarly, similarly passionate view on compensation?

Tom: (30:35)
I think compensation is really hard. Um, yeah, it’s just, it’s tough because, you know, I think number one, every agreement is negotiated separately, right? Like, I mean, I think in startups, you’ve got people who are like, Oh, these are my bands. You know, this is the, this is the range of competent. Of course you want fairness, but you know, when you’ve got someone you really want, and the number is X that you need to pay to get them, then you, I find that you’re always kind of like paying up. Right. Um, and then you’re, you know, thinking about the rest of the team and how you, how you get equity there. Um, we, we all, I always try to pay people for the value that they’re adding to the business. And I think one of the things Silicon Valley has done better than anywhere else.

Tom: (31:26)
And, you know, I think Jake could attest to this from his time at Uber is they’re just really gracious with their ownership, with a stock options. You know, like if you give people good ownership in the business, then they’re naturally compensated for the value that they’re creating. Right. And, um, at least as a team, you know, you may have somebody who’s creating more than others, but so that’s always been number one. I think we were really gracious at granted focus, um, on the stock option piece. And it just creates this unity, you know, when people are like, Oh, I own some of this, then they’re less worried about their salary or their variable compensation or their bonus. And those types of things, you know, after that, like, of course when you have scarce resources, you’re trying to put some of that in variable, right? Like if it’s like a profit share, essentially like, Hey, if we can do X and you’re going to get a little bit more and, um, those plans I think are hard to execute on.

Tom: (32:25)
Um, they’re just, they’re hard to build. They’re hard to execute on and set good expectations. So I think it’s tough, but that’s another tool for startups to use. Um, and then, um, you know, I think you just have to be of the market value for people. And I think that’s why we were always hiring younger people at Granicus. Cause now we were all younger and I feel like people hire people like them a lot. You know, I think that’s one of the, the, the issues around race and equality is like, you know, people like to hire people like them and they don’t, they, they resignate with their stories a little bit. And I think as leaders in these companies, we have to, we have to be conscious of that potential bias. And we have to, you know, kind of, uh, rethink how we look at some of that.

Tom: (33:12)
But, um, yeah, I mean, we, we had to hire people too. And when we, when we were moving, when we were selling the business, essentially we’re bringing in a new investor. Um, the average salary that we had in San Francisco was $1,000 less than this company we’re looking to buy and Iowa. Um, so just to think about Halloween, we were like in such an expensive market versus somewhere in Iowa, we were actually on an average salary per employee, a thousand dollars last. Um, so while we were given a lot of stock and, you know, we were giving the younger people an opportunity, right? So you’re always trading something. If you’ve got a ton of cash and you can just go hire that 25-year veteran, you know, who’s still passionate about the industry and he’s got all that energy then, you know, great. But those people I find are also pretty expensive and, you know, want a lot of resources around them, et cetera. So,

Sasha: (34:07)
Yeah. Sorry to monopolize the conversation, Jake, but I have one more question. Thank you. Um, no, but thinking back to what you said a couple of questions ago, when you were thinking about, um, building the business and scaling it up over time and shedding pieces of your role, how did you know that you needed to bring on a head of marketing or head of sales? Was there like, were you super data-driven about it? Did you know when I hit this metric, I’m going to bring someone on. I know that’s probably not you, or did you have a feeling, did you meet someone and want to bring them on? What was your methodology in hiring some of your key executives?

Tom: (34:43)
Good question. Um, to be fair to us back then, you didn’t have the types of playbooks that you have now. Right? Like I think, I think one of the things that’s changed just in the last five years is it’s like, Oh, here’s the startup playbook. And, uh, you know, when we started, there wasn’t even SAS, like it was eight, it was application service provider ASP, you know, and we were early, we were building our own infrastructure anyways, there wasn’t. So we were kind of inventing the, reinventing the wheel or inventing the wheel for the first time in some of these cases. Um, because it just wasn’t well documented, you know, what the KPIs need to be to drive certain hires. I think there’s better data now and better ways to look through these businesses, um, which is great for, for founders. I think there’s a better roadmap, you know, for me, we would just look at where I usually looked at where I was having to spend a lot of time, that things I wasn’t good at.

