Episode 3

Lessons from a first-time CEO - Steve El-Hage on learning everything the hard way

Our third episode is with Steve El-Hage, co-founder and CEO of Drop, an electronics company that creates products powered by feedback by a massive community of enthusiasts and experts. Reflecting on his 8-year, heads-down grind since becoming a first-time founder at 22, Steve shares the lessons that he figured out the hard way, from revenue dropping off a cliff and painful pivots, to hiring blunders and severe burnout.

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Transcript

Steve El-Hage: [00:00:00] For me the first time around, I made a lot of mistakes and we were told that there's a rule of thumb that says you're going to fuck up 50% of the exact hires that you make. I think my first time around was definitely higher than that. And it was because I hadn't worked with those exact, and I think we were also able to hire a different type of profile or scale or prestige that we felt like could be really impactful.

But really the most important thing was that we needed to hire people that did exactly what we need them to do. Instead of hiring somebody that's done it at a different scale. Like the biggest mistake was hiring somebody that had been super successful at a bigger scale. And now you're bringing them in to build and they can't really do it.

That was the biggest thing. And so we learned this the hard way. 

Brett Berson: [00:00:48] Welcome to in-depth a new show that surfaces tactical advice, founders and startup leaders need to grow their teams. Their companies and themselves. I'm Brett Berson, a partner at first round, and we're a venture capital firm that helps startups like notion, roadblocks, Uber, and square tackle company building firsts through over 400 interviews on the review.

We've shared standout company, building advice, the kind that comes from those willing to skip the talking points and go deeper into not just what to do, but how to do it with our new podcast. In-depth you can listen into these deeper conversations every single week. Learn more and subscribe today@firstround.com.

Our third episode of in-depth, I am thrilled to be joined by Steve L Hague. There are plenty of shiny and polished stories out there about how companies got started. They usually revolve around the, up into the right trajectory and the visionary founder who blazed a path, built an incredible team and cultivated a strong personal brand.

Steve story is a bit different. Steve co-founded drop back in 2012 when he was just 22, drop it as an electronics brand. That creates products based on feedback from enthusiast communities. The company has built the largest audio community in the world, as well as the largest keyboard and gaming communities with millions of users and experts as Steve puts it, the company has achieved a special alchemy of data-driven design and community validation to launch over 200 products with a 98% success rate, but the path to getting to where the company is today, wasn't easy put simply it was a painful heads down eight year grind with wild swings along the way.

After dropping out of school and starting drop as a first time, founder, Stephen is co-founder, we're short on cash and Silicon valley connections, but they quickly spun up an interesting business that generated tons of early traction after wrapping up their first fundraise. The challenges started to set in from revenue immediately dropping off a cliff and key hires, not working out to painful pivots, severe burnout, and all the obstacles that come with scaling faster than you can handle as Steve puts it.

He learned everything the hard way on the journey from founder to CEO. What I most appreciate about today's conversation is that Steve doesn't gloss over the painful parts. He's brutally honest about the ups and the downs, the catastrophic screw ups and tremendous successes. He also gets super tactical sharing tips for hiring folks who are overlooked and getting more out of your advisors.

Today's conversation is a must listen for leaders looking to build teams and companies that can go the distance. Even if you're not an aspiring CEO, there's still plenty to get inspired by drop scrappy growth story. And Steve's grit. I really hope you enjoy this episode now, conversation with Steve.

Steve. Thanks so much for joining 

Steve El-Hage: [00:04:00] us. Thanks for having me. So I 

Brett Berson: [00:04:02] thought we were with start is kind of setting context around drop and sort of the scale that you're operating today. And then we'll go in reverse and actually go back to the origin story, but we'd love to sort of start where the company is today.

Steve El-Hage: [00:04:14] I can give a quick crash course. So drop is an electronics brand that creates products based on feedback from enthusiast communities. We're big believers in the philosophy that good ideas come from everywhere. And that listening closely to your users the best way to make something amazing. We've built communities of millions, of people in these categories.

There are experts on the products that we make that really know their stuff and want to participate in product design. So we've got the largest audio community in the world, the largest keyboard and gaming community in the world. We've worked with these communities to effectively create our own school of design.

That's a combo of data-driven design and community validation and the community involvement in our design process. And so with that, the result is that we've been able to make and launch over 200 products at a super high quality and caliber over the years. More importantly, we make stuff that people actually want through this process.

So 98% of our products launch successfully, and pre-sell their initial production run in terms of size and scale. We were able to scale to about a hundred million dollars a year in revenue. We don't spend money on marketing, everything's organic, we're profitable and generating positive EBITDA and have been for a little bit.

Brett Berson: [00:05:25] And then what about the org scale and sort of org design, 

Steve El-Hage: [00:05:28] right? Yeah, the company's about a hundred people were remote fully remote and remote on a go-forward basis, not just during COVID and the founding team is still here. So very founder run and founder active. Like all my co-founders are in pretty important roles in the company.

So 

Brett Berson: [00:05:42] let's go back in time. I think it would be great to spend some time talking about the early origin story and then really talk about a lot of the lessons learned. And I think what I appreciate about your journey is it's twisting and turning, and it's not a, you came out, you went to Stanford, you went to Google for four years, and then you went in and had a vision for a company.

Steve El-Hage: [00:06:04] We just learned everything the hard way. 

Brett Berson: [00:06:07] And I think that's sort of the great theme and area to spend time. So let's go back and just maybe talk about the first few months of the company. And then we'll use that as sort of a place to talk about all the different things that you've learned across people in product and fundraising and scaling.

Steve El-Hage: [00:06:22] Yeah. So we started the company about eight years ago, I dropped out of school. I was 22. I was in college in Toronto and moved out to San Francisco with my co-founder. We had effectively no money. Like I had $1,800 and he had $8,000, which in bay area money, it doesn't really get you far. So we'll figure it out.

We stayed in an illegal hostel in the Castro effectively. This woman started this startup ish hostel, where she rented like a two bedroom apartment or condo in the Castro and stuffed in like 15 sets of bunk beds. There's like 20, 30 people living in this place, but it was safe and clean. And there are other tech people around for the most part.

And it was $500 a month, which is pretty hard to beat. So given how little money that we had, everything was urgent. Like we didn't have time. We had like three months, four months to make it work. So. We launched our first version of the company in about seven days, my co-founder just cranked out a first version of the site that was like pretty ugly.

It wasn't like super impressive, but it was really quick. And then I spent that time focused on users, customers, vendors. At the time we were focused really significantly on working with these online communities to source products that they thought were really good and get them better pricing for that product.

So launched really quick. And from day one, we had pretty immediate traction. So during that week, I started DM-ing and messaging hundreds and hundreds and hundreds of users on different types of forums telling them what we're doing. Every message was personalized. So it wasn't full spam sort of building's beta list.

And when we launched, we messaged them saying, Hey, we're starting, let us know what you guys want. We'll go source it and make it happen. The result was we did $12,000 in revenue. Our first week we did $25,000 in revenue. Second week was 50,000, our third week. And this was all growing really quick and we weren't really doing much to make it happen.

We realized that this was a problem and that these communities were very, very powerful and nobody was really spending time on them. And they weren't really given the light of day. And so to capitalize on this and figure out what we should do next, we were like, Hey, we should try to raise money. Except we were living in this hostel.

We didn't know anybody. Like you said, we didn't go to Stanford. We only have like family members that are VC is we literally knew nobody else in San Francisco except for our landlord and the people at the coffee shop basically. But we had revenue growth, which is really important. And I started doing research on VCs that were big on democratization of commerce and community role in commerce.

And we found a partner at Kleiner Perkins. She brought Chen and we cold emailed him. We sent him a screenshot of our revenue and really like, Hey, this is what our revenue looks like last three weeks. We're having a hard time keeping up. Do you have time to give advice? And for those people that haven't raised money, this is not a good strategy to get to a partner meeting is to cold email, but Gyi replied and was really interested in talking more.

And we went down to Menlo park and met him at the rest of the partners and a little bit after they said that they want to lead our seed round. And we kicked off a $2 million round. We met Josh from first round who drove down to our house in Palo Alto to visit us. We didn't really have any furniture. He just sat on the cardboard box and told us how he could be helpful, which we appreciated and respected and brought him in.

And then Elaine Lee from cowboy, those were our first three investors from start to this period from like the day one of launch to this period was about four weeks. Five weeks. And so that round happened very, very quick and we were able to move really fast and we were growing super fast. And frankly, we were like, Hey, we're hot shit.

This is like our first month of starting a company. And we're just killing it. Like imagine what is going to be like a year from now, we're on the front page of the New York times as well, which is a different story. And so we were really like hyped up and then the hard part started happening, which is the next week of revenue.

The next week we did $0 in revenue, zero, which kind of chopped up to, Hey, we've been busy with fundraising, really distracting. There's only two people, three people we'll say next week, then the week after we did zero again. And then the third week we did zero. After the round fourth, we could at zero, we did zero for eight concessions of weeks and we couldn't figure out why that was the worst part is that we're working way harder than we were before.

And we just couldn't get anybody to buy anything. And we have this initial. Amazing boost of revenue. And then it just went to zero. And this was after we closed. Like we promised to this, a group of investors, like we promised, we didn't trick you guys. Like we thought it was going to keep going up to, and over the next, like two months, three months, we got to kind of peel back what really was the nuance and why we did well.

