Episode 4

The Start-up Cycle Podcast: Scaling

One of the challenges when you are growing your business is finding the right balance: do you grow the leadership team first, or focus on the sales force? And how far into the future should you be casting your gaze? We tackle these questions and hear what makes great entrepreneurial teams tick.
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Episode 4

The essentials

We explore the subject of scaling with Eva Wong, co-founder and COO of Borrowell, and professor Jim Hamilton, an expert in sales management who has plenty of his own experience growing start-up companies. We will also hear the management evidence on what makes great entrepreneurial teams tick. Your host is Meredith Dault.

This episode refers to the following research:

T. Yu-wen Huang et al, “Which matters more? Group fear versus hope in entrepreneurial escalation of commitment” in Strategic Management Journal (2019 early publication online)

L. Jin et al, "Entrepreneurial team composition characteristics and new venture performance: a meta-analysis” in Entrepreneurship Theory and Practice (2017) 743-771

Y. Dai et al, "The direct and indirect impact of gender diversity in new venture teams on innovation performance” in Entrepreneurship Theory and Practice (2019) Vol. 43(3) 505–528

Transcript:

00:01 [music]

00:16 Meredith Dault: This is the sound of corporate success. You know what that looks like: a bright, open-concept office space where a group of motivated employees smile as they talk over boardroom table or maybe its two people shaking hands, clearly satisfied with the deal they have clearly just brokered or how about someone standing with her hands on her hips and a slight smile of on her lips, savouring the deep satisfaction of having cracked a difficult market. This is music to inspire, to assure you that you are on the right path and that your business is destined for great things. After all, todays episode of The Start-up Cycle is about scaling your entrepreneurial venture because chances are good that sooner or later you’re probably going to need to grow  whether that means hiring employees, expanding your customers base, investing in technology, or finding new markets. Weve got stories and advice from people who have done it successfully stay tuned. 

[theme music]

1:14 MD: One of the challenges when you’re scaling is finding the right balance: do you grow the leadership team first? How do you build a diverse workforce? And how far into the future should you be casting your gaze? Those are all questions Eva Wong has had to contend with. Eva is the co-founder and Chief Operating Officer of Borrowell, a non-profit Canadian company with a single focus: helping people make better decisions about credit. Borrowell uses technology to guide people to the right financial products to meet their needs with an end goal of getting people get out of debt while also improving their credit ratings. Borrowell has now served more than one million Canadians but that growth didn’t happen overnight. For more on her own scaling journey, I’m joined by Eva Wong who is a commerce grad and a member of the Smith School of Business Advisory Board. Hello Eva.

2:25 Eva Wong: Hello. 

MD: What inspired you to found Borrowell? 

2:29 EW: So it was really my business partner and Co-founder, Andrew Graham, who came up with the idea of Borrowell. And the mission has always been the same, but the initial business problem was slightly different. So, our target was that we wanted to help people make better decisions about credit and we recognized that consumers were in a lot of debt. And so, the original premise was that we wanted to offer a convenient loan online that people could get and pay off their credit card debt at a lower interest rate on a fixed timeframe and get out of debt sooner. 

MD: How big was that founding team? You mentioned a cofounder

3:03 EW: Yes. So initially there were four of us. Four of us on the co-founding team and one initial employee. 

MD: Okay. And since then, now where are you? 

EW: So today we're at 70 employees, which is really exciting. 

3:13 MD: Scaling in action. 

EW: That’s right. 

3:15 MD: In those early days, how conscious were you of your plans to grow? 

EW: Thinking back, I don't know that I was that conscious. I think in the early days you're so focused on executing what's ahead of you. Thinking about the day, the week, and I think if you're lucky, maybe thinking a couple of weeks out. So, I don't think that we spent a ton of time thinking about sort of the, the longer-term meeting, meaning years away. 

MD: So how did that growth happen then? 

EW: I mean, I think we picked a problem that we knew was very large. So that was one thing. And we knew that this was going to be the work of many years. And I think we always kept in in our minds what the end goal was and what the vision was and how we were going to help people. But I would say that a lot of the time was spent in the day-to-day thinking about, you know, how we are actually going to do this. And I think that's actually important for scaling. I think you need to be able to solve the problems at hand if you want to solve the problems of the future. And so I do think looking at the problems that we were facing, the problems that our users were facing and trying to pick one thing that we could solve for them, focus in that, execute on that and then sort of get better and better over time was helpful instead of, you know, thinking too far ahead. 