Tom: (35:45)
And so, you know, when we had the three founders, the first hire we made was marketing because we all looked around and was like, okay, none of us know how to do this. Like we do what we do everything else in the business. Um, but we, we were like, you know, I mean, I was making a marketing documents and proposals and like, and they all look terrible, like from a design element, like everything looks awful. So we really, we needed a designer more than like a demand gen person, which we were doing pretty good at, but, um, designer, and then, you know, all the other kind of marketing and things that came behind that brand building. And, and now there’s such a science behind, you know, all of your SEO and your inner, your ads and your content marketing and thought leadership, all kinds of playing together.

Tom: (36:33)
And there’s like a good playbook to, to build that stuff. But, um, I think that, and then the next part was, you know, what parts of the business, the team are not scaling? Well, I think one of the hardest things to do is have some feel for building a bench or hedging for people that aren’t going to scale. Right. Um, and we’ve had, I had people in different roles. It just didn’t scale up. And so then you were kind of stuck, right? Like, okay, now I got the worst. The worst thing for culture in a startup is when you got to go hire the senior person to sit on top of your rock star performer, who couldn’t scale because the same thing always happens. The rock star performer wanted that job. Um, they couldn’t quite cut it. You’ve had conversations with them about it, but they’re still, they still kind of believe they should be able to have that you bring in the senior manager who knows how to scale, but they don’t know anything about the business.

Tom: (37:29)
So now they gotta go. They gotta go to depend on the rock star who wants their job for everything. And they’re like, what off the train? This guy up? Like, why is this not my job? And I think it, you know, that puts a lot of risk on that, that team that didn’t get to be the manager, same thing could happen if you have two rock stars on a team and you’ve got to pick one, right. And another one leaves. And so just hedging a little bit, you know, one of the things we did who we would have you reshuffle your org chart a little bit like on operations, maybe we spun out the design team because I had a really strong leader there, um, where I wouldn’t have normally done that. I would have left it in like the implementation team, but okay. Now I, now I’ve got a smaller implementation team with maybe, uh, a manager that doesn’t need to be as senior as it was before, because I’ve kind of read on the word chart. So you’ve got some, you got some tools there. I think it’s, they’re all tough decisions, you know, I think that’s why you have a board and an advisory board, um, to kind of think through some of those, those conversations and decisions. I’m curious, I want to do

Jake: (38:36)
A quick follow-up on that last piece. I think that’s going to be something that as you, as like a founder, or even like a people leader over like a larger team, that’s going to be something that keeps on coming up. It’s that really strong, like rock star, individual contributor who thinks like, Hey, why am I not getting that role? I see it happen all the time. I’ve talked to founders about that same thing. What are some things that you have done? How do you navigate those conversations? How do you help set the stage for that type of situation to happen? How do you get the rock star to be like, to accept that decision?

Tom: (39:21)
Yeah. Well, I think, I think number one is that a lot of people don’t understand that management is actually a skillset, right? Just like, you know, just like a coding in a certain language or being able to manage the database like management. Isn’t something that everybody’s good at. And a lot of people haven’t developed. And so I think that’s part of it is like, Hey, this job, doesn’t just go to the, the smartest person on the team, the best individual contributor. And you see this in dev a lot where a lot of devs don’t want to be the manager, but they want progress, right? Like, Hey, I want a promotion. I want to make more money. I want to be on a positive track and all you can show me as management and that’s a problem. And I think there’s some options there and ways to do that.

Tom: (40:07)
But I think that, I think the other thing that’s just critical is when you’re doing your reviews, like one understanding where people want to go and then understanding like what their gaps are and just being really honest about it. Um, I see so many people who in a startup, like we didn’t do formal reviews forever at Granicus, but we had a culture where we cared so much about the people and we’re working with them all the time that we were always having that conversation. And I think Sasha, like you and I talked about this at one point, like I’m always having that conversation with people, you know, I’m just like, Hey, you could have, you know, like let’s work on this and go there. And if you’re doing it in a way that gives people the comfort that you’re investing in them, and you’re trying to help them be their best self, then you can, you can give that feedback all the time.

