Last month, I was talking to an entrepreneur I had heard of before but hadn’t met in person. We got to talking about the ups and downs of his business, and he shared that things are going really well. Revenue has been growing fast. They just had their first profitable month, and it looks like it’s going to be a great business. 

I asked how they approach things from a team and work perspective, and he shared something I’ll never forget. Their goal is to never have more than 10 employees and instead, they lean heavily on ChatGPT and other AI tools to augment their onshore, in-person team. Then, they have a growing presence in Eastern Europe for all of their development efforts and a customer service presence in the Philippines. 

So, the business is based in Atlanta. The founders are in Atlanta, and their goal is to never have double-digit official employees. Instead, the main work is done by experts in one country, and the main support is done by experts in a different country. Everything that can be automated internally is automated; everything that can be outsourced is outsourced. 

The ultimate result is a new category of startup: the forever lean startup. 

Thinking more about this model, I think this is going to be a serious trend in startupland. 

Entrepreneurs are always trying to figure out how to do more with less. They’re always trying to figure out how to scale their organization in a repeatable, flexible way. Funding has gotten more challenging as valuations have gone down for most types of startups (excluding AI ones!), and entrepreneurs want to control their own destiny. 

When you raise money from VCs and other funding sources, nine times out of ten, that means you’re on the fundraising treadmill, and every 12 to 24 months, it’s time for a new round of financing. What if the business could grow fast, have limited fixed costs, and still achieve the entrepreneur’s goals, but do so in a way that automates as much as possible, outsources as much as possible, and still delivers an amazing experience to the customer? 

The rise of the forever lean startup is something we’re going to see much more of over the next decade. Look for a whole new class of entrepreneurs that refine and build best practices around this model of maximum flexibility with minimum overhead.

Last week, I was catching up with an entrepreneur, and he shared an idea I hadn’t heard before. One of the entrepreneurs he knows only hires people for part-time roles while they keep their existing full-time job with a different employer. So, if a candidate already has a full-time job making at least $70,000 per year, they work for a different company in a similar position and want to augment it with a part-time job, receiving another W-2 or 1099 as an independent contractor. 

Some of the reasons the entrepreneur only hires candidates this way are that he wants the employees for his company to have a stable job from a different employer. He wants them to have health, dental, and retirement benefits from the other employer, and he wants the comfort that if his startup doesn’t work out, the employee is still gainfully employed. One final piece is that he leans on the existing employer as a form of quality control and hiring best practices. He says that when they’re employed, he has a level of comfort that they’ve already done their due diligence and have a great talent development organization. 

Now, this isn’t to condone how this entrepreneur works or this idea of hiring people that already have jobs and then hiring them part-time for his own startup. The main idea here is that there are other ways to recruit and compensate employees. By default, we think of full-time employees, contractors, and offshore contractors, but it doesn’t have to be that way. There are other pools of talent out there, and with some effort, there are even opportunities to tap into talent that might otherwise be viewed as too expensive or too difficult to get. This is made even more abundant with work from home and remote work. 

As an entrepreneur with limited resources and incredible challenges, finding great people, even if they have an existing job and keep that job, is one of the most important responsibilities. This is but one of many alternative ideas to recruiting talent and building a business.

Last week, I was talking to an entrepreneur who excitedly shared about an amazing new hire on his team. After discussing new hire for a bit, I asked what led to being able to recruit this new person. He said that he had been building a relationship with him for three years. 

When his previous employer announced they were being acquired, he inquired about the duration of the earn-out or vesting post-acquisition. The person shared that it would be 24 months, so the entrepreneur set a reminder in his calendar for every quarter to check back in with this person, stay top of mind, and continue the recruiting process with an eye towards a start date that was at the end of the 24 months. Sure enough, two years went by, and on day 24 months and one day, the new hire started. 

