The Startup as a Rube Goldberg Machine: Why Early-Stage Companies that Prioritize Operations Will Win

Guest blog by Sundeep Kumar, Co-Founder and COO of LoftSmart

 

Get a Mac picApple’s late-aughts “Get a Mac” campaign, featuring John Hodgson as the “Big Company” PC and Justin Long as the “Innovative Startup” Mac. Early-Stage companies often overlook “Big Company” structure in favor of rapid growth, but the two are not mutually exclusive.

 

Before I co-founded LoftSmart nearly two years ago, I spent my early twenties as a Global Operations Engineer at Dell, where I played a role in launching, managing, and growing a $2 billion worldwide lead-vehicle server program. In that capacity, I created product roadmaps and program schedules, outlined resource requirements and material readiness plans, and developed engineering and supply chain processes — drivers of a comprehensive operations strategy that would position our server vehicle to be a key profit center and growth driver during my time at Dell.

Many bemoan Big Companies’ inefficiencies and bureaucracies — and those critics are not wrong that organizations of Dell’s size and scope can fail to move quickly and innovate rapidly. But as the COO of LoftSmart, I’ve selectively chosen many of the accountability- and process-driven best practices that allowed Dell to build a $60 billion business — and that early-stage startups often overlook in favor of rapid growth and iteration. Yet in less than two-years at LoftSmart, we’ve seen that growth and operations needn’t be mutually exclusive. In fact, they’re mutually accretive.

In this article, I’ll discuss how my co-founder Sam Bernstein and I have leveraged a focus on operations, process, and accountability as a driver of growth — rather than a roadblock to it — and in so doing have built the rental real estate industry’s first end-to-end marketplace, raised $5m of venture funding, cultivated over $2 billion of listing value/liquidity, processed millions in digital transactions, and built a team of nearly fifteen fantastic people.

 

YOUR IDEA IS NOT DEFENSIBLE — YOUR OPERATIONAL PLAN IS.

Rube Goldberg Cartoon

 

I meet early-stage founders all the time who tell me that they’re nervous about sharing their ideas. Emotionally, it’s a reasonable request — your idea is very much your baby, your secret. But a close mentor once told me, correctly, that ideas aren’t worth the paper they’re written on. Where the real companies win and differentiate is on execution, operations, and go-to-market strategy.

No idea exists in a vacuum. Even the best ones are surrounded by a complex backdrop of entrenched industry stakeholders, competitors, regulatory frameworks, and roadblocks to growth and scale. More importantly, it’s likely that someone else has had some version of your idea in the past. Why will you win where they couldn’t?

What will allow you to win — and what will be defensible to the market and to your shareholders — is your method for approaching that problem and your plan for solving it. The foundation of every substantive growth strategy lies firmly in the ability to operate and execute. Your operational plan is your key to success, but unfortunately, operational plans don’t execute themselves. There needs to be a trigger at each and every step of the way to ensure that the the plan is executed from start to finish.

Consider the Rube Goldberg breakfast machine featured in the classic 1968 film, Chitty Chitty Bang Bang. A switch is turned, setting in motion a wheel of eggs that prompts a robotic arm to grab and crack those eggs onto a plate which was positioned by a toy train that triggers a burner to cook them. The crux of a Rube Goldberg machine is that each step of its process is triggered by a preceding event. Should any one of those triggers fail to perform, the machine fails — and in the case of Chitty Chitty Bang Bang, there is no breakfast.

The Rube Goldberg machine is the purest distillation of startup operations: the switch, the wheel, the arm, the plate, and burner are all accountable for their respective parts of the process. They must be cross-functional, and they are in turn counter-dependent. Accountability takes the operational plan from theory to reality — and creates the desired end result. Any early-stage company that is laser-focused on — and in turn, successful at — operations will see the same result as the Rube Goldberg machine: that the whole (the outcome, the product, company’s value) is greater than the sum of its individual parts.

Many people have thought about automating their morning breakfast production. None has succeeded without an operational plan — and there is no end result without accountability.

 

BUILD YOUR RUBE GOLDBERG MACHINE BASED ON WHAT YOU NEED NOW, NOT WHAT YOU THINK YOU’LL NEED LATER.

LoftSmart teamSam and me with our first hires (left to right, Felipe Beraldo, Jimi Jones, Adi Sundar, and Alex Ferda), September, 2016.