Tom: (40:57)
Um, and so then it’s like, Hey, if I need you to get here, right, you want to get here. Like, here’s the things that you need to do. And if you’re, if you’re, if you’re far enough ahead, you’re giving yourself as a CEO, the opportunity to see if that’s going to progress or not. And like, get ahead of it where you’re really screwed as like, if you’re growing really fast or you lose some people. And all of a sudden it’s like, all right, in the next 30 days, I need somebody in this role. And like, there’s no way I can coach this person out because I didn’t plan ahead. Right. You always just hire somebody to do it. And like I said, I think, I think that becomes a big culture issue. You know, you have, you guys know like the early team that helped me get things going in a company being replaced by the senior people, for the roles that they always wanted.

Tom: (41:49)
It, it just, it really hurts the culture. And, um, but at the other side, scaling all those people up is impossible. You don’t know. So how do you, how do you scale up as many as you can, and then work the right people in to be those kind of senior leaders. And I would say personally, I was really good at scaling up. I think, um, we did a better job than most anyone that I’ve seen there, but I was actually not great at hiring the senior person and, and plugging them in. We had several failures on senior folks that we brought in that were plugged in to maybe the wrong role or the wrong personality or misaligned goals for them that just didn’t work. Um, and so that might be part of the reason I still like to hire that, you know, kind of up and coming person and grow them because that’s, that’s my skillset. And I know some, some leaders are really good at plugging in the right senior people. Um, and that’s the work area for me.

Sasha: (42:54)
I love it. I love it. Um, with building Granicus in San Francisco, then moving to Phoenix and working with Coplex and now prime gov, what are some of the similarities that were probably more importantly differences in company building in San Francisco and then not San Francisco?

Tom: (43:12)
Yeah. Well, I mean, the one that everybody thinks about is cost, right? And I, I think the cost is, is a big deal and it’s a huge advantage out here. Um, I would say the, the more noticeable differences for me, you know, the first thing that I really noticed was, um, the culture in immersion, in the startup community, uh, in San Francisco, just to give you an example, and I think you guys have heard me tell this story before, but like Saturday night, 10:00 PM, I’m at a coffee shop working on my laptop in San Francisco. I’m surrounded by a bunch of other people with their startups, trying to make their tech company work. And it’s essentially cool. Right? It’s like, Oh, awesome. What are you working on? I think anywhere else in the world, I mean, last, maybe New York or some of these other places, it’s like, Oh man, you have to work Saturday night.

Tom: (44:05)
Like you needed a new job. Um, and I, I think when I think back about focus and effort, that the culture in the Bay area just reinforces, um, the work ethic, but also the belief, you know, when, when you’re working for stock options and you’re in Phoenix and you’ve heard a lot more bus stories and success stories, you’re kind of like, all right, like, why don’t I just go get that? You know, why don’t I go sell something else? Why don’t I go sell real estate and make those nice commissions again? Um, and when we started having the, you know, Greg’s course, we obviously just, they raised a bunch of money, hydrogen Ang at web PT with their exit. Uber had a huge office here. I think that that was actually one of the biggest kind of, uh, momentum builders for the culture is you had all these Uber people that are like, Hey, we just kind of did it.

Tom: (44:57)
You know, I mean, it wasn’t the founders in the very early team, but it was an early enough team that people made some money and saw how the Kool-Aid was made and in a, in a huge success. Um, and I think that, I think that helps a little bit. Um, so I think that, that, part’s interesting, you know, I think the tech ecosystem here is certainly not as strong there, but I, I do, I do like the sales and marketing DNA here. You know, there are people in the Phoenix, Metro are in services and real estate a lot, and those are kind of hustle industries. Like I got to go out and like, you know, uh, make my money and either, you know, kind of commissions or, or tips or whatever. And I think that translates pretty well into tech sales. And so I’m bullish on our ability to be strong there.

