Why Startup Fundraising is Broken

Credit and Thanks: 
Based on insights from 20VC by Harry Stebbings.

Brief Summary

Akshay Kothari discusses the evolution of his company and the unique challenges faced during its growth. He emphasizes the importance of maintaining a lean team and the strategic decisions that have allowed Notion to remain cash flow positive while navigating the competitive landscape of tech startups. Kothari also reflects on the significance of company values and the role of leadership in fostering a culture of excellence.

Deep Dive

Kothari reflects on his multifaceted journey at Notion, where he has donned various hats, from CMO to CFO, and ultimately COO. This adaptability has been crucial in a startup environment where roles often blur. Kothari emphasizes the importance of first principles thinking, which he applied to learn new disciplines quickly. For instance, when tasked with overseeing customer support, he reframed the challenge not as merely hiring more staff to handle increasing ticket volumes but as an opportunity to innovate. By developing a tagging system that allowed engineers to access real-time customer feedback, he streamlined operations and reduced the need for additional hires, showcasing how a product-driven mindset can lead to effective solutions across different functions.

The conversation also touches on the concept of "founder mode," a state of being that Kothari believes can significantly alter traditional organizational structures. He argues that this mindset encourages leaders to question established norms, such as the number of direct reports or the necessity of one-on-one meetings. This approach has led to a leaner, more nimble team at Notion, allowing for faster decision-making and execution. Kothari recalls how, during the early days, he and co-founder Ivan Zhao personally interviewed every candidate up to 500 employees, ensuring that only those who aligned with their values were brought on board. This rigorous selection process not only maintained high standards but also fostered a culture of excellence.

As Notion experienced growth and secured significant funding, Kothari faced the challenge of managing this expansion without losing focus. He candidly admits that the influx of cash can lead to a temptation to scale too quickly, which can dilute the company's core mission. He recalls a pivotal moment when they raised $50 million at a $2 billion valuation, a decision driven not by immediate financial need but by the desire to signal stability to potential hires during uncertain times. This strategic move allowed Notion to attract top talent while maintaining its disciplined approach to growth.

Kothari's insights into speed reveal a nuanced understanding of its importance in the startup world. While many believe that rapid execution is paramount, he argues that a lean team can actually move faster by focusing on fewer projects and doing them well. This philosophy was evident when he noted that Notion operates with under 20 product managers and 12 designers, allowing for streamlined decision-making and prioritization. He believes that the willingness to endure the "pain" of waiting for the right hire or project can ultimately lead to greater long-term success.

Hiring has been a critical area of learning for Kothari, who acknowledges that some of the biggest mistakes stemmed from bringing in individuals from larger organizations who struggled to adapt to Notion's lean structure. He emphasizes the need for builders—individuals who thrive in a startup environment and can navigate ambiguity without relying on established systems. This lesson became particularly clear in the sales function, where Kothari initially underestimated the need for a structured sales approach, believing that the product would sell itself. This miscalculation delayed growth and highlighted the necessity of a robust sales strategy, especially as the company aimed to penetrate enterprise markets.

Kothari also reflects on the unmade decisions that weigh on Notion's future, particularly regarding its positioning as a horizontal product catering to both consumers and enterprises. He acknowledges the challenge of defining the company's identity in a crowded market and the need for clarity in messaging. This introspection leads to a broader question: are we building companies the wrong way today? Kothari suggests that the traditional startup playbook, which often emphasizes rapid scaling and aggressive fundraising, may not be the best path for every company. Instead, he advocates for a more thoughtful approach that prioritizes sustainable growth and long-term value creation.

The discussion of fundraising reveals Kothari's strategic mindset. He recounts the decision to raise $270 million at a $10 billion valuation, a move made in response to increased competition in the market. This funding round was not just about securing capital; it was about positioning Notion to compete aggressively in a rapidly evolving landscape. Kothari's ability to navigate these financial waters is further exemplified by his unique approach to structuring the board. Rather than simply filling seats with investors, he sought to create a board that could serve as a coaching resource for the executive team, ensuring that each member brought valuable expertise and perspective to the table.

Key Takeaways

• The importance of maintaining a lean team to foster agility and focus on quality over quantity in hiring.

• The value of "veto power" in decision-making to uphold company standards and culture.

Actionable Insights

• Implement a rigorous hiring process that involves multiple levels of interviews to ensure cultural fit and alignment with company values.

• Establish a clear decision-making framework that empowers leaders to exercise veto power over new hires and strategic initiatives.

• Develop a structured sales strategy that complements product-led growth, ensuring that sales teams are equipped to drive revenue effectively.

• Regularly reassess organizational structures to identify opportunities for increased agility and responsiveness to market demands.

Why it’s Important

Kothari's insights underscore the critical nature of strategic decision-making in the growth of tech startups. By prioritizing cultural fit and maintaining a lean team, companies can navigate the complexities of scaling while remaining true to their core values. This approach not only fosters a strong internal culture but also positions organizations to adapt swiftly to market changes, a necessity in today's competitive landscape.

What it Means for Thought Leaders

For thought leaders, Kothari's reflections serve as a reminder of the importance of long-term vision and strategic foresight in leadership. The emphasis on values and culture highlights the need for leaders to cultivate environments that encourage innovation and excellence. As organizations face increasing pressure to perform, the ability to balance speed with quality will be a defining characteristic of successful leadership.

Mind Map

Key Quote

"The best power a founder has is the veto power, and we were okay with enduring the pain of waiting for the right person rather than rushing to fill a position."

Future Trends & Predictions

As the tech landscape continues to evolve, the trend towards leaner, more agile organizations is likely to gain momentum. Companies may increasingly adopt flexible structures that prioritize cross-functional teams and empower employees to take ownership of their roles. Additionally, the integration of product-led growth with traditional sales strategies will become essential for startups aiming to scale effectively. This hybrid approach could redefine how companies engage with customers and drive revenue in the coming years, emphasizing the need for adaptability and strategic alignment in leadership practices.

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Jiten-One Cerebral

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