326: The Startup Survival Guide—Avoiding Costly Mistakes, Scaling Smarter, and Planning Your Exit with Mona Sabet, SVP at GCG
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We can't help ourselves. With every technology transformation, we bring on a new bubble. And this is the bubble that we're in right now. And what that means is that we're over-investing in that segment. And when the bubble bursts, and I'm confident that it will burst, I just don't know when it will burst, half of these companies are going to go out of business. ♪

Good morning, good afternoon, or good evening, depending on where you're listening. Welcome to AI and the Future of Work. I'm your host, Dan Turchin, CEO of PeopleRain, the AI platform for IT and HR employee service. Our community is growing. I get asked all the time, how can you engage with other listeners? Well, we recently launched a great newsletter on Beehive. I encourage you to subscribe. There's a link in the show notes.

We share all kinds of interesting tips and facts that don't always make it into the main show. Of course, if you like what we do, please tell a friend, give us a like and a rating wherever you listen to podcasts, Apple, Spotify, etc. And if you leave a comment, I just may share it in an upcoming episode like this one from May in Tampa, Florida, who's an entrepreneur and listens while doing market research for her graphic design company,

May's favorite episode is that great one with Neil Mant, Emmy Award-winning producer of Golden Globes, about how AI is changing the entertainment industry.

We learn from AI thought leaders weekly on this show. Of course, the added bonus, you get one AI fun fact each week. Today's fun fact, Kyle Wiggers writes in TechCrunch about AI world models, what they are and why they matter. Unlike language models, world models take inspiration from the mental models of the world that we humans develop naturally. Our brains take the abstract representations from our senses and

and form into a more concrete understanding of the world. While the concept has been around for decades, world models have gained popularity recently.

While a generative model trained on years of video might accurately predict that a, say, a basketball bounces, it doesn't actually know why. Just like language models don't understand the concepts behind words and phrases, a world model, on the other hand, with even a basic grasp of why a basketball bounces, might be better at showing how it does that thing.

AI godmother Fei-Fei Li's company World Labs recently raised $230 million to build large world models. And Google's DeepMind hired one of the creators of OpenAI's video generator Sora to work on world simulators. World models very well may be the path to artificial general intelligence or AGI. As we discussed recently with great guest Peter Voss, who coined the term,

My personal commentary is that we won't get to AI that understands the world with larger generative pre-trained language models, no matter how much time we let them think. Of course, we'll link to that full article in today's show notes. Now shifting to this week's conversation. Mona Sabe is the author...

of Sale to Scale, Steering Startups Clear of Mistakes from Launch to Exit, which was published this past August. Mona's currently SVP of Strategy at GCG.

Previously, she was the Chief Corporate Development and Administration Officer at Vulcan Forms. She was the Chief Corporate Strategy Officer at User Testing and Corporate VP at Cadence Design Systems. While at User Testing, Mona helped close many acquisitions, lead the company's $100 million funding round, take the company public, and negotiate its $1.3 billion acquisition by Toma Bravo.

Mona co-founded ChipsNetwork.org, a global community for women in tech law and policy. She also founded and continues to lead High Power, a community of leaders championing executive women poised to shape the future of tech. And without further ado, Mona, it's my pleasure to welcome you to AI and the Future of Work. Let's get started by having you share a bit more about that illustrious background and how you got into the space.

Hey, Dan. Thanks for having me on and happy to share something about my background. Well, I've worked in Silicon Valley for over two decades now, working across, as you had mentioned, a variety of segments in technology industries, from software to hardware to manufacturing. I went to college in Canada, engineering law and an executive MBA there.

I practiced law for the first half of my career and then moved into, as you had mentioned, operations strategy and corporate development in the second half of my career. All

within the world of tech. So I'm a bit of a tech lover at heart. I spent a fair bit of time at a company called Cadence Design Systems. They make software and hardware that is used in every design, every piece of electronics equipment that you probably have lying around the house right now. The chips inside the computers that we're talking on, inside the smartwatch that you might have on your wrists.

the phone that I just turned off so that it wouldn't make a noise, maybe your smart doorbells or your home security system, so on and so on. That was a great experience for me. I spent a fair bit of time there negotiating with some of the largest systems and electronic companies around the world.

