A quick start guide to building an enduring company – In conversation with Doug Leone

In this episode of Moonshot, Sequoia Capital's global managing partner, Doug Leone, discusses the keys to building enduring companies with Sequoia India's Rajnandan. Leone emphasizes the importance of product-market fit, aggressive execution, and hiring spiky, non-linear individuals who can drive innovation. He highlights the need for clarity, focus, and the ability to pivot based on customer feedback. Leone also stresses the significance of a strong company culture, servant leadership, and the strategic selection of investors and co-founders. He advises founders to embrace failure quickly, prioritize long-term company interests, and maintain a relentless pursuit of growth and excellence.

• Sequoia Capital has evolved from a single $150 million early-stage fund in Northern California to a global venture capital firm with a presence in China, India, Europe, and other regions.
• The firm has embraced change as a necessity to remain relevant and effective in a rapidly changing world and business environment.
• Sequoia's mission is to support founders in scaling their businesses, leveraging its extensive experience and diverse team of experts in different domains.

"We live in a rapidly changing world and as a result we've had to change very rapidly because for us changing is the only option."

• Sequoia's adaptability and willingness to change have been key to its sustained success and global expansion.

"Our goal was to support founders in their journey and support means it's very tough for us to help you with product market fit you've got to figure that out because that's black magic but once you figure that out we want to be the very best in the world in helping you scale businesses."

• Sequoia focuses on supporting founders post product-market fit to help them scale their businesses effectively.

• Sequoia's objective is to serve founders as the central focus, recognizing them as the driving force behind the firm's success.
• The firm has vertically integrated its services from seed to growth, pre-IPO, IPO, and beyond, ensuring long-term partnerships with companies.
• A significant portion of Sequoia's capital is dedicated to nonprofits, emphasizing its commitment to making a global impact.

"Our goal is to serve you founders of the head of the dog no founders no limited partners no sequoia."

• The success of Sequoia is intrinsically linked to the success of the founders it supports.

"Over three quarters about 70 percent of our capital is for nonprofits that make the world a better place."

• Sequoia's commitment to nonprofits showcases its dedication to contributing positively to society.

• Hiring the right people is crucial to achieving the desired culture at Sequoia, focusing on individuals with a strong drive and unique perspectives.
• The firm values spiky, non-linear individuals who have something to prove and can bring innovative ideas to the table.
• Integrity, performance, teamwork, and long-term thinking are core values that guide Sequoia's operations and interactions.

"We need people that believe they can change the world and we need people...spiky non-linear sometimes injured people...that are pissed off as something to prove."

• Sequoia seeks individuals who possess a strong drive and unique perspectives, contributing to its innovative culture.

"Your true skill will be in the ability not only to build a product product market fit but you bring as many people along for the route as possible because you need both of those things to win."

• Success is not only about product-market fit but also about the ability to lead and inspire a team effectively.

• Leadership plays a critical role in maintaining and evolving a company's culture over time.
• Leaders are expected to perform with integrity and set an example for the organization, as their actions are magnified throughout the company.
• Building a strong team and fostering an environment of trust and collaboration are essential for long-term success.

"Do the right thing when no one's looking it's very easy to do the right thing when it's convenient you're in the limelighter but it's looking but do it when it's really hurt you to do the right thing."

• True integrity is demonstrated by doing the right thing even when it is inconvenient or challenging.

"If I do one little thing wrong it gets magnified through the organization same thing with all of you."

• Leaders must be mindful of their actions and set a positive example for their teams, as their behavior influences the entire organization.

• Success in business requires a mindset focused on constant innovation and self-disruption.
• Companies must avoid becoming overly reliant on past successes and should continuously seek ways to improve or reinvent themselves.
• Regularly evaluating how to potentially disrupt one's own business can foster a culture of innovation and prevent complacency.

"You don't want to be the bottleneck of your company... We're always trying new things, trying to put ourselves out of business."

• Highlighting the need for leaders to not hinder their company's progress and to consistently seek innovation.