It wasn't as simple as, Hey, you went to this community and just started printing money for us. The nuance was that we had deep community involvement in deciding what products to list. And after we closed around, we started massively increased the number of products that we were listing and that didn't make a difference.

And so once we realized that we put all of our product and engineering and messaging, focus on that and started growing again, how 

Brett Berson: [00:11:38] did you, I ended up getting to the root cause and figuring out that, that in fact was the driving force behind the collapse in revenue. 

Steve El-Hage: [00:11:45] It was just process of elimination. It was going and trying so many other things and just replaying those first three weeks, which were amazing, but were happening too fast for them really understand why things were happening.

And through that process, we started talking more and more to those users and kind of breaking down what they liked and why they got excited and what the common themes were. And we noticed that there was this common theme of, Hey, we were listening to them and we were really responsive to them. And we weren't just another company trying to sell them shit.

We were somebody that was representing the community and that was really important to them. And as soon as we stopped doing that, even if we could use our vendor sure. Money to make our pricing even better, it gets special brands on board. They didn't really care yeah. About that. They cared that we were able to actually listen to them and work with them on us.

Brett Berson: [00:12:34] We skipped over a little bit at the beginning, but how did you decide that this sort of creating effectively group buying tools for these online communities was going to be the place that you started and how did you have the conviction to drop out of school to go 

Steve El-Hage: [00:12:48] pursue it? So the conviction centered on the size and potential and importance of enthusiast communities, that was the core conviction.

That's what we really wanted to go after. And it wasn't super obsessed and focused and lasered in, on group buying as a mechanism, it was that these communities were huge and had really good ideas for what brands should be doing and posted a great content. And so we saw group buys as an activity that was already happening on those communities that was happening very, very poorly.

People would often take years to get their products there. Wasn't a clear owner. And the community buying power couldn't compound from one group to another, there was fraud, there were a lot of issues with this process and we saw that this is a way for us to add real value to the community and in doing so, build a lot of trust and credibility and show that we care and we want to help and over time, add new ways to participate in partner and add value to that community.

So that was kind of the process was finding something they were already doing and making that better. Instead of trying to get them to do something new in terms of dropping out, it was initially a break. I basically just stopped going. That's basically the real way I didn't really drop out. They might still be charging me.

I came out for a summer and during that summer was when all this stuff went down. And after that, there's no way I was going back after we raised around. And from there, it was more straight forward, but it was originally come out for a couple months, see how this is going to go use this as a way to make the most out of my summer.

And now I've been here for eight years. 

Brett Berson: [00:14:25] And so picking up what we were talking about a minute ago, you sort of got to this root cause and figured out why revenue went to zero and then sort of, where did you go from there? 

Steve El-Hage: [00:14:36] After that we started building features to let our users participate in listing products and sourcing products.

And we started really prioritizing that and working with them on that. And the result was that revenue started going back up and started going up systematically, but way slower than it was before I took probably another year to hit like an exponential growth point. So the next month we did 10 K, which at the time is way better than zero, but way less than we were the first couple of weeks, we went up to 20 K and 30 K and it took maybe six to eight more months where we were, we were where we were before.

But through that process, we started having a group of users that really, really liked us and like what we were doing and were coming back way more often, we started using their thoughts and asking them for their opinions on what features to make next. And in addition to sourcing products, we started using community feedback to design the platform.

And 12 months after we started solving this problem for the second time was when we. Began accelerating revenue. We started really hitting like many hundreds of thousands per month. Eventually millions per month 

Brett Berson: [00:15:42] was the transition or the insight that went from sort of this group by model to you're going to build your own products that are going to be co-designed by the community.

Steve El-Hage: [00:15:51] It was that as part of building our onsite discussion system, we saw that our users had lots of thoughts on what brands should do. And brands weren't listening to them. So the first part was actually having an onsite discussion system as part of a community shopping experience, which a lot of the people around us in terms of investors and advisors were super strongly against the idea that we would have ways for people to openly hate on products effectively and complain and say what they don't like.

And for us, that was super critical. That was like the equivalent of like getting rid of that, the equivalent of banning one-star reviews or two-star reviews. Like it was really important to get feedback. And there'd be times when we talk to brands and people that make their products that listen to our site.

And they just, weren't super interested in incorporating this feedback. They'd be like haters gonna hate countless and everybody on the internet, but sometimes we'd see that we'd be like, Hey, this is really insightful feedback. And you guys are really close to making something that these users really want and they just weren't listening.

And we would see that the closer that accompany was to matching the community value system that they had, the better they did. I think a lot of people that designed products are in this Jony ive want to be. Worldview or mindset where they're like, Hey, I will magically imagine some perfect product. And I will like pass that down.

I'll be my gift to my customers and my users. It was very rarely the other way, which was, uh, a lot of these existing users and customers are talking about what they want and talking about what they wish brands would do, but they're not really incorporating that. So we were able to start presenting full collaborations and partnerships to these brands that was more of a, Hey, let's make a product together.

We'll bring the design and specs and philosophy around how to make this in a way that will achieve the community needs and adhere to the community value system. And you guys do the manufacturing and engineering of that. And. That was really tough initially, to get people on board with that, it requires kind of an admission that they might not be making the best things.

And somebody within that organization would need to admit that they could have done something better. And it took some time. But once we started actually getting progress and ultimately launched our first product, it was our best selling product of all time. At the time, it was like a million bucks in a week had, uh, just in a pre-order state.

And it showed us really what is possible from this. We tried it again. We took the same community design methodology and applied it to a different category, the keyboard category, and it worked very similarly. And at that point we started raising money a lot more quickly and realized that we had figured out how to bridge what these communities want and the insights that they want with the manufacturing and production infrastructure to actually bring those products and ideas to life.

So, 

Brett Berson: [00:18:54] when you think back to those first few years, do you have sort of crystallized lessons or insights, sort of the types of things that now reflecting make total sense, but you had to kind of learn on the job. 

Steve El-Hage: [00:19:06] There's kind of two parts to it. There's what we learned about the business model and what we learned about the customers that we were targeting and how to actually go do that.

And then realistically, the harder part was how to scale from founder to CEO, as we started getting real momentum and how to scale a company as we started getting real momentum, that was definitely the hardest part. I started the company when I was 22. And there was a problem that you have when you start a company at 22.

And the problem is that you don't know anything. And this is an issue since you're about to do something really hard and you don't really know how, and it's not the end is just a problem. And we just got to figure out how to solve that problem and solve it quickly. And along the way, we tried a lot of different things to really accelerate that, especially during our faster growth years, like we had to go from nine, 10 people to 80 and like nine, 10 months, something like that, which goes from effectively never having a real job to managing a respectably sized group of people.

And that was probably the hardest part. Especially once we hit something that was working from a user perspective and a revenue perspective, it was really how can we build the organization and build the team to actually make this happen 

Brett Berson: [00:20:21] in that theme of going from founder to CEO, what are the big buckets of things that you had to figure out as you went from two or three people to a hundred people 

Steve El-Hage: [00:20:32] was around there was kind of like the hiring category.

Like how do you hire and how do you structure the people that you hire in a way that works. There's a technical side. Like I started off being like, what's really the role of like HR and finance. If they're not generating revenue or helping with product, like we were starting from the basics. And there's a difference from that to how do you build a world-class proactive HR org and then the things that they focused on and the HR process.

And then there's the interpersonal side, which is that we had a lot of really tough stuff along the way. That was a by-product of some of it was the categories that were operating in the model that we have the operational demands that came with e-commerce manufacturing and doing this in many categories.

And some of it came with the fact that this is all for the first time, and you got to figure out how to handle these tougher times and moments. So there's kind of a couple of buckets. And I tried everything from CEO coaches, leveraging advisors, using interviews to learn, and each of those categories ended up having like big swings in terms of their efficacy.

Brett Berson: [00:21:42] Let's talk about some of those techniques for learning, and then maybe come back to these sort of different buckets. You could take any of the ones that you talked about and maybe expand a little bit in terms of what worked or what didn't. I think when you think about leveraging people with experience, that's obviously one of the most obvious ways to kind of fast forward and kind of figure things out.

It's often hard to figure out what advice to take and what advice not to take, because you fundamentally don't know. So let's say you're hiring for a marketing person and you've never done marketing before. Even if somebody is good at marketing, it's actually hard to know how applicable this is in the context of your own business and stage and things like that.

So I'm curious if let's say we're just talking about advisors or people around the business are smart people that know stuff. What was your sort of methodology to sort of run that playbook, to find the insights that then could be brought back to the business? 

Steve El-Hage: [00:22:30] There are basically two approaches to that.

First was using advisors to calibrate on what world-class exactly. Look like. The hard part in the situation you described, you're gonna hire somebody for marketing or finance or, or whatever. And you never done that is that you'll be impressed by the fact that this person knows so much more than you, but that's not really that relevant.

It's not about whether or not you don't know anything. So the fact that they know more than you, isn't helpful. The question is how good are they compared to everybody else out there? How good are they more objectively? How good are they for the company that you're building? And so right after our series a, we stacked our advisor board with like 20 to 30 people that I would meet with for maybe like 20 hours a week on average for a year, maybe a little bit more in some cases.

And it was just asking everybody who's like the single best HR person that you've ever met, who the single best VP of engineering or engineering leader that you've ever met until I got like three ish and everyone. And I spent a lot of time with them as people that we could never hire for many reasons, at least at that stage.

But through those conversations, I was able to get a lot more calibrated on how these people would answer some of these questions and how they would answer some of these problems. And when it came down to interviewing that helped at least give some baseline where you can kind of compare to some of these really, really good people.