And as you mentioned, I also spent some time at a company called User Testing, which does, we used to joke around exactly what it sounds like it does. It allows people to access real humans online.

which in this world of AI is becoming less and less available to test their customer experiences and make them better. While I was running corporate strategy there, as you mentioned, we grew up to over 300 million in revenue from a 40 million starting point. We went public and ended up getting a $1.3 billion acquisition.

Lately, I have been interested in how technology is revolutionizing the manufacturing industry. And that's where I'm currently focusing a lot of my time on. And my sweet spot, really, if I was going to wrap it up, is scaling companies that have already found their product market fit and helping them scale and then eventually have a successful exit. Describe the thesis behind scale to scale and maybe equally important, what inspired you and your co-authors to write it?

Yeah, well, so over my years of experience, what I saw is that businesses made the same critical mistakes over and over again every time they tried to grow and scale. So it didn't matter whether I was at a software company, a hardware company, a manufacturing company. I have two co-authors on this book, and I knew them both long before we decided to write the book. Two of us had had meaningful exits, and

And so we got together and we were talking about our experiences and our exits. And, you know, it was interesting or surprising, I guess, to us how each of us kept running into the same set of problems in our experiences and identifying the similar mistakes across all of our experiences.

The mistakes that we were starting to recognize were different for different phases in the journey of a business, but within each phase, they were very similar. So we started talking.

We decided to call these phases waves because we were joking around that they tend to come at you and you can either they can either crush your business or it can turn into this exhilarating wave ride surfing ride. And that's sort of how the book came about.

Every author goes through a process where some nugget or kernel of wisdom or interesting interview doesn't make it into the book. For you, what jumps out at you as something that, some nugget that maybe you could share with the audience that didn't make it into the book?

Well, there was a story that it was a long enough book as it was. There's a lot of mistakes. But there was a story that actually didn't make it into a book that I do love telling a lot of the time. It was about a company that was founded by three computer scientists and

And they were selling software into software developers. So software to be used by software developers. And they were growing well for a while. This was a while back. And then they hit the 2008 financial crisis. You know, everybody got hit by it. Customers cut spending. The company's growth slowed down.

In many ways, when I think back to that story, it's similar to what companies have experiencing in the last two years as inflation rose and companies became uncertain about the future and cut their own spending and headcount. And certainly in the companies that I've been in, as well as the companies that I've advised, it's been very hard to continue growing in sales. So, you know, similar experience to this company. Well, this company decided that they needed to introduce a second product to be able to stimulate growth.

And they had been selling into software developers, and they realized that the core technology that they had could be reformatted into a product that could sell into heads of IT, essentially.

So, when I was talking to them and giving them advice, I had mentioned that at the time, if you were looking to scale an exit, perhaps through an acquisition, you had to sort of think strategically about what your path was in connection with how acquirers might perceive you. And at the time, I think probably still today, you had to sort of think strategically about

The large companies that were acquisitive that were selling into the software world were very different from the large companies that were acquisitive that were selling into the IT world. So my thesis to them was that if you went down this path and if you ended up having to exit through an acquisition instead of an IPO...

some value of your company will become irrelevant to whoever acquires you. The part that I didn't mention when I started this story is that before the 2008 crisis hit, they were approached by a company to buy, to acquire them at a fairly meaningful valuation. They went down this road for about four, maybe five years, ended up getting acquired by a company that sold into the software developer space and

wrote off the IT portion of the business because they weren't selling into that space. And while the acquisition price was larger during that period of time, there was a round of funding which diluted the founders. And also there was five years, five years of investment in time. There's value, there's ROI in that money, that period of time. And so if you actually did the math,

I think the founders probably came out with about the same or maybe less than if they'd taken that first acquisition offer.

I think these stories are really hard to find because nobody talks about them. But it's really important. And I always say, especially for founder leaders, founder CEOs, you really need to know what it is you want out of the business. And then don't give up an opportunity to

that may be staring you in the face, especially when you're struggling to find growth. The book's a great read, full of insights. You talk about 18 common mistakes that founders or founder leaders make. I think I've made all of them. Which of them are fatal?