4:27 MD: That sounds reasonable, the thing though so as you did start to grow, how did you start to make plans? How did you start to think, okay, wait a second, what are we doing? 

EW: Yeah, so I do think that as the company has scaled, the timeframe over which you plan does get longer and longer and I think that makes sense. So we did, I think a relatively early stage, like start at least putting together some sort of formal planning process, at least for coordination. And even if they weren't sort of long term like too far out, I think initially we did them in four-month increments, we would at least put together a plan for the next four months. So, we used a system called OKRs, is which a lot of start-ups use - a lot of bigger companies use as well. It stands for Objectives and Key Results and if any of the listeners are interested, there's a ton of free online resources that Google makes available. And those are what we use in order to like figure things out. And that was really helpful for us to align against like what is it that we want to accomplish over the next four months so that we could be hyper focused and then we could all be coordinated and understand, you know, what the dependencies were between the different team members as the team grew beyond the size where everyone was sitting around a single table and always knew what everyone else was doing. 

5:37 MD: How did you figure out when to scale up and what was the sequencing of actions?

EW: Yeah, I mean, I think that as a venture backed company, we went out to raise money from investors and we needed to go out with a plan. So, I think the good thing is that that process sort of forced us to think about, well what is it that we're going to do with this money if were successful at raising it? So whenever we did have the funds to fund the growth, we actually did have a plan in place in terms of what are the next employees that we would want to hire and what are those metrics that we need to hit. So, I do think it was it wasn't without a plan that we um, that we scaled and that we grew. 

6:18 MD: So then thinking about that growth, what were the biggest challenge or were there maybe more than one, I don't know, but what were the biggest challenges that you then had to face as you, as you grew?

6:30 EW: I think one of the biggest challenges that we faced, which I think is like very normal in any other company that is wanting to grow is going to face as well, is that there are always more good things that you could do as a company than the company has time to do. And if you aren't coordinated, I think it does come back to the OKRs that I spoke of before, in terms of what are the metrics that you want to hit and the timeframe in which you want to hit them. And then what are the best possible activities, not just things that are good, that we're going to execute against. And what does that mean in terms of the good things that we're actually going to decide not to do so that we can focus on executing against the best possible things and that we're all in agreement on those, I think is really important.

7:10 MD: Okay. And so how did you overcome those challenges and what if there was something that you weren't all in agreement about or something that wasn't going according to plan? 

EW: Yeah, I do think there needs to be room for a lot of debate because you have a lot of passionate people we care a lot about diversity and so we want people to bring different opinions to the table and challenge the maybe status quo or that you know, the direction that, uh, that one person thinks that you want to go in. So, I do think that the ability to have really respectful conversations, data-driven conversations, user driven conversations, was always helpful from the beginning. I know lots of companies say they're data-driven, but I think we really have tried to remove our own sort of personal opinions and emotions from it and say, well, let's look at the data. And if the data aren't super clear, let's talk to some users. And if that's still not clear, can we do a test of some kind? Can we A/B test idea one and idea two. And so, I do think that kind of approach where you didn't overbuild but you would build a, a small version and test it, and then see has been a way that has helped us to be successful without sort of going too far down a path that isn't going to bear any fruit. 

8:16 MD: Do you have any examples of where you would have done that? 

EW: Yeah, I mean one of the examples that we had fairly recently actually- we wondered whether or not people might be willing to pay for at more in-person personalized advice. And so we're like, okay, well how could we test this? And so we sent out an email to a subset of users, offering this, uh, not paid, but just sort of free cause we wanted to see like what percentage of people would actually even do it if it were free. If people aren't willing to do it when it's free, then uh, it's unlikely they're going to do it if they needed to pay. So that was really easy for us to do was, it was you know, just send out draft, an email, send it out, and then, you know, we scheduled some slots and it was me and you know, another team member who were going to offer to do these phone calls. And so, and we did them and then we asked a bunch of feedback afterwards, a couple of survey questions just to find out A: was is helpful and B: how often would you do it and C: you know, would you consider paying for it? And what we found is that people found them super helpful. The phone calls, which we scheduled like 15 to 20 minutes for each of them, I think on average were like four minutes long. And then people were like, no, I think that's good. I don't think I need another call, or maybe one again next year. And, we realized that like there wasn't a ton of unmet need that people felt like they needed to talk to a real person to, to answer. Or it was things that like we really didn't feel like we would have been equipped to do was, you know, much more personalized financial planning advice that we wouldn't be able to do over a short period of time. So that, I mean that's a small example of something that could have been like a bigger thing and we just tested it really low key. 