• Early-stage founders should aim to create a meritocracy, which requires hiring competent and trustworthy individuals.
• Performance is a combination of intention and competence, and both are necessary for building trust.
• Founders need to be clear about their vision, enthusiastic, and fair in compensation to motivate and retain talent.

"Trust is the combination of intention and competence... You have to ooze excitement... and then you have to pay them fairly."

• Emphasizes the importance of intention and competence in building trust and the role of enthusiasm and fair compensation in motivating employees.

• Founders often struggle with the transition from idea-driven roles to execution-focused leadership.
• Common mistakes include premature co-founder agreements, compromising on hiring, and selecting investors hastily.
• Executives must focus on removing obstacles to allow the organization to function smoothly and effectively.

"Bringing in co-founder kumbaya... Choosing investors because I got a term sheet... They don't architect their company."

• Discusses errors founders make, such as poor co-founder arrangements and hasty investor choices, and the importance of strategic company architecture.

• Architecting a company involves strategic decisions about investor selection, dilution, and co-founder agreements.
• Founders should have candid discussions with co-founders about roles and equity distribution to ensure long-term harmony.
• Early hires should align with the company's product needs and growth strategy.

"It starts from the investor you choose... Making sure you've got the right deals with the co-founders... All those things are part of the architecture of your company early on."

• Highlights the importance of strategic planning in investor selection and co-founder relationships for sustainable growth.

• Achieving product market fit is critical; most company failures are due to a lack of it.
• A clear vision and a product that addresses a specific need are essential for success.
• Successful companies often start with simple, utility-based products that evolve into platforms.

"It lives and dies with product market fit... The product that solves a singular need... Those are the best products."

• Stresses the importance of product market fit and the evolution of simple products into indispensable platforms.

• Enduring companies are led by aggressive founders who prioritize rapid execution and growth.
• A broad customer base with smaller accounts is often more sustainable than a few large clients.
• Understanding the economic underpinnings of the business, especially in B2C, is crucial for scaling effectively.

"The companies that have made it have had super aggressive founders... My favorites... is b2b from the bottom up."

• Points out the significance of aggressive leadership and strategic scaling, especially in B2B contexts.

• Emphasizes the importance of aggressive growth strategies and rapid execution for successful companies.
• Discusses the necessity for founders to shift into an aggressive mode once product-market fit is achieved.
• Suggests questioning conservative growth plans and pushing for higher targets.

"Great founders shift into that aggressive mode, super aggressive founders who are execution machines because if you do all that and you don't execute then you're in real trouble."

• Highlights that execution is crucial after planning and strategizing for growth.

"If you got product market fit, what is the reason for your plan for the next 12 months? Why can't you do 2x step and why don't you try to do 2x that?"

• Encourages founders to challenge their growth plans and aim for higher achievements.

• Stresses the importance of achieving product-market fit as a foundation for growth.
• Discusses the importance of having experienced revenue managers for scaling businesses.
• Highlights the need for a cohesive strategy linking product, marketing, and sales for effective revenue growth.

"They've got product market fit usually bottom up not top down and they went for it and they and all at a viral component they all spend little in marketing or sales."

• Describes the characteristics of successful companies that have achieved product-market fit.

"I want to make sure there's a guy there or a gal there that has run revenue up to 50 million because you're not going to get the person the VP of sales yet."

• Emphasizes the need for experienced leadership in revenue management to scale effectively.

• Discusses gross margin as a critical indicator of product uniqueness and business health.
• Highlights that gross margin reflects the reality of a business, unlike other financial metrics that can be manipulated.
• Emphasizes the importance of gross margin for non-scale businesses.

"Gross margin is the line that says how unique your product is and how much does somebody want it."

• Explains gross margin as a measure of product desirability and business sustainability.

"Your gross margin your software company are in your 50s or 60 it could mean that you're very small and your hosting services haven't come out to scale."

• Discusses factors that can affect gross margin in software companies.

• Identifies common hiring mistakes like hiring friends, hiring for experience over intelligence, and not moving fast enough to correct hiring errors.
• Encourages hiring individuals who solve problems from first principles.
• Advises founders to not fear admitting hiring mistakes and to fail fast if necessary.