Tom: (45:51)
And then of course, you know, we’re, we’ve been training up on the, the, um, lower tech skills, you know, started out with support and implementation and then your junior developers, and now we’re getting good senior developers and architects and technical founders starting to kind of pop up. And so I would still, I still think that resources a little more scarce than maybe it should be. Um, and then the, the last big one that probably could have gone first with the cost of living is obviously that access to capital. And, you know, the, the Bay area is almost always frothy, right? Like you can say like multi now, like it’s almost always frothy and people can raise $15 million on an idea without a business based on their reputation or just the idea and the access to their network. I think outside of the Bay area, then you’re, you’ve got to go get the proof, right? You’ve got to go prove your model and show the traction, show the revenue growth, you know, kind of lock up the team, those types of things, and then you can go raise money. So those would be the biggest, biggest differences that I’ve seen.

Jake: (47:03)
Nice. All right, we’re coming to the end. So let’s close with this question with our favorites. So what’s one piece of advice that you find yourself giving startup founders over and over that you’d like to share with this audience. All right. Um,

Tom: (47:22)
No, I think we’ve covered a lot, so stuff that we haven’t covered. Um, I think at the founder level, if you’re talking about giving advice to founders, it’s really one thing that’s easily missed as a founder kind of agreement. You know, I think, I think finding, finding the right founder, uh, and then building an agreement that allows somebody to kind of back out without killing the company. I mean, I’ve seen, I think founder breakups would be one of the biggest reasons startups fail is this is a really hard journey, right? Like this is, this is a leased, uh, well, this is like a marriage with kids, right? Like all of a sudden you’re like, well, what was going on? Like Skippy? And I’m not doing all of these things like it becomes trying. And, um, you know, having a way that expectations are set really clearly, you know, we, we had a fourth founder at Granicus that essentially kind of decided, you know, this isn’t, I don’t, I don’t want to participate at the same level.

Tom: (48:29)
I’ll just put it there. Right. You know, just kind of opted out on working on business. And it was like, okay, well, you still own a quarter of the business. Like, that’s no fun for us to go kind of carry you along. And eventually when we brought the series a and, um, we were able to buy them out, um, a little bit, yeah. It was like a $3 million check, you know, for somebody who like, kind of just wrote alongside. Right. And so, uh, that, that would kill a lot of companies in their, in their mojo. I think, uh, I think getting good founder alignment is great. And then, you know, for me, again, I’d just say like focus and effort is so important, you know, you’re, you’re, you’re nuts. If you think you’ve got a unique idea and a unique skill set to execute on that idea.

Tom: (49:17)
And no one else in the world has that the VCs will tell you, like for every business plan they get, they get 10 more that are almost exactly the same, right. Especially early stage folks kind of like seed and series AB and uh, in the Bay area, at least where they’re getting thousands of these. And so like, how are you going to win? How are you going to beat that, that team? And I think you’re going to beat them by narrowing your focus down to something that you can own and then just outworking them, um, and outsmarting them, right. It doesn’t always have to just be like crazy hours, but if you stay focused and you outwork your competition, I think all of a sudden your floor becomes a nice lifestyle business, right. Instead of being out of business and maybe for some people that’s, you know, still a big failure, but, um, if you could build a lifestyle business as your floor, it makes that work a lot more justifiable.

Tom: (50:12)
And then, you know, you’re going to need some luck too, right? Some things are going to have to fall your way. You’re not going to hit a big recession or a pandemic or, you know, whatever. And, um, you’re going to get a little lucky and that’s where I think you get the, you know, the really wins, right. And, uh, you, you need, you need a lot of positive breaks to get there. So. Awesome. Well, thank you so much for spending time with us today, Tom, we both love you and we’re so appreciative of you out of your day is great. Well, thank you guys for thinking of me. And it was just awesome to catch up. And of course, you know, I love telling all these stories, so that’s great. Happy to do it again. Awesome. Thank you.

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