9:48 MD: Right. Okay. So, so the testing model has been key for you guys. You've talked in the past about diversity and how you carefully considered the way that you grew your own team. Can you talk a bit about that? 

EW: Yeah, so from the very beginning, our CEO, Andrew, wanted to build a diverse team and that was important for him as he chose the board and as he chose the cofounding team and it was important to all of us. And I think we just assumed it would happen - especially me. I felt like I'm a woman. I'm a person of color. I'm, you know, I'm not going to be biased in my hiring decisions. And so, I thought it would happen more naturally than it did. I think in the early days he made a bunch of mistakes, uh, which, uh, it was super helpful for me to speak to other founders, to talk to other people who had been successful in building more diverse companies in order to learn from them. And so I think what I realized is that if women weren't applying to work at Borrowell, that wasn't their fault. That was our fault. We were doing something that made it not attractive to them to apply. One very concrete example is: we looked very hard at our job descriptions and there's been a lot of research that shows that women are less likely to apply for a job if they don't meet all of the job requirements. Whereas men are much more likely to apply for a job they would only have to sort of meet 60% of the job requirements in order to submit an application. Whereas for women, a lot of times they aren't going to submit an application unless they meet 100% of the job requirements, which I get because we're calling it a requirement. So if I don't have it, then why would I waste my time and yours by applying? So I mean, a very simple thing that we did was we looked very hard at all of our job requirements and we said, is this actually a requirement or is this a nice to have? Or is this like not even a nice to have? And so I think we, we paired down our job requirements to what was actually a requirement. And one of the other things that we did was a lot of times that requirement would have been, we would have soft skills as a requirement. We weren't going to hire someone who couldn't work well with the team. There was no way we're going to hire someone who, you know, wouldn't collaborate well. And so I think that we added some of those things in, again to emphasize that, uh, A, I think it showed us something about our culture, but then I think also to build confidence that people who may have felt like technically they didn't have the skills for whatever reason, but you know, it wasn't always that we needed a specific technical skill that someone had done before in order to be successful at the job.

12:08 MD: So how has that approach changed your, your corporate culture? 

EW: Yeah, I think it has changed it a lot. I mean, the other person I give a lot of credit to is our VP talents, Larissa Holmes. And she was brought on at relatively early and has been very instrumental in helping us be thoughtful about what it means to build, not only a diverse team, but one that has an inclusive culture where people really feel like they can be themselves and where they feel like they belong. So, I think that's also important to emphasize is that, um, there's a strong business case for diversity, but that you're not going to be able to actually achieve those better business results if you don't have an inclusive environment that takes advantage of the diversity that exists. But today we're very proud of the culture that we've built and obviously there's still more work to do I don't think that things are ever perfect, but from a demographic point of view, more than 50% of our team today identify as, um, either being female or non-binary. And in some cases, I think we need to be hiring more men from a gender perspective in order to have a, a more balanced team but I think, uh, we're proud of the work that we've done so far and we recognize we have more to do. 

13:15 MD: That's fantastic. So, what has surprised you most about the process of scaling your business, of growing your business growing Borrowell? 

EW: I guess personally, one of the things that has surprised me about growing Borrowell is how much my role has changed over time. And I think that I recognized that that would happen, but I think the frequency and the amount that it has changed is a bit surprising. So that's just more from like a personal perspective. And I think for any founder or um, you know, management team member of a, a fast-growing startup, that's a reality that I think you have to constantly be looking at what it is that you're doing and uh, examining whether or not the things that were the best things for you to do last month may not be the best things for you to do this month, and so 

14:00 MD: How have things changed for you?

EW: Yeah, I mean in the early days I think you really are like doing everything, right? And then you move to a point where you can hire one person to take over marketing, one person to take over, you know, operations. But then I'm still their assistant, right? So, I still need to know how to do everything even if I'm not doing everything. And then once you have small teams, it's exciting because then, you know, I don't need to be involved as much in the day-to-day. And I think in the early days, like I wanted to be a good manager. And then I realized that I needed to help my, uh, the people on my team be good managers of their teams. So I do think there's an evolution for sure. I think the other thing that people talk a lot about, which has definitely been true is I think the role of communicating and communicating vision becomes like much more important as a team gets bigger. And so, um, there's a lot more sort of communicating I rather than sort of maybe executing. 