"Hiring friends not hiring world-class people in engineering hiring suits hiring for experience versus for smarts."

• Lists typical hiring mistakes made by founders in the early stages of a company.

"Failing fast is great ladies and gentlemen fail fast and we'll support you in failing fast don't worry about how you look in front of the investors."

• Encourages a culture of failing fast to learn and grow more effectively.

• Highlights the importance of maintaining company culture, especially in remote work settings.
• Suggests regular check-ins and written documentation of cultural values to reinforce culture.
• Discusses the need for physical meetings to strengthen team connections in decentralized setups.

"You have to pay a lot of attention to it especially in the zoom world you have to spend the calories you have to write it down and you have to act it and you have to remind one another."

• Emphasizes the proactive effort required to maintain culture in a remote work environment.

"The farther apart you are the less able your company is to handle a bump if you're far apart make sure you get together a couple of times a year so you have that connection."

• Suggests periodic in-person gatherings to maintain team cohesion and culture.

• Servant leadership involves leading by example, being generous, kind, and prioritizing the needs of others.
• The leader's role is to facilitate and enable the team's success, allowing them to execute tasks efficiently.
• Servant leadership includes freeing people from hierarchical constraints and encouraging cross-functional collaboration.
• Leaders should coach and support their teams, holding them to high standards while assisting them in overcoming challenges.

"The answer is there's no easy trick, ladies and gentlemen. You have to work at it all the time by your action, your behavior, reminding people, leading by example, being generous and kind, and being a servant."

• This quote emphasizes that servant leadership requires continuous effort and selfless actions to inspire and support others.

"It means maturity on this part of the leader that his job is to facilitate the job of everybody that works with so they can go faster."

• Here, the focus is on the leader's responsibility to empower their team to enhance productivity and effectiveness.

• The primary reason for company failures is often a lack of product-market fit rather than technology, people, or funding issues.
• Understanding the market and asking the right questions is crucial to determining if there is a genuine demand for a product.
• Founders often gain insights from personal experiences with the problem they aim to solve.
• Metrics for PMF include customer payments, usage, and the potential for virality in the product.

"The number one reason is PMF... It's usually market product."

• This highlights that the alignment between the product and market demand is critical for success.

"The right question is would you spend three thousand dollars for an envelope printer?"

• This quote illustrates the importance of asking the right questions to assess true customer interest and willingness to pay.

• Customer acquisition serves as a key checkpoint for validating product success and market demand.
• Founders should evaluate if sales occur without their direct involvement, indicating a scalable business model.
• Analyzing the sales pipeline and addressing any issues related to positioning or product understanding is essential.

"The greatest checkpoint is a customer... Go sell a second customer."

• This quote underscores the importance of acquiring multiple customers to validate the product's appeal and market fit.

"If they can knock it and do it again, boy, they can do it three times."

• The ability to replicate sales success is a strong indicator of a viable business model.

• Execution is prioritized over strategy, focusing on practical actions that benefit the long-term interests of the business.
• Founders must make judgment calls about which customer requests to prioritize based on potential future benefits.
• Sometimes, declining certain customer requests is necessary to maintain focus and avoid unnecessary costs.

"Forget about strategy. Strategy is a business school term. Throw it out the window. It's raw execution."

• This statement emphasizes the need to concentrate on actionable steps rather than theoretical strategies.

"What looks like revenue is really a cost center, so you have to be careful."

• It warns against pursuing short-term revenue opportunities that may not align with long-term business goals.

• The concept of being "founder-friendly" can be misleading; the focus should be on trustworthiness and capability.
• Founders should seek partners who can provide tangible support and expertise rather than superficial friendliness.
• The analogy of business as war highlights the need for reliable allies who contribute to success.

"Think about the frame of reference whether I'm sweet right on the eve of going to war."

• This quote challenges the notion of prioritizing friendliness over competence and reliability in business partnerships.

"You care if I'm trustworthy if I have your back if I have any special skills to help you win."

• It stresses the importance of selecting partners based on their ability to support and enhance the founder's mission.