And even now, like years later, that advisor group has been really helpful. 

Brett Berson: [00:23:59] Was that sort of like an equity advisors standard type of thing? Or how did you structure it? Or was it formal or informal? 

Steve El-Hage: [00:24:06] I think a lot of people don't really structure their advisors correctly. Most advisors, you like have coffee with them.

Once you tell them what you're up to, they tell you what they did. And you're like, Hey, you should stay in touch. And you basically maybe talk to them like once or twice again. And that's it. Versus at least for me, the things I realized were that there are a lot of people that really want to help. And if you like let them help and actually have impact, they're willing to put in more and more and more time.

And so the things that were important in getting these advisors to be really invested in the company, not just like somebody, you got coffee with socially, but they're really working on this function. Like they're working on our finance side or a product side to help us get better. One was frequency of meeting.

Like you just gotta meet them often in a very short period of time. Probably the single most important thing in terms of getting them really like. Proactive and helping and asking real questions and wanting to meet with other people on the team and help them was closing the loop. So they'd tell us something and we'd go try it.

And I messaged them, be like, Hey, you suggested this. We went and did this. This is what the result was. Thanks a lot, which is already like 50 X better than how most people interact with their advisors. And yeah, like we gave them equity, which was really helpful. Some of them invested, which was really helpful in terms of just legitimizing the relationship, but really the things that were the game changers was closing the loop and making it clear that they could have impact here.

And I think that that just changed their commitment and that's why we were able to spend so much time with them over that year. And it wasn't just, Hey, we had coffee once or twice. It was, we basically had these lights. Semi execs. They weren't really execs, but they knew everything that was going on within the company and within these functions.

And they were coming by the office all the time. Like every day there'd be a couple. And that was really, really helpful. It was really critical to go from not knowing how a good product and end structure is to over the last eight years. Our product and product engineering dynamic has been amazing. And thankfully, we've had leaders in advanced, like help us get ahead.

Of some of these things 

Brett Berson: [00:26:08] originally find the right advisors and figure out if they were going to be able to deliver what you needed. 

Steve El-Hage: [00:26:13] So it started with the VCs. We took our investors and we asked them for the CEOs that had scaled and we're the best at hiring and their opinion. So this is something that was a founder CEO that got to some meaningful revenue amount.

And we're at least from these investors, we had to trust their judgment was particularly good at hiring. And then we took those people and we asked them who is the best XYZ that they know in every function, like give me a list of them and intro me. And most of the advisors that we were introduced to, aren't like the most famous person.

A lot of them have a lot of time. A lot of them are under the radar and after we got enough in each bucket, then I basically did some mild filtering of this person. Seems like they've been more helpful and less helpful or willing to invest more willing to like, do something more actionable to get to our like three, the target was three per major function effectively.

Brett Berson: [00:27:09] I really liked what you learned about closing the loop and how that gets people more invested and wanting to spend more time with you. Are there other ways that you leveraged advisors and other things, obviously the frequency in the way that you engage with them, but is there a way that you spent the time or help context load or translate their ideas into stuff that was most useful for drop.

Steve El-Hage: [00:27:31] For advisors and actually for a lot of interviews with senior execs, one of the things that was the most helpful was really zooming in on exactly the problems that we're working on know, and having them just see how they would solve it. And it's not like a high level strategy. It's like, Hey, we've got an hour today.

We're going to use this whole hour just on this. And if you want us to bring in other people from the team, just let me know, we'll bring them in. And we effectively use these workshops and working sessions, which is way more useful. Especially at that stage, like the series, a series B stage, then something higher level or more strategic.

There was a role for that. There was a role for like philosophy and more like a, a position on how recruiting should be done or how products should be done. But that was how we spent most of the time. It was just, let's look at these metrics and this is what's happening. And we'd end with that and being like, Hey, we've built like a growth model in this session.

Not told you how to build it. Like we've built one in this session and we can now take that and figure out how to incorporate that and act on that. So the more we can basically just pull them in and ask for more and more of their time while like being extremely, extremely grateful and giving them equity and try and like help, like try to pay it back in whatever limited little tools that we have.

We were basically trying to just get them to really get under the hood and having two or three per role was also really helpful because we can effectively have like an asynchronous meeting. Like we weren't bringing all three in at the same time, but one person would tell us what they would do. Then I'd take that to the second person, the third person, but getting multiple perspectives on the problems that we have add in high fidelity was really important.

And again, this was. Primarily in that like one to two years period where we were changing stages really quickly. And it became clear that like a CEO's is like a real job. It's not just being a founder. You don't get to automatically do this and now let's figure out how to be the best CEO and what things do you need to get good at?

Brett Berson: [00:29:28] So you talked a little bit about this, but let's spend some time talking about hiring. So if you go back to the early days, what did you learn about hiring? And is there a thread that sort of ties what you found to be a great process or a thread that ties the characteristics in the different folks that you got to join the company?

And then maybe at the same time, what are the big mistakes that you made and maybe start earlier on? So not executive, and then we'll move into, I know you spent a tremendous amount of time over the last couple of years, really focused on figuring out how to build the executive team. And we'll chat about that after.

Steve El-Hage: [00:29:58] So those two phases for us are fundamentally different. They're not even really comparable, like the early, early stage. So for the first year and a half to two years at a company, we were all like the whole founding team and the whole company was living and working out of this house in Palo Alto. And. As part of that, we weren't really getting paid.

We would cover the expenses. Like we cover food. People would live in this house or if they live nearby, they'll still be okay. But we really wanted to keep going down this path and hiring people that were primarily okay. Getting compensated with equity was really tough. And we had a really good team, like the first.

15 people that we had were able to have real impact and moving the needle. But that was a very different process. We had to really screen aggressively. Like we would do five, like stack a day with five minute interviews, a quick 10, five, 10 minute calls just to get calibrated on whether or not somebody would be interested in the circumstance that we're in and just aggressively filter.

We do like 80 interviews, 90 interviews in a day, sometimes with multiple, co-founders doing this to get to these core values. We heard more about the alignment and understanding of community. The commitment that we as a founding team, like the very early team worked really, really hard. And over time we moved towards a more sustainable, scalable work ethic at the company.

But at the very beginning, everybody worked pretty much all the time. And this approach that says, it's not that we're not paying people because we're like greedy and don't want to it's that at the time our revenue didn't warrant it. We were like, what's the appropriate comp for our revenue. And as we grew, we scaled down as we hit a hundred K a month, we bumped that number up a million dollars a month.

We bumped that number up $5 million a month ago. And now we have like normal compounds and pay people well, but it was definitely focused on values. And the idea that we're building a founding team, that's what we're doing right now. We're not hiring our like 13th engineer or whatever. We're building the founding team and do the circumstances that we implemented.

It really limited the types of people that we could hire from. So it was definitely atypical. It ultimately worked. Do I recommend it? I think it really depends on the type of culture that you're building. Like we didn't have a deep network of founders that we could pull in as part of our first team. So we really needed to meet and talk to and spend a lot of time with a lot of people in a very short period of time.

Brett Berson: [00:32:20] And so in those early hires, what was the actual interview? Like? You sat down with somebody and what were you asking and what were you hoping to hear and maybe how did that evolve? Because I assume you hired some people that didn't work out. And so what did you maybe get wrong there? We 

Steve El-Hage: [00:32:35] hired a lot of people that didn't work out unsurprisingly and the most important thing was that we were able to address it really quickly.

So the second we realized that somebody didn't work out in this founding phase while we're building the founding team. We just like had an honest conversation and parted ways, and it took us many, many hires to get to the first 10 or 15, that ended up really defining what that company was going to be like.

There was the first interview. And then after we made it this first round of screening, we went through a more typical interview process. But in the beginning it was really, we had one or two questions that were effectively tests on how much do you know about enthusiast communities? It didn't really matter what community like.

We had people that we hired that were big in red worm composting, but at least they were like really into it. And they could understand the philosophy behind these communities. There are other people that just did not participate or understand, or even think about enthusiast communities. It didn't matter what the category was.

It was, do you understand this? And can you appreciate the fact that we have a kind of atypical group of users that are really passionate and interested in these things? So that was one category. The second was around work ethic. We want to hear effectively the hardest that somebody has ever worked in their life was, and whatever they decided would be helpful, like whatever they decide to share.

We would use that. It didn't matter what the circumstance was. Just what's the hardest, like if the hardest you worked was like one semester you had five classes, you normally had four, but like, I don't really care. Like your concept of what the hardest you can work is, is very different than what our concept is.

And we had other people that just like blew our minds with either due to life circumstance or due to work experience or do their own decisions. Had worked really hard and been through a lot. And that was really important to us. And the last was around their attitude towards building something and starting something like we're very explicit that this is not a job.

It's not like a normal job. We're going to be aggressive on equity. And we're going to give people phenomenal amounts of autonomy. Like our interns for engineering shit changes to the homepage on their first date. Not really common for a lot of places, but we expected a lot from an autonomy perspective.

And a lot of people are really interested in this. And most of that cohort of that initial group have gone on to have classically successful roles and jobs. And they're like in a combination of big companies and founders. And a lot of them did really well, but our goal was in five or 10 minutes, roughly check off these boxes or not.

And the result was we interviewed people with hugely atypical battery people that ended up being like mid-level managers and directors of the company that previously hadn't worked a white collar job before. And they were amazing. They did really well. And then there were people that were kind of like the standard, like great hire background of like good school, a good work experience, relevant industry, so on and so forth.

