Leadership

Six Growing Pains All Startups Will Face

Every company is a startup in the beginning — even the likes of Spotify, which is now rumored at a potential $20B IPO. And, like all startups, Spotify faced a huge market opportunity and big challenges.

During my years building Spotify, I learned a lot about the challenges startups face — specifically the growing pains. Now, as a VC, I see on a daily basis that all startups experience the same growing pains, regardless of industry. Here’s my advice on how best to deal with the challenges.

1) You don’t always know best

Along the entrepreneurial journey, founders have made all of the decisions on how to run their company. They’ve decided and set the focus of products/services, hired the initial team, planned the territories to launch in, and more.

Yet there comes a point in a startup’s lifecycle when the founder needs to look beyond themselves and check their ego. Embracing a culture where teams are empowered to test ideas is a humbling challenge for founders. By constantly testing new ideas, startups can shorten the time it takes to go from idea to test to data to learn— in turn, innovating quickly.

Spotify has always had a testing mindset, but – as I also see in many other early-stage startups – in the earlier days the team was much slower at releasing things to test, and it was done in sequence. The company spent a lot of time and energy on building things it thought would work before realizing that they didn’t. I remember when the team started to introduce parallel testing – it took time to accept that not everyone would get to see the exact same product, but it made us much much faster.   

2) You’ve got great goals, but they’re totally random

In the early days, a startup’s objectives are often arbitrary, as the founding team typically creates a goal because it sounds good— i.e. “we should hit 100 million users this year” or “we have to reach a 5% weekly growth rate by Q3.” These kinds of goals are impossible to act upon and may end up slowing a startup’s growth.

One way to fix this is to roll out a carefully crafted, simple metrics framework. These should be key metrics built on top of granular raw data that capture the essence of your business. From there, startups can model goals on these metrics and link them to strategic needs, such as the next round of funding.

3) You’ll feel you’re working at an HR startup

When your startup starts to grow quickly, you’ll feel like you’ve set up an HR consultancy because the majority of your time will be spent on recruiting. I recently spoke to a startup planning to hire 30 people over the next 12 months. Working toward that goal, let’s consider the time that will take: There’s usually a 20% hit rate from interviews, so 150 people will need to be interviewed to fill 30 roles. Considering the usual 5% application-to-interview ratio (averaging around 3,000 applications) and the typical 10% manual search-to-meeting ratio (averaging 1,500 manual searches), founders will quickly find themselves unable to handle this volume.

Startups should invest in recruiting early, ensuring the right team is in place to help hire top talent as the company grows.

4) You’re not the customer anymore

As a founder, you were the original key audience for your startup— but this changes quickly. Founders must get into the minds of their customers – both the early adopters and the bigger, more mainstream segments – and gain an understanding of the context and intent of what their customers do. 

Startups can use granular tools and data to move from analyzing behavior to understanding why customers behave as they do. At Spotify, we discovered that only 10% of the time our mainstream users listened to music, they were solely listening to music. The other 90% of the time they were listening to music while doing something else, such as running or having dinner with friends. That explained the reason why situation-based playlists performed far better than genre-based lists – the opposite of what the original founders expected.

5) Your office will always be too small

This is a startup fact. Founders think their office has loads of space, but before they know it, managers are sitting in the kitchen, people are running a desk share rotation and meeting rooms are just an extension of the office. I know because I sat in the kitchen at Spotify and it didn’t seem to matter how big our office space was:  A few months after relocating, we’d be sending teams to a second and third location. Splitting teams like this in the early days isn’t good for collaboration or growth speed. 

Today we recommend our portfolio companies mitigate the office space challenge by investing in bigger offices early on, subletting to other startups in the beginning, and then slowly taking over the sublet space as the venture grows

6) You will have nightmares about cutlery

Maybe the most important growth pain of them all? It doesn’t matter how many forks you buy, you’ll never have enough. Always buy five times more forks than you think you’ll need!

The good thing about growing pains? All startups have the same ones. There are always other founders who already made the same mistakes you are making and found the solutions so that you don’t have to!

 

Henrik Landgren is a partner at EQT Ventures, the VC arm spawned from EQT, one of Europe’s leading global private equity groups with more than $36 billion in raised capital. Prior to EQT, Henrik built Spotify’s award-winning analytics team from the ground up and contributed to all major strategic initiatives that built the world’s largest music subscription business. Now at EQT Ventures, he heads a team of serial entrepreneurs who know what it’s like to build a global tech company from the ground up, as partners have successful track records working at fast-growing startups like Spotify, Booking.com, Uber, and King.

 

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