I think all of them can be fatal. It's probably more a question of if you want death by a thousand cuts or if you just want one knife to the jugular. Let's see. Well, in each phase or wave, as we call them, there's probably one mistake that is more of a jugular attack and the rest that are the death by a thousand cuts, I'd say. In the launch wave, it really is, and I've

talked and written about this so much. It's not understanding what an MVP is, a minimum viable product. This was a drumbeat that I used to say constantly at one of my previous companies. We would release what I call minimum version products. You conflate MVP with

agile software development and lean, the lean approach to lean startups. And you think that what you have to do is go quick and throw something out into the market. But if that thing that you're throwing out into the market isn't valuable to the user, if it doesn't have sufficient features to actually be useful,

And the whole point of an MVP, and we talk about this in our book, is to test your hypothesis. If you think that an MVP is out there to start growing your revenue, then again, you've been quite mistaken about what the purpose of this launch phase is.

If you're testing a hypothesis by putting an MVP out there and it's not viable, if it doesn't add value, then you don't know when you get the feedback that people aren't using it. Whether that is because you aren't on the right trajectory or you just didn't give them enough for them to care.

And I think that you can make decisions as a result based on this feedback that isn't really testing any really hypothesis that you put before you and then make that wrong decision, go down a wrong path. And certainly I've seen an awful lot of startups just stall because they haven't been able to figure out what an MVP really is. I think that the true, one of the best examples

write-ups I've heard about an MVP is put up by the CEO of Superhuman. And he's like, well, I know that I've got product market fit when 40% of my customers, I think, tell me that they're going to be deeply upset. I don't remember the exact words. If my product disappeared, then I know that I've got product market fit and I can move on to the next stage. So that's certainly a launch

stage mistake. Again, we have four phases. I'll go through them. In the pivot wave, and if you've been in a company that's been struggling and trying to turn, I think that this will speak to you. It's really failing to recognize what we call false commitment from your team. This is a team that was really excited about a path forward,

And you managed, I assume, as the leadership of the company to get them, you know, believing that this was the right path. And now you have to pivot off of that path. That's a very hard thing to do. And I have to convince them that you're still right in the new path that you're setting.

and get them committed to go do something hard all over again. And I think oftentimes it's such a struggle to just create a pivot and leaders don't want to admit to themselves that they're not necessarily...

the original team that they all loved working together so much might not be in it for the next phase, that they just ignore the false commitment that they're seeing in front of them. And as we all know, at the end of the day, companies are made up of the people that drive them. So we've certainly seen a lot of that happen across the three authors' experiences.

Once you get through the launch phase, whether you had to pivot or not, you're hitting what we call the scale wave, which could go on for years and years and years. And it could go on forever if you're lucky enough to go IPO. And I think that one of the biggest...

things I've seen CEOs or I guess at this point founders make is I like to describe it as failing to fire yourself as a founder and interview for the CEO role.

Being a founder and leading a founder-level company is very, very different from being a CEO and leading a scale-up. And the transition, very few founders are able to make. And so I like to think of it as making a decision, like a de facto decision that you're going to sit there and say, no, I'm no longer a founder of this company, but I do want to be the CEO of this company.

And I'd like to figure out what, if I had to interview for that role, what would it take to make me the candidate of choice? And then finally, and perhaps one of my favorite topics is

If you get to the point where you're lucky enough to sell your company, you probably will not sell it successfully unless you have not made the mistake of treating acquisitions as a transaction instead of as a strategy. I have strongly believed for many years, and this is not something that is often talked about, I think, in the industry.

tech media that you need to develop your acquisition strategy as alongside your customer strategy and your product strategy. Too many times I have come

Companies call me with 12 months of runway left and business that hasn't stopped growing and said, well, now's the time that I'd like to exit. Everything's at rock bottom. So I'm sure someone will want to buy me now. And it's just not the right end result. And you could have navigated your ship faster.

towards a different direction had you been thinking about acquisition as a strategy since the very beginning. And why that is fatal and is a jugular hit is because literally so many of them just end up having to close shop as a result. Brilliant. Brilliant insight. You're talking to a community of AI-first entrepreneurs. What's your perspective on how starting and scaling companies has changed in the last couple of years when

We have access to different technologies and I don't want to bait the witness, but clearly company growth information is different in kind of a post AI world or an AI first world. How's that changing the venture creation process? Maybe I would break it up into two types of AI companies. There's the companies that are building products that have AI features and

And then, again, because I'm very interested in the manufacturing space now, there are companies that are using AI to accelerate their launch and growth without necessarily having AI features built into their products or services.

