The learning and growth trade off

I’ve finally got round to reading Andy Grove‘s High Output Management, widely regarded as a classic on management that was originally published in 1983. The Foreword to the latest edition is written by Ben Horowitz of A16Z fame and includes the following paragraph:
As he describes the planning process Andy sums up his essential point with this eloquent nugget of wisdom: “I have seen far too many people who upon recognising today’s gap try very hard to determine what action has to be taken to close it. But today’s gap represents a failure of planning sometime in the past.” Hopefully, the value of this insight is not lost on the young reader. If you only understand one thing about building products, you must understand that energy put in at the beginning of the process pays off tenfold and energy put in at the end of the program pays off negative tenfold.
Ben’s point is that investing time in proper planning pays huge dividends when building products. In practice that means not simply growing as fast as possible, but taking time out from focusing on growth to find and iron out issues that might slow growth in the future. In startups that entails diverting resources to learn from customers, learn from data (including building the tooling to extract data), and to think deeply about product.
Finding the right trade off between growth and learning isn’t easy and is a debate we come back to time and time again at Forward Partners in the context of individual partner companies we are working with. There’s no universally applicable answer, but here are some guidelines from our experience:
  • Growth is the biggest driver of value. Once revenues are established, then maintaining some level of growth is hugely important. If you’re not growing investors will assume that’s because you can’t grow.
  • If you have venture scale ambitions in your first year but have less than 20% month on month growth, picking up the pace should be the priority.
  • Once there’s enough growth to hit the milestones needed for the next round then you have the luxury of diverting resources to learning.
  • In a high growth scenario, tell-tale signs like falling conversion, worsening engagement and increasing churn are signs that the trade off between growth and learning is too skewed towards growth.

It’s more common to see founders insufficiently focused on growth than it is to see them insufficiently focused on learning, but we definitely see both.

  • http://goo.gl/qU5AyN Niveza India

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