So we had this very interesting group of people that were very committed to the problem. They were very committed to the fact that we were still in this building stage and that we're committed to the fact that we want to be careful with our resources. And we got our seats around really quickly and we saw what it was like when our numbers went down really fast.

And we wanted to make sure that like, if we were paying everybody market salary at the time, we wouldn't have made it. We wouldn't have gone a year to figure out how to get back to where we weren't. We just burned through that money and shut down. But we realized that the company was still fragile and due to that, we should be compensated appropriately.

I was always the lowest paid person in this process for the first, even like many, many rounds later. And the founding team was the second lowest, then everybody else was an entre above. So again, it was just really thinking and being explicit on what culture are we building at that time. And it was really demanding.

It was really performance focused and we had a really good group. And then over time, the challenge happened during this like 15 200 phase where you can't put everybody in the house, not pay it. You can't do this forever. Clearly you gotta move towards like real systems. And the challenge was trying to figure out how to preserve the roots of that culture while paying people market or better than market comp, having like a real work-life balance, making sure nobody burns out, having a good process so on and so forth.

So that's why that was particularly tough, which for us, our founding phase was kind of atypical and. Really embodied a lot of the attitude that the founders had. And then again, we had to transition towards scalability and sustainability and not everybody can live in a house. I give people have like families and other, other obligations.

So the transition was compounded by how aggressively we had zoomed in on what we wanted our founding culture to be like. 

Brett Berson: [00:37:06] So before we talk about that transition, was there anything else you did in the interview process to figure out who would be successful at your company? Meaning someone who did not work at a start up or Google or Facebook, and you've never heard of anything they've ever done, and you have to go back to first principles and not rely on anything in their resume.

I actually think it's probably the ideal way to hire because there's so many false hires that you make based on someone's resume or where they worked versus their ability and contributions. But I'm curious, was there anything else that you did to get that right over time? 

Steve El-Hage: [00:37:43] So you're right. That it ended up being a massive hiring advantage because again, a lot of these people now have classically good backgrounds, even after coming up through drop, but we didn't have to compete with the like Facebook engineer that everybody's trying to hire.

And that's not who we have to compete with. It was more on our ability to identify somebody that everybody else had missed and overlap that with the value system that we have. It wasn't like we did a 10 minute interview and then we were like, okay, welcome aboard. It was now you made it to like, let's do a real interview.

And one of the most important things for us was that it was very applied. So depending on the role, we'd effectively just bring you in to like do a day. Like if it was sales, we get you on the phone. And you spend a day or two days or three days making calls. And if at the end of those three days you made progress or we liked how those calls went.

And like one of my co-founders would be on every call. He's not saying anything, he's just listening and sometimes we'd end up like, Hey, this person's unbelievable. The person's just a machine at this and they're so good and they've never done it before. And sometimes we just realize that it's just not going to happen.

So this wasn't a lot of time that we had spent, like we were all spending time on this. The next thing was that we brought people to like stay in this house as part of their interview process. We would fly people out from this. Wasn't just in the bay. We'd fly people out from all over the country. In some cases, other countries sponsor visa, if needed and have them stay with us.

And along the way, have them sit in a meeting and participate. What do you think about this within the design session? And like, okay, you work on this and come back and given that again, it was a pretty atypical background. By the time it was done, we had a relatively good idea of what we're signing up for.

Like I mentioned before, we still had to go through a lot of people to get to that core initial group that we felt like would take us to this real scale and inflection point. What do 

Brett Berson: [00:39:34] you think the gap was? Because what I'm hearing you say, and what I think is so powerful is the ability to do work simulations during the interview process, get stuff as close to the work that somebody is going to do is one of the best ways to figure out if somebody can be successful.

And so I'm curious if you think back to a lot of the hires that you had to let go, they obviously you spent a lot of time with them. You did this work simulation, and then they didn't work. Was there any pattern to it or as much more idiosyncratic. 

Steve El-Hage: [00:40:00] It kind of just depended on the role. Like it depended on you can't get them to do all the work.

You can get a lot of signal, but a lot of it has to do with the people that didn't work out. A common theme would be, how did they handle when things got really hard, like as one thing to get on the phone and do a day or two or whatever of sales calls, it's another thing to be behind on your numbers. And that's why we're behind on the quarter.

And we're deeply performance based and deeply. We hold people accountable and now you've got to catch up. This is tough to simulate and there's many types of hard situations. Like you designed something and it was just a disaster. And now we're behind. We don't have the luxury of, I guess, we'll try again.

Like you got to figure out how to get back on track. From whatever the metrics are that you're accountable for. And some people like would just thrive in that environment. They would do better work. And some people had a really hard time and I feel like people have maybe more classically agreed upon good backgrounds have been in a while situations I've been coached on.

So like they have experienced that. But for us, that was really when it was hard to see how it would really go, frankly. Well, yeah. I think if we hired people from classically good backgrounds, we would have gone through yeah. Least as many people have not more. So this was part of our philosophy around like strictly getting to this founding team culture.

And I don't necessarily think hiring people from atypical backgrounds was a massively higher, false. Positive rate that hiring people with good backgrounds, but that was a type of thing that was really tough to screen for as we got bigger, we did it, but less intensely once we could pay for work or time we'd invest more in that in the beginning, it was, they knew they had an atypical background.

We knew that an atypical background and it was kind of like a combine style screening. 

Brett Berson: [00:41:41] Do you still hire people that one would say are just overlooked by the market or you now sort of do much more consensus hiring? 

Steve El-Hage: [00:41:49] I think it's definitely not as much as it was before. And I think there was a tipping point.

There were two rounds that we re like once we raised a series B, which is about a 40 plus million dollar round. We were effectively flooded with very, very, very good, like our inbound of classically good people was really high. We were still screened for the value systems that we cared about. And a lot of the team that was here earlier still would invest more in that, but it takes a lot of time.

That was the hard part is that it's just a very low signal to noise ratio, as opposed to like, we need 20 people in the next 60 days and they need to be good and we know that needs to be good and we have to hurry. That became tougher. And so I think we're still much more receptive of it. And even as big as 80 plus people, there was pretty regularly people that were from backgrounds that weren't prestigious tech companies or prestigious universities, but it was definitely not to the same intensity as the founding team and the pre series a cohort.

So 

Brett Berson: [00:42:51] going back a minute, you were talking about this transition point that happened over time, where you're hiring overlooked people. You are all working seven days a week. Many of you, I guess, were living together in the same house. And then over time you started to go from that to building systems and process.

And I assume that's when sort of executive hiring started to happen. How did you recognize that something had to change and was it like an immediate phase shift or it was some organic process that happened over a number of months or years. 

Steve El-Hage: [00:43:23] No, there was a moment. There was definitely a moment. And the moment was when all the other founders had basically burnt out and these people had exceptionally high threshold for burning out.

They're all still with the company. They've all come back from burnout. Some of them burnt out again and then came back again. Like burnout is like a period. It's not like a life state. And I knew I'm like, wow, these, if these people are having a really hard time with this, this is the limit effectively. If I want them to stick around and still be good.

And they were exceptionally critical people both then, and now we needed to change something. And then shortly after we raised our series, a and that made it possible to pay people enough, to like move to San Francisco and get their own apartments and start moving. It was still a below market comp, but it was enough to like fundamentally change the structure that we had before.

And that was really big in terms of getting people to a better place. And that was focused on them. I used them as like a leading indicator, but it was clear. I think once people burn out, it's really hard to come back from it. I think it took an average of like nine months to get back to like being in the zone for each of them.

Did you ever burn out? I think yes. Except mine was way later. I think between years four and five was when that happened. So, which was like after the seed round, after the series a after this like monster B round and like. Press and hyper-growth and like this like very great place to be in up until that point, I had been working pretty much constantly.

There was like similar, I think it was about nine months where that period was really tough. And for me, it became clear that through my experience and through talking with other people that one of the biggest risks to company performance is founder burnout. And it's one of the things that people don't really know.

And don't really see, like CEOs are very good at presenting. It's like their job to present in a certain way and communicate in a certain way. And you do it all the time. But if that's not lined up in terms of their attitude and commitment and focus and excitement, there's going to be a lot of second order ripples.

That can be really dangerous. And so for me during that time, like I took my first vacation that I had really taken during that time period. That was huge. I took another one, six months later spending more time with like friends. I got a lot of people that were like a lot of relationships that had kind of drifted and this was really bringing them back, exercising more, getting healthier, like all these basic things that you kind of needed all were really critical in terms of moving out of that phase and into like a more sustainable long-term phase.

We also had like a lot of tough stuff that was happening on top of that, that. Compounded this problem, but I was a believer, like, I don't think everybody needs to work a hundred hours a week. I think if you don't know anything, like, I didn't know anything. And I wanted to maximize my likelihood of success.

I needed to work a hundred hours a week. I think if you don't know anything and you work 30 to 40 hours a week, you're leaving a lot on the table. You're not maximizing likely that it works, right. If you're like more experienced or end up hitting this like very scalable product market fit very early, which through chance or skill some people do then great, you can do it on 30 hours a week or 50 hours.

It was a week or whatever. But for me, given that everything was a back and forth between test trial, iteration, trial, iteration, it required and demanded a lot. And then by the time I got out of that phase, That's where there was enough time to like reflect on things. And basically since then, it was more of like, just a lot of learning.