14:53 MD: How do you feel now when you step back and look at Borrowell and what you've built? 

EW: It is a good question. I feel like founders don't do it enough. You know, you're, you're so caught up in the problems of the day to day and realize there's so much more to do. And I do think it's, uh, it's, it's good to look back once in a while. But I would say that most of my energy is always looking forward and being excited about what the future has to hold. But since you're asking, I am proud of, of what we've done. And I think, um, uh, two things in particular come to mind: one is the impact on consumers. The fact that we do have over a million consumers who've benefited from Borrowell, and a lot would say that we are a real trusted advisor to them and that, you know, they trust the recommendations that we give them. So that's a real responsibility. And I think secondly, what we've talked about before in terms of the team and the culture that we've built is a lot of people would say that Borrowell is one of the best places that they’ve worked, that they've learned so much and there's real friendships that have been grown there. And so I think having had some, some part in building a company where there's, you know, it's a great place to work, people like to come in, they feel like they're doing important work and they're really learning and growing and developing is gratifying as well. 

16:00 MD: So, if you were going to give a budding entrepreneur one piece of advice around scaling and growing your business, what would it be? 

EW: One piece of advice I think that might be helpful is not to be scared to give things away. And I think that when you've been an integral part of something, it is hard sometimes to give it up, but I do think that it is important to continue to scale and grow yourself as your company scales and grows. And a lot of times that means that the job that you did, maybe 100% of your time was spent doing a number of things last year and this year you're doing 0% of that and your job is completely changed. And I do think you have to be able to embrace that and continue to learn and grow and develop those skills that are needed at that next level in order for you to still be doing the most important work. So, I think that's been my experience for sure. 

16:50 MD: Did you learn the hard way by not letting go? 

EW: I feel like for the most part I've been pretty good at letting go. I think it definitely helps to hire people who are better than me at doing the job. So, I think the other thing that is helpful about my background is: some people come into this as, like, a product person and so it's like hard for them to give on product, or they come in as, like, the technology person and it's hard for them to give it up but because I had no real background in anything that I've done, I think it was maybe easier for me to give it up, but um, yeah, I don't, I mean maybe I'm not the best person to ask, but I feel like I haven't had as hard a time giving different things up and also because I think there's always been more at more things to do and things that I was excited about doing. 

17:33 MD: Sounds like a lot of learning in any event. Gosh.

EW: It is! I think that's the thing that's exciting about it. That's like one of our cultural values is that we want to hire people…we need to hire people who love learning because you're not always going to be right. And so the thing that makes being wrong, okay, is learning out of it and uh, yeah, it's uh, I think if you love learning, then a start-up or a scale-up is a great place to be. 

MD: That's fantastic advice. Thank you so much Eva. 

EW: Thank you so much for having me.

[Transitional music]

18:08 MD: In a ventures early days, the heavy lifting generally falls to the founder and his or her core team. But when your company starts growing, your approach to running things has to as well. That is especially critical if you run a sales organization especially if, as the founder, you have always been the face of the organization. For more on what founders need to know about building a scalable sales process, I’m joined by Jim Hamilton. Jim is a popular lecturer at Smith School of Business, where his is a distinguished faculty fellow of Sales Management. He also has been forming and growing start-up companies for more than twenty years. Hello Jim. 

18:43 Jim Hamilton: How are you, Meredith? Thanks for having me here today. 

MD: So Jim, Let me get right to the key question. What do founders need to know about building a scalable sales process? 

18:53 JH: Well, let's start with sales process first. And one of the things founders learn very early is they have to be in regular contact with their customers and as they regularly interact with them, what they find is they learn about their buying process. So the customer's buying process is what drives everything. The sooner you understand that, the sooner you learn it, the more it's going to drive the processes you execute as a sales organization. And so, you need to be in alignment is what we talk about. We talk about being in alignment with buying process. And once that is set, you have your playbook: essentially what you need to do both through communications, interactions, advice and guidance to enable your customers to execute their buying process. Now the second part, which is the far more challenging part, which is scaling that. And if you’re an organization that's trying to double or triple or potentially even 10 times your business, the issues you face is that you need to continue that kind of growth, adding that many more customers, while also not allowing your cost to go at the same pace. Ultimately you want cost actually going the other direction. And so you really need to have data that you gleaned through those early days that can help you determine what's going to be the value of a customer over time. And so, what kinds of revenue stream and contribution can they bring, relative to what it costs you both to acquire them at the outset and what it costs to service them on an ongoing basis. And so, as you figure out those kinds of unit economics, they need to be moving in a direction where the revenues driving up while you're able to drive down those unit costs over time. And so, you need to figure that out. Oftentimes you only figure that out if you've been fighting it out in the trenches while you were founding and starting the company.

