“Should I go slow for some time in the short-term to allow myself to go faster in the long-term?”

“Why is my company slowing down even though I have more people?”

“How to create an organizational structure?”

Founders encounter these challenging questions at various stages of their entrepreneurial journeys. During a recent discussion on organizational building, Manoj Agarwal, co-founder and President of DevRev, a California-based CRM startup, shared his expertise with the founders of Blume's portfolio companies to help them navigate these issues.

DevRev, established in October 2020 by Manoj and Dheeraj Pandey, the former CEO and founder of Nutanix, has secured $50 million in funding from Mayfield Fund and Khosla Ventures. DevRev offers a unified platform that combines product development and customer experience into a comprehensive CRM solution. Prior to founding DevRev, Manoj held significant roles at Nutanix, including SVP Engineering and GM Hybrid Cloud.

Outlined below are the valuable insights Manoj shared during the session, which were highly appreciated by attending founders.

Why do companies lose efficiency as they scale?

When establishing a company, it all starts with a nucleus.

Manoj says, "The nucleus refers to the founders of the company working together in a room."

In a tech company, the initial tools usually include GitHub and G-Suite. Once seed funds are secured, the company begins to expand and hires new team members. As the team grows, additional tools and systems are introduced. The engineering team may start using Jira, while inter-team communication necessitates the use of Slack.

During this stage, one unique aspect of the company is evident: every individual is responsible for both the product and the customer, given the small size of the company.

Manoj explains, "Everyone is focused on the product and the customer. They share a common language."

Over time, as the company grows, specialized roles start to emerge. The product gains traction, the customer base expands, and complexity increases. This eventually leads to a division between the back office and the front office, with the former focused on the product and the latter dedicated to the customer.

As the company scales, complexity increases significantly. Departments are formed within the back and front offices to handle specialized functions. Cloud ops, customer success, and customer support become separate departments within a broader function, while new departments like sales and marketing are added to the mix.

At this point, as a founder, you may feel that the company's progress is slowing down. Even though you now have 50 employees, the company's productivity hasn't multiplied tenfold compared to when you had just 5 employees, and you may find yourself achieving less with 50 people than you did with 5.

Manoj points out, "Are all the employees, at this stage, still actively involved in managing the product and serving the customers? Do they have access to the necessary data to understand what's happening on both the product and customer sides?"

One reason for this inefficiency is that as the company grew, each department introduced new tools and systems. However, these tools are primarily designed to fulfill department-specific goals and lack effective integration with other tools or seamless data sharing between functions. So, numerous meetings are required to move data and information between departments, and sometimes, additional personnel are hired to act as liaisons between different teams.

Another significant cause of inefficiency at scale is the absence of documented information. When the team was only five members strong, decisions were made through face-to-face discussions, and everyone was on the same page. However, the information from such discussions is often stored in team members' heads, on messaging platforms like WhatsApp or in Slack channels. Consequently, when a sixth team member joins, there is an information gap. This information asymmetry only worsens as the team grows to include the 10th or 25th member, as they have no insight into past decisions or the reasons behind certain actions since this knowledge was not documented in an easily accessible format.

On Hiring, Titles, Promotions and Meritocracy

Typically, organizational structures resemble a pyramid shape. Senior management makes up about 10% of the employees, with mid- and junior-level managers accounting for the rest. The junior management forms the bulk of the weight of this pyramid.

However, when it comes to making the initial hires, this structure is flipped. It is common practice to hire senior individuals first, followed by mid-level managers and junior team members. This happens because the early stages of a company are often characterized by ambiguity, and having experienced members on board helps navigate through uncertainties. However, it is important to maintain a balanced pyramid and avoid a top-heavy organization where recent graduates or interns report directly to Vice Presidents. A healthy company maintains a well-proportioned pyramid structure.

In order to promote transparency and meritocracy within the company, Nutanix implemented a unique tactic. New hires joined the company without a specific job title. Each candidate's experience and contributions were compensated fairly, but formal titles were not initially awarded. After a period of 6 to 9 months, the candidates' performances were reviewed by the technical committee, which then assigned appropriate titles based on merit.

What is particularly noteworthy is that these performance reviews were not conducted by the employees' direct managers. Instead, the technical committee was responsible for evaluating the performance while the managers gathered the necessary performance data.

When it came to promotions, candidates were expected to request a promotion, and the technical committee would vote based on the data provided by the managers. This process resembled an awards-based system, where a successful promotion signified the candidate's recognition within the company, as the decision was made through a meritocratic process involving peer voting.