It's just not as painful. And it was more managing through experience. And we had made so many decisions that resulted in so much learning. We just needed, at least for me, I needed a period to pause and synthesize and improve and just let that soak in. And that was really critical. And then after that it's been, I've been a lot more proactive about just constantly managing it, instead of letting it, like, if you've got your burnout meter, instead of letting it go until it like blows the top off the meter and you snap like hit burnout or they become like crispy, you just manage it.

Like, it goes up a little bit and you figure out how to pull it back down. It goes up a little bit, pull it back down and you kind of have like a more, more of an equilibrium. How do you pull it back down? I think everybody's different. I think this is not like a generalizable thing, but it requires deep self-reflection on like, why are you feeling?

How are you feeling? So it could be something simple, like. Going on a trip, taking time off, take a vacation, take a week off, take a weekend off. Like just stop working for a little bit. But there are times when stopping, working, like it's stressful because the problems didn't go solve themselves. Now you're just not working.

And the problems are getting worse. Sometimes it could be like sports or something like a workout. Other times it could be like investing in relationships that you want to invest more in. For me, a lot of it was diversifying what I spent time on, like given how hugely focused I was on everything. It was all encompassing.

There was no time for anything else spending more time on like creative projects on like the weekends right night was like a huge boost or even like small sidebar. It was like a huge boost in long-term sustainability and being able to still spend a huge amount of time on the company. But also give myself the Headspace to spend some time on other things that could be interesting.

And that just kept like, depending on what was going on with that burnout meter, I would spend more or less time on things. Sometimes there's no burnout. And even now I'll spend, I'm just like happy to spend all the time working. It's not a problem. It's just, I just want to, and then there's times when it's clear that I used to like, dial it back a little bit and I'll spend time on some other things and go down to like, whatever, like a 50 hour work week or something like that.

And then see how things go and go from there. But effectively it was like, I needed to take responsibility for my own burnout. Like if I'm burnt out, it's my fault. Nobody else is really going to be able to help do anything about it. So prioritizing that, making sure that that's something that is actively managed, almost like a KPI of the company.

Like if this goes to crispy is going to be bad for everybody. And then trying to do the same thing for my team. Like while I have to manage myself, I also have to manage their burnout. And there's been times when, like, I've gone to one of my co-founders and been like, you need to take like six weeks or like a month or two off and like not work and like go to Japan are going back.

I don't care, go somewhere else. And like, don't work, you're clearly hitting this level and we'd have like a couple of conversations and they would do it. It would play a big difference or different members of the team and leadership team, like noticing when somebody's burnt out and just asking them. And usually by the time somebody is burned out, they know, and they'll talk about it and you'd be like, are you burnt out?

And then let's like, what is it like what? Sometimes it could be that they're not working on stuff that they want to work on. Or like a lot of times it's things are out of their control, whether it's like parts of their life or their time or within work. And just trying to work through that and getting to that point, we've been able to pretty systematically targeted and work with people and solve it.

But it was important to have the conversation about like, I think you were burnt out. This is why. And almost every time they're like, yeah, you're right. 

Brett Berson: [00:50:14] Is it always obvious for you or are there leading indicators when you're thinking about the folks that you're working with and monitoring where they are in terms of burnout?

Steve El-Hage: [00:50:23] There's definitely a leading indicators. It's been very rare. If any, where somebody says they're burnt out. And usually by the time that happens, it's too late. By the time they say it they've been burnt out for like a year and a half or something like that. And they just like kept it inside early indicators that I've noticed, have to do with excitement about what's happening and associated.

Like excitement translates into being proactive. So like, if somebody is really pumped about where things are going, they got like new ideas and like, let's do this. Or like they're being proactive. They're not like, well, I got my job and we got the plan. Let's go do it, making sure you can at least see that.

So, you know, that that's possible was really important. And then you see that, that goes down to like more of a neutral state. And then in some cases it's like slipping a little bit, like something that, you know is really good. Isn't performing the same way that they did before. It's not because. They're just not scaling or they're bad.

It's just, they're just not as excited. The next thing has to do with attitude and notice that when people are burnt out, they get in this like kind of negative cycle, like a negative spiral and like really short and all ideas are bad. And somebody else says something to like shorter with them and they're kind of snappier and meetings.

It's one thing he has a bad day, but next thing to be like, Hey, this is kind of uncharacteristic. Like this person, wasn't always like this. This is kind of like who they are now. And we need to talk about it and just kind of see what the real deal is because most of the time there's just something else going on.

And yeah, at least for me, these are like some of the things, people that are burnt out or feeling more reluctant when they do a lot of stuff, like a little bit tired, like physically tired. I don't know. It helps that our average day and you're for exacts and for actually a lot of people in the company as long enough where you can kind of spot it.

You worked with somebody for a while and you can see the dust, the situation we've also had people resigned. I've had execs quit. And then during the conversation, I asked them if they're quitting because they're burnt out and they'll say, yeah. And I would like ask them to, let me make them a proposal to address this instead of them quitting, because they're burnt out.

And sometimes it involves like the launching of new efforts that I know that they're really passionate about, or like the addition of a rec or two that's dedicated to only doing the stuff that they hate doing. Like, what is that stuff that you hate doing? And these two people, this is their job. Their job is to only do that stuff that you hate doing.

They have to have like a real title, but that's effectively, let's do time off. Let's work together and make this program. And if at the end of that, like you also get paid throughout this. And if at the end of that, you still want to quit, then quit. And pretty much everybody that's been through that has stayed and stayed for years after.

It's just, it's not a good reason if you want to quit, cause you want to do something else or like it's not for you anymore. That's a good reason. Like people aren't going to work at your company forever. But if you're quitting, because like the environment is such that it's driving you crazy. And like, it's not good for you as this like CEO.

This is something I can control. Like we can shape this. A common theme is people that have created a narrative that they can't take time off. Like everything will go to shit if they take time off. And it's almost never true. It's very rarely true. It's almost never will it be detrimental. And this comes from like caring a lot and like caring about the company and either it's a manager that didn't design good process or.

There's something that created this environment where you're working a lot and you feel like it's all on you. And sometimes just making them take time off and creating a process that makes it so that when they come back, their role is a little bit easier and they just need somebody else to do that for a little bit results in people staying for some of them stayed for like three, four, five years longer than that point.

But again, it involves like, just ask if they're burnt out. If they're not, they're like not going to care that you ask them that like, no, I think this is great. I'm having a great time. If they are, it's going to be a huge game changer and you can figure out how to work through it. 

Brett Berson: [00:54:05] We were talking about the sort of drops journey in terms of this phase one and phase two, if a CEO that's operating a company is in this phase one that you defined and reached out and said, Hey, Steve, I think there's something that needs to be improved here.

And we need to go to a next level. What coaching or advice would you give them in that transition and what do they need to do to get to that 

Steve El-Hage: [00:54:27] next phase? In terms of founders that has been time where there are help the places where I feel like the most impact takes place is when it's really specific.

It's usually some nuance. Is this like a leadership problem? Is it like, oftentimes here you have to answer hard questions about your co-founders usually people know deep down, whether they're going to scale or not, but that's a common theme, but really, it just depends on digging deeper with them and figuring out we have to like, be honest, you have to be honest about what's really the problem.

Otherwise, we're just going to wait until it's obviously the problem and everything's kind of spiraling out. I know it's not like a great answer, but I think it just depends on the specific circumstance. 

Brett Berson: [00:55:04] So let's sort of zoom in on, you need to build a leadership team and you need a real executive team to start to run the company.

What advice or what frameworks have you adopted or leaned on to do that? Well, 

Steve El-Hage: [00:55:17] for me, the first time around, I made a lot of mistakes. And we were told that there's a rule of thumb that says you're going to fuck up 50% of the exact hires that you make. I think my first time around was definitely higher than that.

And it was because I hadn't worked with those exact, and I think we were also able to hire a different type of profile or scale or prestige that we felt like could be really impactful. But really the most important thing was that we needed to hire people that did exactly what we need them to do.

Instead of hiring somebody that's done at a different scale. Like the biggest mistake was hiring somebody that had been super successful at a bigger scale. And now you're bringing them in to build and they can't really do it. That was the biggest thing. And so we learned this the hard way by hiring a lot of execs that showed up in disenfranchised their teams, and didn't really have much impact during that time period.

But usually the second cohort that we'd hire as a replacement did much better. One of the things that helped me the most was. Running that team in the interim and doing it well enough to feel like I have new insight on really what's needed and what exactly that team needs from a skillset and leadership perspective, and then interviewing against those things specifically versus before you might be always, I was assessing overall competence, overall experience insights on our company insights on the team.

This let me zoom in on like within finance. This is the exact thing we need help with. We need somebody who's good at this. And we don't care about people that are good at blank, and we focus a lot more on hiring specifically for strengths. So we'd be like, Hey, this person's amazing at FP and a and operations, but isn't that good at accounting?

And isn't that good at whatever. And we would hire them knowing that we need to hire somebody to compliment them. And that worked out much better because there was a set of things that was really important to us that they were very, very good at versus before the first time around, I might've dinged them too much for being really bad at.

What I had assumed was a core competency of a senior leader. And in reality, we could just compliment this by being strategic about who their next hire is. 

Brett Berson: [00:57:21] So can you give an example, so take us into one of the exact tires that you screwed up. You had to let the person go, and then you're saying, okay, I got to do this a different way.