20:43 MD: Yikes. That sounds that's a lot to consider. How does this differ if you're talking about a business to business company, or a B2B, or a business to consumer B2C? 

JH: Well, if we think about those businesses: a direct to consumer business, if you think about trying to scale a business that sells direct to consumer, say an online site that's selling a product or service to individuals, well you're often talking into the potentially hundreds of thousands or even millions, in that particular case. And what you try to do is design a model that allows them to self-service themselves. So that would typically involve some means by which you drive traffic, often through various types of marketing communications. And then you need to have a location, a website or otherwise that allows them to interact with you very efficiently and ultimately [unclear]. So oftentimes the issues there and scalability are about the marketing communication aspect of driving traffic and then the user interface and the ability of your website to perform fast enough that people don't get frustrated and ultimately execute the buy process. So, it's not really about salespeople per se in those kinds of businesses. But when you talk about scaling, where you're selling the businesses and sometimes selling the businesses could be as simple as selling to consumers if it's routine, non-strategic types of purchases. But where the purchases are a little bit, uh, have greater risk, more strategic involve oftentimes more people and the organization is buying, it's going to take more time and the process is more complex. And that's where you typically need a sales force. Now the challenge in trying to scale a sales force there is similar, similar to what we just talked about in the earlier question. 

22:22 MD: Okay. So, when you're looking for your building that sales force, you're a young company, you're ready to go to the next level. What are you looking for in that sales leader? 

JH: Yeah, these are, these are very challenging roles. Typically, when we see founders who need to transition to starting to run the business as a whole and step away from being the chief sales person and you want to think about bringing on someone who can take on that role. And you know, the logical answer is find someone with experience at growing a startup from nothing to 10 times-ing it or getting it to its first 50 or a hundred million. The sad thing is there's just not that many people out there who can do that. And so, we often see companies look to larger organizations and try to attract senior sales leaders from large organizations that would then take on this responsibility. And you need to be careful about that as well, because the skill sets you're looking for are that really, really subtle mix of someone who can be very hands on in both designing and executing a sales process, but also have the skills to be able to recruit and manage people as you start to layer on and add people in to the organization. And you know, those are difficult things. 

23:43 MD: Yeah, indeed. It's a lot, a lot of things, a lot of factors in one person. And then likewise, what do you want to avoid in a person that you're hiring? Like, what do you want to

23:52 JH: Well, I mean, you know, the, the tenor of a sales leader, uh, has been debated for a long time and it's difficult for people to survive because the performance expectations in fast growing companies are very high. And, and so success is, you know, you're constantly reaching up. So, you certainly need someone who has the capability to, uh, stick through the iterations that happen in new product and new product changes, because that can be very frustrating. You need someone who's able to actually manage people who are having to live through that as salespeople. And so when you think about this kind of person, you have to avoid the kind of person who really is thinking about sales in the old sort of traditional way, which is execute a sales process, drive quote, make a lot of money. You need someone who really has a bit of a vision for the longer term and is prepared both to hit these aggressive targets, but also lay a nice foundation for the next few years. And that's very difficult to find.

24:52 MD: Hmm, thanks. So then what's the warning sign when your existing sales process or team is not up to the challenge?

25:00 JH: See, that's the beautiful part of sales because data drives so much and sales organizations today, uh, when they set up a sales process are going to have a technological infrastructure to support that so that information is available to individual performers but also to sales leadership. And so, without a doubt, you're going to know very quickly and the warning signs are certainly if the set quota isn’t hit, that's usually a pretty simple symptom you look for to then determine, okay, what's actually going on here? And you'd sort of work backwards from there. Uh, when you start to see customers churn or leave earlier than you'd anticipated that would happen - that usually is a red flag that you want to quickly understand the reasons why. So you'll spend a lot of time interacting with people who decided to leave and to try to prevent that, what we might call churn. Um, so those are a couple of the key ones you look for. Another could be a salesperson turnover as well, because sometimes what happens in these situations is you're asking a lot of individual performers and if the expectations aren't aligned with, uh, the realism of what they can achieve, you get people who are working hard, doing really well, but not hitting their numbers. And so it's a real challenge to manage people in that circumstance.