Examples of the first kind are everything that you read about in the hype cycle today, like OpenAI, Anthropic, every other $100 billion plus valuation startup that's out there in the market today. But in addition to that, also, like every CRM company or marketing automation company that has incorporated AI features, that's all part of this first category of companies.

you know, design tools that have added AI image generators and so on. Those companies, they're going through a hype cycle right now. And smarter people than me have pointed that out. We can't help ourselves. With every technology transformation, we bring on a new bubble. And this is the bubble that we're in right now. And what that means is that we're over-investing in that segment.

And when the bubble bursts, and I'm confident that it will burst, I just don't know when it will burst, half of these companies are going to go out of business. And I think that that's one of the biggest problems.

things that we have to be aware of today for companies that are AI first, I guess, in their feature generation. And it's hard to imagine, right? I mean, it just sounds, again, when you read the tech news, it just sounds impossible that some of these companies might not be here in five more years. But I remember the heady days. I mean, I'm quite old. I remember the heady days before the internet bubble.

with AOL, which peaked at $200 billion in valuation. So I also remember probably many of your listeners might not, AltaVista or Excite at Home. These were companies that at the time we thought were going to live for a long, long time, and they all disappeared. Well, they got acquired, but not successfully. And so I think that that's probably one of the biggest things that

I would be thoughtful about if I was leading an AI company right now. There is a lot of money out there and it makes you feel like you're invincible. But, you know, we've gone through this, as I said, hype cycle before and strong leadership principles.

strong product management principles are always going to overcome just growth. Don't confuse the market tailwinds with doing things right. Over the last couple of years, the IPO and M&A markets have largely been anemic and there's

Some thought that on the horizon, we're taping this toward the end of 2024, 2025, that may change. And presumably, we're going to have a glut of kind of late stage companies that are all eagerly awaiting an exit. I know how much time you've spent, and I know you covered a lot in the book about kind of best practices, and you talked about planning early. It's not a desperation move when you're ready for M&A. It has to be just the opposite.

We talk about companies we want to be bought, not sold. But maybe just beyond the platitudes, companies that are thinking about an exit in the next, say, 12 to 18 months, what should they be doing to maybe distinguish themselves from a super crowded pack of companies lining up?

Yeah, it really is. I mean, the one thing that when companies are at that scale, they sometimes forget some of the things that we did learn when we were early on in our startup career, such as maintaining and being able to talk about and articulating your differentiation work.

When user testing was heading towards an IPO, we spent an awful lot of time making sure that we could articulate why we were different from other customer experience companies out there. And

We had been so focused on delivering great product to our customers that we had stopped thinking about how the market should be spoken to. And it's natural because when you're a private company, you're not really speaking to the market. You're speaking to your investors who happen to be on your board, and they're mostly telling you to grow more and sell more to your customers. So nobody's actually telling you to start selling to the market.

But if you're in one of, there is going to be, I think, a large number of acquisitions

that are probably going to happen in the next couple of years, perhaps not successfully. We'll see, you know, how the companies position themselves. But PE firms purchased so many companies in 2020 and 2021. And, you know, their cycle is going to end in about 2025 or 2026.

So perhaps it won't be next year, but it might be the year after. And there's going to be a lot of consolidation and or spin outs happening. There's a lot of companies that were planning on going IPO before the end of 2021, where everything basically shut down. Whether you're in one category or the other, starting to think now about how you speak to the market, I think is a critical step.