Steve El-Hage: [00:57:29] We had a finance leader that had a really great background. We were real lucky to bring them on. And during that time period, there was a lot of process implemented, but in terms of really the impact that was had, it was pretty like controls focused. And for finance, I think if you're a finance person with an accounting background, as opposed to a finance background, you're going to be limited in how good you could be as a CFO, as opposed to a CFO through a typical, like a banking background or QA background.

And so we saw that there's a big emphasis on like slowing us down on controls. On best practices. And that was really frustrating for us as a team that was moving really fast and was used to moving really fast. At the same time. I like this voice in the back of my head being like, well, we need some of this stuff and this stuff's important.

Ultimately we parted ways. I ran the team for eight months and then my next interview process, I was like, I want a CFO that can grow the company. That's specifically what they do. Like we will be growing faster, much faster and be worth much more because we have this person that was projecting what I was spending my time on.

And I was in that role and how I was thinking about things, as opposed to leaning on how somebody with best practice might've gone about building things. So what that meant was really caring about FP and a, and like the ability to model the business, understand the levers, understand what needs to happen to grow, understand this isn't accounting.

This is like real fundamental leading indicator modeling. And getting like deep understanding on that. And then the second was deep bias to operations and deep bias too. Not just like we made the financial plan, let's do the monthly budget meetings. It was the finance plans at the beginning. Like that person, that CFO needs to go meet with this leader to make sure that that's on track and this person is on track.

It was definitely a COO CFO. And it became clear that that's just a thing that we really needed. We ultimately found somebody with that background and they were definitely not as big on like controls and developing internal process. And that was fine. We can get a controller, but you get a controller that's really good at that.

And there's tons of people out there that are good at this. That's fine. This is by no means a deal breaker. And that's been one of the best hires we've ever made in terms of growing the company. But it was really like for us at that time, digging deeper on what exactly we needed. I'm sure there's other companies where you, the opposite.

You're like this isn't really what your focus is. Or depending on we have product and design equivalents for this. And growth equivalents, but it's really just figuring out like, what thing can this person do to revolutionize the company or fundamentally change the trajectory that you're on and just obsessing over that subset.

And then knowing that so long as they understand that that's what they're good at and what they're bad at. We can like work together on designing a team that compliments them. 

Brett Berson: [01:00:19] So a couple of follow-up questions. How do you go and run a finance team for nine months when you effectively know nothing about finance, then figure out what you need in the finance leader 

Steve El-Hage: [01:00:30] based on like, starting that like a perk as founder, is that at one point you were running everything to say that period, right before you brought in these VPs.

Which for us was that between 30 and 50 people, along the way, it was a finance team that directed into me. And there was like a marketing team team and a sales team. And I ran them and I ran them fine. Like it wasn't, I'm not like the best at any of these things, but at least know enough to like keep the wheels on the bus and no what to demand and what the goals are.

And then the, I just had to figure out how to, between me being hands-on and the advisor network that built level up this process and see what the problem was. And what's not the problem and get better at it. And over time, this has happened for almost every function. So there's been periods where I've run most teams in the company.

I hopefully never, again, like, hopefully we have great exacts that stay forever and their VPs are great and they stay forever, but it was just like getting, hands-on working with a team learning really quick, having like mild experience in that before. And now over time, there's a lot more experience built in each function, but the first time was just, this is like your new problem that you have to solve.

So you just got to get hands on. 

Brett Berson: [01:01:41] And we talked a little bit about your early hiring process. I'm curious, what did you learn or figure out in terms of specifically kind of the end to end hiring process that led to some of your best exac hires? 

Steve El-Hage: [01:01:54] The points I brought up in the CFO example are things that get incorporated there of being really precise with what exactly you want the strengths to be being really thoughtful for who's on the interview loop and making everybody on that loop have veto power.

Like if you don't care what somebody thinks, don't put them on the loop. And if you do care, what they think, make sure that you like empower them to have responsibility in this process. One of the things that was the most helpful was. Trying to use the interviews that we were doing as like, as working sessions in the same way that we do with advisors.

Like we meet somebody for an hour, we spend 10 minutes getting them hyped about the, the company and what we're up to. And then quickly jump into these are the biggest problems that we have. How do you all of them, and does the two things, one was kind of crowdsource ideas and efforts and perspectives for how we could achieve our goals while seeing how they would solve them in a practical environments, kind of like a baby version of that applied interview screening we did early on.

And the second thing was that made me more willing to interview way more people because it wasn't that I had to interview and I had to work. I kind of merge these two things. Like I have to go solve this or go to these meetings. And I got to do interviews, like, how can we fuse these together? And this is the combination of all the things we've done, all the things I brought up in the past and having a deep advisor network that helps you calibrate on what you view as amazing being in each role enough to really understand what your company wants and needs.

And then using those interviews and a very applied way too screen for those strengths. One of the things after I made a mistake for a hire the person wasn't good. I would effectively insist on not making an offer. Oh, I met with 30 more people and 30 good people, which is a lot, it's like a big pain to find like 30 C-levels in a role.

That's really good. But effectively, this was like my, my accountability to be like, look, you fucked up the first one. I'm just going to do it again and hope that everything's fine. So let's really go through, talk to way more people and zoom in on exactly what we're screening for. And by person 10 or 12, you're getting much better pattern recognition in terms of what's a great answer.

What's an okay answer. And then by person 20, you've probably seen some answers that really blow your mind. Like, yes, this is exactly what we should do, or like, wow, I wouldn't have ever thought of this. This is great. And kind of going from there, but it's definitely the combination of a lot of these other efforts that we've talked about so far.

Brett Berson: [01:04:09] So now that you've painstakingly built this executive team, how do you manage and work with an executive team effectively? 

Steve El-Hage: [01:04:17] This is also a very personal question based on like personality and skill and what you like doing. And don't like doing what you're good at and not good at I'm very much in the bucket for a C-level somebody who's more experienced and somebody that we're expecting to have a lot of autonomy in that role is just being really clear on where we need to get to what success and failure looks like three months out, six months out, 12 months out, even in 24 plus months out, and then letting them run and effectively being hands-off and having good leading indicators, if something is a problem and using one-on-ones figure out if there's ways to help or to be able to create an environment where you can talk about problems, but it's definitely a lot more hands-off for a VP layer is kind of this bridge where they may be very operational, but have less experience on like the strategic side.

And so it's more developing that skill and really focusing on that. And then somebody had a director layer of below is kind of like managing a regular employee, which is a lot more, hands-on a lot more frequent communication, a lot more help in checking on projects. And you kind of scale it up over time.

The number of reports has definitely shrunk down to where we are now, which is like four direct reports. Two of which are co-founders, which require less management than normal. And a lot of autonomy, even at a certain, I got 80 people. I had like 12 to 13, 12 to 14 directs, which was a big problem because we had figured out how to make good progress on VP is, but kept stumbling on the C-level.

And so again, this was something that needed time and iteration and alignment to get to that point. 

Brett Berson: [01:05:49] I'd love to talk about other unlocks we talked about earlier. Like there are a number of examples in the course of building drop that feels like there was a step function in your learning. Or something that clicked for you that kind of unlocked your own ability as a CEO or something kind of came into focus that was blurry for a long period of time.

So like one example was the way that you thought about burnout for yourself and your team and managing that was an unlock and unlock was kind of moving from phase one to phase two and figuring out how to ultimately build an executive team. I'm curious, it doesn't have to be what are unlocks for any CEO, but when you think about your journey going from founder to CEO, what are the ones that come to mind where you kind of create a step function in growth for yourself or your team or the company or the product or your 

Steve El-Hage: [01:06:36] customers?

There's something over the last 24 months that has this criteria. I think, which is how I think about, and the leadership team thinks about addressing early indicators of hitting a local maximum. So more specifically when the company is doing great. Like in this situation we had doubled the previous year, went from 50 million to a hundred million in that situation, which is fantastic by all standards.

Deep down, we had concerns and the founding team had concerns around the core model of what we're doing, which is tough. You're like in deep, like, is this thing gonna really work? And it's kind of an odd point to question that, which is when things are arguably from some perspectives, the best they've been for us at, to do with unit economics, seeing how, at the time we had two parts of the company, we had this group by model that we talked about in the very beginning that had scaled to this big, big team in big effort.

And we had this set of products that we made in partnership with the community and our design process. And the vast majority, nearly all of our revenue at that point was coming from the committee driven group by process. And there was, um, while it was going great and our retention was phenomenal. All of our KPIs were phenomenal, NPS or retention, organic.

Well, they're all great. Our unit economics were really bad and now enough time had passed where you should have figured out how to write, prove it by now. And it wasn't really improving. So more specifically like the margins we would make were really low. The amount of people required to grow. The company was super linear.

Like you would need to disproportionately hire to grow revenue because of the nature of the smile and even digging deeper. Like what type of long-term value prop. Is built on price and it's very fragile. It's actually a very fragile value prop. It's very fleeting value prop, even though we're doing really well with it, it's a risk.

And there were questions in this world that none of the metrics really reflected, not really, I guess my margin is reflected, but you know, our burn rate was fine. It wasn't like we were hemorrhaging money to do this, but we knew that longer term, this will be a problem. And I think the fact that this happened after a lot of these hard things had taken place in terms of multiple times of almost running out of cash or effectively running out of cash and our scaling challenges and organizational challenges.

I think we had the conviction to make that decision very quick. And act on it really quick. And so the decision for us was that we're not going to sell any products at a discount. We're not going to sell third-party products anymore because we see this as a challenge to being able to survive longterm.