26:22 MD: Yeah. And then also, I mean, how do you match the size of your sales force with the scope of your business? How do you know how to do that when you're scaling?

26:30 JH:  Yeah, I know some people think there's a science to that and, and sadly it isn't. Um, one of the key things in making sure you right size your sales force is: be highly iterative in the process and air a little bit on the side of overstaffing so that when things like employee or salesperson churn happens, you're not put in a spot where that could disrupt, uh, achieving your goals. And so it, it's challenging. There's no magic to it.

26:59 MD: Yeah. Cause I mean, you overstaff and then you've got all these people sitting around.

27:03 JH: Well, that's the balance. There's a variation on over staffing or degrees I should say. Um, and having an awareness of, from experience about what you can expect when the pressure hits and you do things like shift product focus or products are delayed and you need to adapt in the marketplace in real time, then your experience will tell you that you'll probably lose a certain percentage. And so that experience comes to bear where you've overstaffed, in quotes, to the right amount. 

27:31 MD:  Right. So this is the problem of course is like a new startup doesn't have experience. So I guess that's the inherent challenge

JH: Well, when you think about that founder making that transition to trying to scale a business and you know, those are very real risks. And so it's oftentimes, um, well it's oftentimes where you want to overstaff the issue is whether you can even do it. And some people, uh, have also argued, just to bring the flip to this, is that it's better to have fewer and only add when the pressure is great. And so there's two views on how to approach the marketplace with this depending upon you as a leader. Because when you're understaffed, you're going to have a lot more people, a working a lot more hours, and that could be a risk to the health of the organization.

28:16 MD: Oh, interesting… now you touched on this briefly, but you know, technology has really disrupted the sales management process and automation. All these things are making a big difference in the way people operate. Um, is there anything, I mean imagine you're leading a firm that's still pretty small. Are there technologies or things that really excite you or that you think are, are really going to change things for people who are scaling sales businesses now?

JH: Yeah, I mean I think any organization today is going to have some kind of customer relationship management system. Almost a platform technology that they use for managing all of the interactions with prospects and customers and accounts. But there's a number of organizations, one Canadian company in particular called nudge.AI is doing some really interesting things around being able to track the status of a relationship or the depth of a relationship. Because oftentimes salespeople make assumptions about how individual members of a buying team may or may not react, and they don't really have a sense for the extent of that relationship. And so what nudge is doing is it's using artificial intelligence and its deep experience in marketing automation to determine and help, uh, organization sales individuals and leaders see what the true status of our relationship is in a prospect. You can imagine trying to sell enterprise software to a large organization. There might be 20 or 30 people involved and you need to know the extent of your relationship as an organization with those 20 or 30 people. Nudge is doing a great job of helping you see what that looks like, to identify potential risk points and then take action to insulate against them. And so it's very pioneering work. Um, but what’s really exciting about it, it's about that human to human interaction. And so we're leveraging AI to make better people-relationships and help sales organizations achieve their outcomes, which ultimately is to help other organizations achieve their outcomes.

30:05 MD: Yeah, that's fascinating. Um, and Jim, you yourself have had a lot of experience starting companies. I'm going to ask you as a final question. Any, any advice that you would share about sales in a new firm environment?

30:19 JH: Yeah, I mean, the advice I'd have for a founder who doesn't have a background in sales is that, um, there's very specific processes and skills that you need to know when you're trying to engage organizations to consider what you offer. And those skills are difficult to learn on the fly. And so often my advice is to take some time early in the development of your firm, if you're one of those people, to engage with sales advisors and understand what these skills are. Because with just a little bit of work, you can get your head around what those processes look like and develop some of the competencies. Something as simple as knowing how to listen well and know when to ask a question versus continuing to talk. So, there's very simple things, almost some people might call them little hacks that can make you much more effective early in the development of your company. And then as you evolve that heavy lifting of designing full sales processes simply comes down to listening to what the customer tells you about how they buy, and then aligning in that regard. So I'd tell them to make sure they take a little time on that front. It'll save them a lot of headaches down the road. 