 

After raising our first venture capital in the Summer of 2016, Sam and I brought on our first non-founder employees: four Business Development folks (to sign-up properties and management companies for the marketplace) and one Product Manager (to make the marketplace, well, a marketplace). It would’ve been great to have built an all-encompassing organizational structure — with folks running Engineering, Digital Marketing, Brand, Customer Success, Partnerships, and more, like we have today — but it wouldn’t have made any sense.

Our first hires reflected the two key risks of the business that we had raised funding to solve: Product (Can we built the rental industry’s first end-to-end marketplace?) and Supply Acquisition (Will national real estate developers, operators, and managers buy in?). Robust as that team would’ve been, we didn’t have a product to market, a brand to focus on, customers to manage, or any value to drive to partners. We needed to build a product — and once we did, we needed to see if properties were willing to adopt it. So we hired one Product Manager and a large Business Development team.

Sam and I were deliberate in our early hiring to hire for what was immediately necessary — or, returning to our Rube Goldberg machine, deliberate not to put an egg on the frying pan until we had first cracked it. When you hire for what you need even 3 months down the line, you take away from resources that could be used to solve the problem at hand. As we tell our team every day, building a company is about taking one step at a time and enjoying the scenery on the way. (Or better put, jumping off a cliff and building the plane on the way down.)

As we began to win over properties, we saw the need for a Customer Success unit. So we worked with Cristian Medina, from our BD team (and whom I’d worked with at Dell), to create and lead that team, which is now responsible for all existing customer-facing engagement and support.

Account Management was hardly the only responsibility that came with our newly-acquired customers. As we began to onboard and manage properties, the time came to start driving end users (residents) to them, so we worked with Alex Ferda (also former-Dell) to launch, manage, and grow our national network of local Market Managers.

We also had to find and acquire renters digitally, so we made our first Marketing hire and spun up a Digital Acquisition team.

Finally, we had to build integrations with our Customers’ existing management software systems, so we grew our in-house engineering and product teams to serve their needs.

Our team today looks entirely different than it did a year ago. Why is that? Critically, we did everything in our power to take it one step at a time and focus on what we needed at the moment. As parts of our business grew, we found someone to take accountability for those new business units. In turn, our organizational structure built itself.

What’s the greatest barrier to scale that your business faces at any given moment? Figure it out, and find someone who can solve for it, ASAP (whether that’s a new hire or an existing resource). Make sure that person is deeply accountable for seeing it through, and make sure they work cross-functionally with other business units serving the same end goal. (We even go as far as to mandate meetings between leaders of different business units.) You’ll watch your business grow quickly and efficiently.

 

TEACH YOUR EMPLOYEES HOW TO “THINK” FIRST AND “DO” SECOND

Questions illustration

 

As a manager, I like to teach people how to think about their jobs before I teach them how to do their jobs. I do this for the following two reasons:

  1. In any company, it’s crucial to know how your role and your business unit affect every other function of the organization.
  2. It’s hard to deliver the right answers if you’re not asking the right questions. Critical thought (and problem solving) should always inform action.

Let me break this down.

Let’s start with the first one. Knowing your function as a part of the entire organization allows you to ensure that your business unit (BU) is always driving the company in the right direction. Businesses are cross-functional by nature, so you need to understand how to think about your role within the organization to understand what information and decisions need to come from your BU. We work actively to help our employees think about their roles in the grand scheme of things. By doing so, we empower our employees to do their jobs in a manner that drives the whole business forward — not just their BU’s immediate KPIs.

The second reason stems from the first. When an employee knows his or her place in the larger organization, it’s important to make sure that they’re working constantly to optimize their BUs, even (and especially) as they work towards key deliverables. Since BUs are constantly changing and growing, it’s important that they know what questions to ask in order to seek answers that will ensure performance against mission-critical goals.

For example, if you’re running a business development organization, you want your team members asking questions about the sales funnel and cycle, conversion rates, email open rates, etc. If you’re running a customer success organization, you want them to ask questions around things like retention rates, net promoter scores, and user experience. If your employees don’t know what questions to ask, they can’t be held accountable to drive the organization forward.

 

WRAP IT UP

So why does a focus on operations matter at an early stage startup? As an early-stage company, virtually everyone — and everything — is working (and rooting) against your success. Your constraints are virtually innumerable: you have limited funds, limited resources, limited human capital, and limited time. You don’t have the luxury of having things fall through the cracks. By focusing on operational efficiency early, you’ll allow your business to make the most of what you have — and to bat down challenges to scale along the way.

Nov, 01, 2017

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