Like, yes, it's going well now, but we believe that longterm. It won't. Meanwhile, we've got these products that we're designing ourselves that are phenomenal from a quality perspective and users are super excited about them. Their unit economics are amazing. The community engagement around them is much higher than anything else in our platform.

And we want it to move to that over the next 12 months, we very swiftly in a very focused and aggressive way made that shift. And that's really tough. We got out of 35 categories that we were in or many different categories to focus in on consumer electronics, the categories that were doing much better, that required parting ways with many people in the company.

People have been around for a long time because we're not in these categories. And these roles were eliminated effectively, even like from an investor perspective, it was hard to really drill home. Why we're making such an aggressive change so quickly because you're doing great. Why change it? And we wanted all of our revenue to come from products that we had made using the design process that we felt like we had nailed and double down on the momentum that we had.

And the short-term impact was horrible. The short-term impact was that you just laid off a lot of people that were really good and contributed a lot to the company. The next three to six months, our revenue was the first time we'd ever shrunk. Like we shrunk 30% the first quarter, another 30% of the next quarter is devastating.

The sentiment was that. We fucked it up. That's the sentiment like this was going great. And you like had this like founder, like shiny ball chased and you fucked it up at the same time. None of the underlying issues that motivated us to do this for different. We still believe long-term that this is where we need to go.

That the value prop we're creating in this dimension of the business is sufficiently high and we need better unit economics. We need to move towards something more scalable, more sustainable. And again, we did it very aggressively and very quickly by month six, our revenue started bouncing back by month eight.

After this initial change, our revenue was where it was before we actually things down. And our gross profit was as high. If not higher than this point. By like month 10, we were profitable. EBITDA positive. Now, as a result of this with all time, high revenue, all time, high margins, much more scalable in terms of what we can do.

And the company being in the healthiest position it's ever been. We have much higher focus as an organization. We have a way higher path forward that we feel like we can grow. We can keep delivering on the value prop that we have to our enthusiast communities and to our mainstream communities for the foreseeable future, we eliminated go to zero risks, which is a constant issue in startups, especially in consumer.

And now that it's all done and it's over, it's behind us. It was exactly what we needed to do. I don't think I would have done it four years ago or five years ago. And I don't think. A lot of the founding team or the executive team would have been supportive to like make such a big change while things are going well, that's so extreme, so suddenly and so quickly, but now it's one of the best decisions we've ever made.

And even this week we talked to from a very big, very high profile e-commerce company. Yeah. Had raised $300 million that imploded effectively, and they knew all the things they needed to do. Like in many companies that go under, especially in consumer, know what they need to do, but it's tough because you kind of got to change the panels on the ship while keeping it afloat.

And I feel like the experience that we had of knowing this and knowing that you have two choices effectively, you can either do it now and as fast as possible and as aggressively as possible and as swiftly as possible and get to where you think the company needs to be first, next phase of growth, or you can wait.

And see if you're right, that these things that you're worried about end up being a big problem. The problem is if you wait and they become a bigger and bigger and problem, and you ended up being right, you probably don't have the ability to make the change anymore. You've wasted too much time, or you've burned too much money, or it just gets harder.

So these are kind of the two pounds you could be wrong. And that's, I think why a lot of people don't do it. You're like, oh, maybe this isn't really, this is just like being paranoid. This isn't really a concern, but I think over the years, And the years of feeling this bad long-term feeling and seeing early signs that something's not going right, and not listening to it and waiting until it almost kills the company.

And other times we see that and just going quick and tackling it before. It's a problem, even if things are going amazingly, I think now it's not a hard decision anymore. It just involves thinking really hard and testing the ideas really quickly and really aggressively. And again, the result now is that the company is growing faster and that's ever been sustainably profitable, and only getting more profitable, able to focus on long-term problems instead of really stressing on shorter term cash management fundraising, or what's required to add more capital to the balance sheet.

And I think this is another big critical inflection point in terms of how I think about operating and kind of accepting the idea that if we were going to go under and if what we were doing, wasn't going to work out. It wasn't going to be because I didn't do what I thought we needed to do, or I didn't do what I thought was right, because they might've been too hard or other people might not have liked it.

And to be clear, this was not a popular decision along the way. Our users weren't happy or investors. Weren't happy. A lot of our employees, weren't happy now, a lot more people are happy. A lot more people have moved to a better place, but shortly after this was not like a super great situation to be in 12 months later, I think it's the best that we've ever been doing.

It's by far the best the company has ever done. So this is kind of an inflection in philosophy and kind of a decision to aggressively pursue those things and pursue those feelings, even if it might not be popular or might not be totally obvious at the time. 

Brett Berson: [01:14:55] I think you're getting at a profoundly important idea.

And I think when you're running a company is very easy to lie to yourself or to take the path of least friction. You see that in performance all the time, somebody is not working out, but it's just easier to leave it alone than it is to manage the personnel. And in this case, you obviously made a high conviction in this case, maybe non-consensus decision and pivoted the company in reflecting on it.

Are there ways to better codify that into the culture of a company or is it just CEOs need to trust their intuition more? I just think there's so many cognitive biases. That mean you might notice something and not change it or not make a big bet. And you obviously did that and it worked out and so are their behaviors are way to more deeply ingrained it in a company so that there's an increasing odds that in the future, you, as a leadership team will do those things.

Steve El-Hage: [01:15:50] We had something, this was a non-consensus decision, but it doesn't mean there were no people on board. A lot of the people that needed to be on board were on board. And the way that that was possible was part of the culture that we had built, where we were never super self-congratulatory, even when things were going well, we had deep cynicism, self cynicism amongst the founding team where even if something has gone well, you're kind of like, is this really good?

Is this really upgrading value? Is this really sustained value creation or spurts of shorter term value creation? And we had a culture of kind of self-awareness and reflecting on what we're doing, what we're doing well, what we're not doing well, both from a quantitative and metrics perspective, and just zoom out from like a user perspective or a business perspective.

And this made it much easier to have this conversation and the sentiment wasn't everybody being like, what the fuck you're going to change? Everything like that was not the Senate. It was, these are problems that we have. And these are the problems that I'm thinking about. Let's talk about without these are real problems.

And unless somebody can make a really strong case why this is not a problem, this idea is going to gain momentum. And at least in terms of the way that our leadership team makes decisions, there's deep receptivity to new ideas. And there's a aggressive screening process. Like there's a lot of like, I'm going to hear you out, but that's horrible, but there's kind of like this like pitch and receive process.

And while we were walking through, or I was walking through the concerns and we were having these pretty honest conversations, nobody was really like, Hey, we're doing great. This isn't a real concern. It was independent of how we're doing. Let's evaluate this concern. And let's really not like, believe our own bullshit.

And let's see, is this a threat to the company? Is this a threat to existence? This is going to some of these things were threats and some of these things were going to be limits. It's not a threat, but you're going to cap out. You're not going to be able to grow beyond a certain point unless you change something and having a culture where.

This was okay to bring up and there's trust both from me to other people and other people to meet amongst that team that somebody will let me know and push hard. If they think this is a huge mistake and we need to just evaluate them to see like, do they think it's right or not? And do we think, do I think it's right or not?

But at least the culture of we got to push ourselves and we got to always be the biggest critics that we have and always be thinking about the worst case scenarios. And eventually over time, the worst case scenario is just getting better and better and better. And that's a good place to be. But we're still thinking about worst case scenarios in addition to how big could this possibly be?

So while not everybody loved the idea, there was enough of a, Hey. Let's agree, we're going to do this, and this is why we're going to do this. And that helped during those periods where things weren't going well, when our numbers weren't good, is that even when unsurprisingly like you do something, that's a five-year optimal move doesn't mean that your next three months or 90 days are going to do well, all of a sudden, but it was good and important to be able to talk about the things that made us do it in the first place.

And there was receptivity around that. And I think that creating that culture where you can keep pushing and shunning and criticizing, and even not just when things are going well, like realistic, typically within our company, when things are doing super well, is when we're there the most critical when we crush our numbers, the reception isn't high five, there was such an as, hold on.

Why exactly did this happen? Like we don't know yet, if this is good or bad, obviously it's better than tanking and missing your numbers. But like, hold on. Let's really understand what happened. Who did what? Sometimes this can be. Good. This can be neutral and we need to understand the why, but that's a deeper cultural thing to not just be so eager to accept that you're awesome and that you're doing great, or that you're like a hero.

And I think that helped make this type of decision possible. And now, especially after going through this for the rest of my life effectively, there's discipline around having these types of conversations, creating that culture within the leadership team, and then knowing how to act in that situation. 

Brett Berson: [01:19:46] So at the beginning of our conversation, you mentioned one of the ways you learn and grow has been through CEO coaches.

I know you've had kind of a range of experiences, so I thought it would be an interesting topic to spend a few minutes talking 

Steve El-Hage: [01:19:56] about. I've worked with a handful of coaches throughout the company's history, ranging from really, really bad to somebody who I think helped me a lot. At least for me, I think the important factor is really realizing what you want and need help with and equally how you want to be helped or how you're actually able to be helped.

I think different people are only receptive to feedback or suggestions in specific ways. Like the method in which has communicated. It's really important. One of the first ones I worked with that was pretty unsuccessful, I would say I would basically break it down to being like a little too hippy. If that's a category of CEO, coaches, Really wanted to talk about my parents a lot, but you want it to be a therapist.