31:28 MD: Hmm, that's good advice. Oh, well thanks Jim. 

JH: Oh, my pleasure, Meredith. Thanks for having me in today.

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31:41 MD: And now it's time for an episodic feature we call Show me the evidence with Alan Morantz, editor of Smith business insight.

31:48 Alan Morantz: The transition from start-up to scale-up may be among the most hair-raising that an entrepreneur must navigate. You’ve just mastered driving the family sedan. Now you’re being handed the keys to the Lear jet. As a start-up, you’ve worked out the kinks in your new product or service, validated the business model with your target audience, and laid down your lines of distribution. You’ve surrounded yourself with people who have strong business and market knowledge. People who can take on multiple roles. Its fast moving, its fluid, its management by the seat of your pants.

To scale up, you need to slow down. By that I mean you’ll want to put in place the processes and systems and management hierarchy that will allow you to deliver your offering to a growing audience day in and day out. For that, you need to assemble an entrepreneurial team with much more structure. A team with functional specialists in marketing or sales or operations. You know, people who wont be asked to also replace the toner in the photocopier.

32:47 When you reach that critical scale-up stage experts say it often hits at $5 million in sales and 30 employees  what does the management evidence say about what makes great entrepreneurial teams tick? Considering how much research has been conducted on team performance, less than you think. 

Take team size. What research has been done on team size and new venture performance is equivocal. Some suggest larger teams lead to better performance due to their ability to handle complex situations. Others suggest smaller teams boost performance due to their ability to integrate different outlooks.

33:28 Same with diversity. In the corporate world at least, its generally thought that diverse teams with their wide range of skills and perspectives outperform less diverse teams. Indeed, studies have identified a positive relationship between the diversity in the functional backgrounds of venture teams and new venture performance. But other studies have found no such relationship, or even a negative one. There’s the argument that diverse entrepreneurial teams can actually sputter because of the need to spend so much time and energy defusing emotional conflicts and trying to reach consensus.

34:05 Its a similar story with the educational diversity of new venture teams and performance. No clear answer. How about gender diversity? This one is tricky. It’s been shown that female entrepreneurs identify fewer market opportunities than their male counterparts. You might conclude that any increased gender diversity of new venture teams may have a neutral or even a negative effect on identifying market opportunities, an important consideration during the scaling-up stage.

But not so fast. A study of gender diverse venture teams in the most entrepreneurially vibrant region in China tells a more promising story. It found that the gender diversity of an entrepreneurial team is positively associated with the ventures innovation performance. What’s the connection? It seems that having women on male-dominated entrepreneurial teams allows all team members greater freedom to provide unique insights into key tasks that new venture teams have to deal with. 

35:12 But there’s another way of looking at new venture teams, besides skills, size, or diversity. If you’re a founder, what sort of top management team would help you make better decisions when the pressure is really on? 

Here’s a common scenario: you’re at a crucial point in your young firms development. Your key product is faltering in the market. Your investors advise you to cut bait and pivot to another product or business model. But you just can’t bear to turn your back on years of development and seed money. Instead, you decide to double down. This psychological jujitsu is known as the escalation of commitment better known as throwing good money after bad. When you feel the need to justify your original decision, hope springs eternal.

According to new research, this escalation of commitment in an entrepreneurial setting is partly fed by group emotions and social pressures. In particular, researchers found that the level of hope among a new ventures team members more than their fear of financial loss determined whether they escalated their commitment and kept investing in a faltering venture rather than calling it quits. 

36:29 Part of this may be explained by the fact that entrepreneurial teams often have very strong bonds of friendship. Team members have been through a lot together. They don’t want the adventure to end. As a result, they may be blind to the business reality that the venture has to wind down or change drastically. 

36:47 The takeaway here is that emotions are a critical but underappreciated aspect of new venture management and decision-making. Particularly when they reach critical forks in the road and scaling is certainly one of them  entrepreneurs need to understand and harness their team members emotions. Otherwise, those emotions could lead them down the garden path of ruin.

Well add links to the research in the show notes. 

I’m Alan Morantz, editor of Smith Business Insight, and I’ve just shown you the evidence. 

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37:24 And that’s the show. Next episode well explore the struggle of sustaining your business, including the concept of lean innovation and how it can help. I hope you'll join us. Until then. I'm Meredith Dault at the Smith School of Business at Queens University. Thanks for listening.

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