As a leader, Manoj encountered situations where he identified talent and wished to bring them into his company. However, if the individuals demanded a title upon joining, Manoj prioritized the company culture he aimed to foster above all else and chose not to hire such individuals.

Adhering to principles can sometimes be challenging in the face of temptation, but it is these choices that distinguish great founders from the rest.

Culture eats everything for breakfast, but unfortunately, you cannot teach culture

While building a company, every founder thinks about culture, purpose, people, hiring, and retention.

Manoj: “Every founder has to walk the talk on culture, one cannot be just saying it and not walking it.”

DevRev has devised the 4 H’s value system while hiring for its team. These 4 H’s are: Hungry, Humble, Honest with Heart. According to Manoj, evaluating candidates based on their alignment with the company's values is crucial because values cannot be taught. For instance, honesty is a trait that an individual either possesses or does not possess. He strongly advises that if a candidate lacks any of the company's values, it is best not to proceed with their hiring, even if they excel in other areas.

Additionally, Manoj recommends that companies set a separate set of values that employees can learn and develop while on the job. At DevRev, these values are represented by the four A's: Authenticity, Antifragility, Ambition, and Attention to detail. These values are woven into the fabric of DevRev's work environment, and employees are encouraged to embody and practice them

What does authenticity even mean?

Authenticity is often mistaken for honesty, but honesty represents just one aspect of authenticity. One often overlooked aspect is vulnerability, which can be difficult to practice.

For example, while working with your juniors or peers or seniors or customers, if you feel you made an error or something didn’t go well, do you have the ability to take the onus for the situation? Sometimes, one might feel that they didn’t do anything wrong, but another person might feel otherwise. In such a situation, does one still have the ability to take a step back and own the situation?

Another vital aspect of authenticity is the ability to remove self-righteousness. During meetings, valuable insights and innovative ideas can come from individuals at all levels, whether they are interns, new team members, or experienced professionals. It is essential to consider and give weight to all ideas without dismissing them based on personal biases or preconceived notions. A truly authentic approach involves an open mind and willingness to embrace diverse perspectives and contributions.

Being resilient is not enough anymore

As a founder, being resilient in today’s uncertain environment is a tablestake. You are expected to be resilient and build companies that do not break under stress. However, you should orient yourself to building anti-fragile businesses à la companies that not only survive crises but become 10X better when crises occur.

By building anti-fragile companies, you gain a competitive edge. While your competitors struggle to survive during near-death experiences by merely persevering, you seize the opportunity to leverage those same challenges to transform your company into a superior version and succeed in the market.

The question then arises: How does one become anti-fragile?

Manoj: “Being antifragile is a mindset. It is how you look at things.”

Instead of being afraid of failures, you need to learn to celebrate failures so that you can take advantage of them and find ways to significantly improve your company - people, business model, or product. This means having the conviction to mobilize the people with you to work on these failures and evolve.

You should also be willing to take short-term hits. To illustrate, if you realize that the business is burning cash too quickly to sustain, you have two options – either you shut down the company, or you stay put (which means resilient) and knock on every door possible to raise money with the hope that in the future, the problem will be resolved. However, there’s a third option that involves mobilizing the entire company and pivoting to a new business model. In the short term, there will be pain and loss of revenue. However, in the long term, the company will be successful.

Avlesh Singh, co-founder and CEO of WebEngage, a Blume Fund II company, did this when he realized that their current product would not scale up. Read his story of the hard things about hard pivots.

The thread that ties it all together: Purpose

Manoj emphasizes the importance of tying everything you do to a purpose. When that purpose is centered around helping others, it enables better and faster execution, leading to improved outcomes.

For instance, at Nutanix, there was a team responsible for working in the data center that was unable to take its Christmas break due to maintenance windows coinciding with the holiday season. Rather than accepting this as the norm, the leadership team approached the situation with a humane purpose in mind - to ensure that this team gets their well-deserved Christmas break. They rebuilt the IT stack, enabling all maintenance tasks to be conducted during regular business hours instead of solely relying on year-end breaks.

Similarly, DevRev’s purpose is to give time back to employees to work on things that matter. This implies that when a project is handed to someone, it is ensured that they are equipped to handle the project in the most optimal way possible, and Data is shared with them to make fast decisions. Transparent dissemination of data helps them choose what kind of work matters to the company’s growth and what doesn’t.