Like I say, there's like a problem that I'm frustrated with trying to figure out how to solve. And he's like, well, did your parents not do it? I'm like, look, I don't want to talk about my parents is not why I'm here. He was like, don't you think that you should talk, like the fact that you don't want to talk about your parents sounds like there's a problem.

Like, all right, man. Like we just got to figure out how to like address this like performance issue or do this specific. Like, we don't need to bring my parents into everything. They were great, but like, ultimately. We had like a tipping point that made me be like, what am I doing? We got to stop this. One of the things for a little bit, maybe four years ago, I want to help with was getting comfort around public speaking.

The things from going from such a small company to at least a bigger team pretty quickly was that you go from never public speaking to post speak on a regular basis, as well as like present talks and things like that. He had this plan that was going to work, that he was so convinced was going to work.

I come in and he's like, all right, this is what we're going to do. Pick a song that when you're stressed out, you listened to, and I was like, what do you mean? He was just any song and just come back next session, come back with this song. I'm like, okay, I don't know anything else. So I'm like, okay. I pick my song, which is detox by Kendrick Lamar.

And so he tells me to lay down and close my eyes and cranks up the speakers. And he talks, I was wanting to like meditate and relax and tell him when I'm like super relaxed. Okay. I'm relaxed. He shows blasting this song and we started doing this on repeat and I'm like, Do, what are we doing? What is this?

And he was like, no, just relax. It's gonna work. And I was like, what's going to work. And he's like, well, this will make it to that. If you're ever nervous or stressed, before you go to public speaking, you just play the song in your relax, like a pav. Like I conditioning to this track and he's like, yeah, just trust me.

And I'm like, dude, I don't think it's working. He's like, no it's working. Trust me. I'm like, I don't think it's working. He's like, it's working. And by the end of that, I was like, what the fuck did I just pay for now? Every time I listen to that song, I get stressed out and it definitely didn't work. And I was like, this is not useful.

I need like a different approach than like talking about my parents and trying to, like, we saw to Kendrick Lamar, like it wasn't going to work. I went through somebody else that was better. And like more operationally focused and more focused on like figuring out sources of stress and solving some of those problems.

The problem was that he had never been a CEO or a founder. And I think there would be a lot of points where that process broke down. And I don't know that that person needs to be that, but I know that that at least in this context, we'd like you making progress and just hit a wall where things don't work this way, or like you don't know the details of this.

Somebody that ultimately did work out was kind of a hybrid and somebody that was deeply operationally focused, focused on creating systems to help address different types of problems and would focus on implementing these systems depending on what you're trying to solve. So like if, um, I got a problem when I had too many directs that at one point people kept going to me and whatever go to each other.

So we had this hub and spoke problem where two functions wouldn't solve problems by going to each other and like figuring it out. They'd come to me and I'd go back and buy. Figuring out and creating a proposal on different ways of using negative reinforcement and creating high levels of accountability for not solving problems on your own and having follow-ups and putting people in kind of uncomfortable positions and using that as a tool when something's not going great.

We're actually able to solve this over like four or five weeks. And this was a problem going on for a long time. There's many other examples of small things like this. Like no one thing is revolutionary, but at least for me thinking about things in like kind of a structured way was really helpful. Even if it involved like team members or people problems that was more important.

I didn't need as much interpersonal help. I felt like I solved that stuff on my own versus some other people might need help in that dimension might not want systems organizational health. The single biggest takeaway I have. If I was going to go back to the day before I started with the first guy, I would have done like a couple of sessions with a wider range of people.

I would have spent like a month or two, not just doing like an initial meeting, but like let's actually work on something and see how different people would think about that and see which one I actually want to do. A lot of things were factors in this world, at least in the initial decision making structure was kind of like, what was their background?

Who do they work with? What kinds of things they specialize in? And that didn't really work. Like it's too hard. At least for me, it was too hard to screen for them on this like resume or like criteria base. And it was more about how exactly do I want to progress and how do I think about developing on my own things?

Am I going to figure it out on my own? What things am I going to work on with advisors or friends or other people and what things do I want this person right. Help with like, let's zoom in on that. And I think one second did that. I was able to find somebody that I worked with for a couple of years, pretty successfully.

And it actually worked out really well. And 

Brett Berson: [01:25:34] are there any other things that you've done in terms of successful coaching relationships that have increased the odds that they had, the impact that you 

Steve El-Hage: [01:25:41] wanted? I think one big thing was having them meet members of the team and even like paying for sessions with members of the team, both for senior team members to have coaching, which can allow them to start thinking about some of the things that they want to work on.

But also, so that your coach kind of has context, like in terms of the people that you're talking to and the details of what you're working through, it's easier and better and just higher success. If there's somebody that you've met before, I don't think it's like anything from those coaching sessions ends up being helpful.

Like it's not the point of it. The point is that you just kind of know the personalities and know how they talk, you know, how they work. And for the first two, I didn't really do that. It was just me the most recent one. I almost immediately, after the first couple, I was like, everybody come hang out with this guy one by one, do team-based.

We bring them in to do like facilitation for senior team off sites and things like that, just so that there was more context at any given point. And that really helped instead of like, I'm trying to guess what this person is like or what you could do. Just having that perspective was really helpful.

Also, um, having specific themes of things that I was working on, like say that public speaking thing for that, whatever for six months was like a category of thing. And then after that was a different theme after it was a different theme, I found out when I did that with a goal and a way to apply it and focus on getting better, that worked much better than.

When it was kind of like the therapist model, which some people have, like, you don't have a specific thing, but you catch up, sound's going talk about things. And hopefully that person uses that time to try to figure out how to say something helpful or be helpful effectively. At least for me, that was so, so that didn't really work.

I felt like context and subtlety and details are really important and having an aim and a focus for what we're really trying to work on and being able to come in like me coming in, prepped with examples of things that happened in this category of thing that we're working on, things that we tried that worked or didn't work, this was generally much more effective.

And at least for me, and work more like we're solving a specific problem as opposed to we're just here to vent. It 

Brett Berson: [01:27:43] would be great to talk a little bit about your idea of sort of defining moments for CEOs and sort of how they handle them. Can you share a little bit about that? 

Steve El-Hage: [01:27:54] Depending on what stage, this is a little bit different.

I think there's an early stage version, a late stage version. The early stage version I think is much harder, especially if you're a first time founder. I think there's these moments where. Everything sucks. Like it didn't work, whatever you're trying to do. Hasn't worked so far. It's not working, whether it's raising money or hitting your numbers or getting customers.

And you've tried a lot of stuff as one you're down, you're just crushed by like, shit, basically. Like you're just like emotionally and interpersonally worn down. I think it's harder for early stage people because especially first time founders, because you have less evidence of your own success to lean on and less momentum to lean on.

And a lot of times when I talk to founders that really need help, it's really that they've gotten to this head space where they're kind of tried everything and they worked like crazy and it's just not working and they're depressed and they're miserable and they're out of ideas. And I think this is the moment like these are the types of moments, especially early like pre series a or pre series B.

Where, how you handle these moments will really dictate how this is going to go, whether this is going to work or not. And this is like a silent fight. This is like you to yourself. Nobody really knows about this. And really the goal is to figure out how to reset. Recontextualize make a new plan, regroup, reset, and come back with like a different attitude and new plan.

Get out of this pit and get out of this hole and go back out and give it another shot. And this is within a company. This is an in between companies. Like if something failed, this is probably applies similarly, but depending on the type of thing that people are working on, the type of initial success or momentum you've had, if it's somebody that just crushed it and didn't have anything bad happen to them till a series D that's fine.

Like that's easy. You've done really well. And you don't have anything to worry about. We can figure it out, but if it's this like seed, pre-seed pre a phase. A lot of the people that I'm talking to, the biggest thing is how can we get to a new place? How can I get to like reinvigoration excitement about what's happening, acknowledgement for what happened?

That didn't work well, and like dig deep, like interpersonally when you're in this like super shitty situation and pull yourself out and move forward. I think one dimension of test is can you do that? How deep can you go and still be able to do that? And how many times can you do that? Some people might be able to do it once, but then the second time it happens is even worse than the first time.

And again, especially early stage, I think this is a really important. Place that's hard for other people to really help you with. I think knowing that other people are in that place and have worked through it and figured it out and got out of it helps. But at the end of the day, it's like kind of like a solo struggle.

And for early state, I think is definitely a defining point for later stage. I think it's closer to these inflection points around strategy, where there's like one decision every two years about where you're going to go and where you're going to be and the speed and attitude and strategy of going after that, that it's down to like one or two sentences for we're going to do this, or this is what we're going to be focusing.

And I think as you get bigger, getting that wrong has more consequence and like a series D. Picking that wrong direction and going aggressively down it for two years is really, really bad. And it's become these inflection points when you realize when it's time to make this change. And this change can be like, as all in the context of whatever your thing is, it doesn't have to be like a fundamental change in model or fundamental change in strategy, but there's usually these fewer increasingly small number of decisions that will have meaningful impact over the next couple of years.

And I think building up the skill or the like the spidey sense to figure out when you have one of those decisions and whether this is a decision, that's just another decision. Yes, this is another important decision or it's one of these disproportionate inflection decisions and figuring out how to slow down a little bit and make sure that you spend time on that and think about that.

But I do think that for both stages for this earliest data and for this more growth stage, there are still these moments where. These like brief moments in time. It could be like days per moment that if it goes wrong, the whole thing can be meaningfully meaningfully affected, or at least it could go to nothing.

And late-stage, it could take you off your track or trajectory.