Probably skill set that you haven't been spending a lot of time on and trying to figure out how to articulate the differentiation. You're talking to investors. I think one of the things that leaders...

have a hard time keeping in their mind. There's so many things they have to keep in their mind, but they're used to, for example, pitching to their VCs if they're a VC-backed startup. And pitching to a VC and pitching to a public market are two completely different things. Pitching to a VC and pitching to a potential acquiring company are two completely different things. What a VC cares about versus what the public markets care about versus what an acquirer cares about are

are very, very different. And the biggest mistake I see is, you know, you get into this mindset of I've been pitching to VFCs. I've raised my series A, series B, series C. So I'm just going to use the same deck and I'm going to, you know, modify it just a bit. I spend a lot of time in the book explaining why you have to pitch to acquirers based on the problem statement the acquirer has, not based on the business that you have.

And so trying to keep in mind the audience sounds pithy, but it's actually quite hard that you're selling into as you're going through the next transition, I think is what I would suggest is my biggest advice to all the companies out there waiting to try and hit that next transition.

hey mona we're about out of time but uh i'm not letting you off the hot seat without answering one last important question for me there's a whole aspect of mona that we didn't get to yet and that's i mentioned in the in the opener um deep background and passion that you have for empowering uh women to who are aspiring to exec level roles in tech

Can you talk to us about the current state of diversity in hiring and why, after all these years, we still struggle with this in tech and make it actionable? You know, what's your advice to both the leaders that you coach, but also to the founders who may just have a blind spot because we're not making enough progress or we're not making the right progress fast enough?

You know, I would say there's so many things and I could go on for an entire other half an hour on this point. But if I was going to distill it to, again, one thing that might go to the jugular, we...

are very much a culture that relies on brand for decision makings. We talk about this in the book a little bit too. So I joke around that you could have been in custodial services at Google, but as long as you have Google on your resume, you'll probably get an interview. And that's unfair and not completely true, but an example of the brand. The fact is that because of

Our history, we've had most people who have brands, whether the brand is the title or the brand is the company or the brand is the amount of dollars that they managed to raise, you know,

from a VC, that brand has been held largely still today by men, not by women. So when you're interviewing, and if brand is something that is unconsciously affecting your decision, you're going to lean towards the men that are applying for your roles more than the women.

And so being able to change that perspective, because quite honestly, we've hired in the past and I've made as a leader the mistake in the past of hiring a lot of people because they've been, you know, a senior level person at Salesforce. And so I thought that they would be able to really just come in and

take up the mantle immediately. And yet, usually when you have those brands, sometimes it's because you came into a well-greased, well-operating company and you just continued to make it so, which is very different from growing, scaling, starting, allowing for transitions to happen and leading them through change management.

So brands haven't always worked out. And I'm pretty confident that any of your listeners will have an experience where they've relied on a brand and it hasn't worked out. So being able to move away from the brands and actually look for the skill sets, the talents, the ability to learn all the things that we say are important in leadership, but we don't necessarily interview for, I think would be a critical way to start driving the change.

I spend most of my time working to build strong communities of women, largely because women also need to help themselves a lot. We need to support each other more than we have in the past. I like to say things like men.

Men will recommend another man that they know for a role because they golfed with them. Women will not recommend another woman for a role unless they've worked with them and have absolutely 100% sure know that they can succeed in that role. And so we don't give ourselves enough opportunities either.

So I think it comes from both directions. It's not something that you can do or you can solve for just through one direction. I think everybody needs to play their part and change how they approach diversity in tech. Mona, like you said, that's the topic for a whole other episode. I may need to invite you back because it's too important a topic to shoehorn into a couple of minutes, but that was a really good starting point.

Thank you. I wish more people were passionate about fixing that problem. And I love that advice. Mona, before we can wrap up, where can the audience learn more about the work that you're doing and of course, scale to scale?

Well, Sell to Scale is available on Amazon. So we'd love you all to buy it and then take a moment and rate it also. I'm on LinkedIn all the time. So if anybody wants to reach out to me and DM me, that's where I spend most of my time. So happy to talk to anybody that's out there about the topics that I love. Excellent. This is a lot of fun. Great work. And thanks for coming on the show. Thanks, Dan. It was a pleasure being here.

Well, that's all the time we have for this week of AI and the Future of Work. As always, I'm your host, Dan Turchin from PeopleRain. And of course, we're back next week with another fascinating guest. ♪