This is a great lesson for entrepreneurs as hiring extraordinary talent is one of the most valuable skills. While you can find someone on occasion that works out and the timing is perfect, the vast majority of the time, great people already have existing jobs and aren’t looking to move. Similar to a sales pipeline, the best way to think about it is having lots of potential opportunities in the pipeline and running a process, keeping track of important dates, considerations, elements of the relationship, and working it through a process. 

Build the process, follow the process, and the end result is an active pipeline of great candidates with an understanding of where they are on their own timing schedule and the potential to bring them on the team. Entrepreneurs would do well to think through the role timing in recruiting talent and always remember the old adage: The best time to start recruiting for that great person was years ago, and the second-best time to start is now.

One of the most common adages in the venture and growth equity world is that you should reserve a meaningful percentage of the fund to participate in follow-on rounds. This usually translates to reserving between a quarter and half of the fund to double down on companies that are winning and performing the best, as well as providing a bit of runway for those making good progress but still needing to prove more. 

Recently, I was reminded that the venture and growth equity world has adopted a completely different approach over the last 24 months, due to the downturn in the software industry. Investors paid such high valuations to enter companies that, when churn rates began to spike and new sales failed to materialize, effort, time, and attention shifted to the worst-performing startups. These startups still carried premium valuations but were struggling even more. Consequently, investors opted to try and salvage these businesses in a much more dramatic fashion than they historically would have. Historically, they would double down on their winners and invest a little into those that were performing adequately. However, with a dramatic fall in performance over the last 24 months, more of these reserves went to underperforming startups in an attempt to salvage something or to get them to a point where they could be self-sufficient.

Reflecting on this, it makes sense how it played out, but it’s also interesting to reconsider the industry assumptions. The expectation that if you have a startup doing well, you’ll raise more money to grow faster and capture more market share doesn’t always materialize. For entrepreneurs, the best strategy is to figure out how to control your own destiny by creating a business, funding strategy, and growth strategy that not only generates tremendous value but also allows for some control and influence over it. Just because investors say they reserve follow-on funds for their portfolio companies doesn’t mean you’ll be able to tap into those reserves, even if your company is performing well. Ask your investors regularly where they stand for future funding.

I remember meeting an entrepreneur 15 years ago, having the opportunity to ask questions, and learning about his life. He had sold his business the prior year and was working on his next thing. As the conversation progressed, he made a statement that I’ll never forget: “I have all the problems I want to have.” Initially, this didn’t strike me as anything significant. However, as time passed and life’s journey presented its own twists and turns, the depth of that line became increasingly apparent.

After that first significant exit and achieving some level of financial freedom, many perspectives shift. Questions arise, such as: Is work being pursued for its own sake, or to make an impact? How should time be allocated between family and friends? Essentially, why do we do the things we do? Reflecting on the comment, “I have all the problems I want to have,” I’ve grown to appreciate the ability to choose where I spend my time, the people I surround myself with, and the opportunities I decide to pursue.

This sentiment was echoed last week when I met a gentleman and inquired why he chose to live in a warmer climate. He replied, “All the problems are the same. It’s just a little easier living down here.” This reinforces the notion that challenges are frequent, and there will always be aspects of life that are less than ideal. However, one of the significant advantages of entrepreneurial success is the ability to be more intentional with our choices and, ultimately, to have the problems we prefer to deal with.

In my early years of entrepreneurship, I was intensely focused on setting big, hairy, audacious goals and shooting for the moon. My approach involved dreaming big, working hard, and rallying the team around the exciting opportunities ahead. Over time, I’ve become more tempered, setting a big vision but adopting a more measured approach to the incremental steps needed to achieve it.

It’s straightforward to declare, “We’re going to sign 1,000 customers in three years.” However, it’s a different proposition to articulate a vision of winning the market and becoming the de facto standard. For example, planning to sign 50 customers in the first year, 100 in the next, then 200, 500, and finally 1,000 allows you to maintain a big vision—like a computer in every home or organizing the world’s information—while adopting a more measured approach to achieving it.

Over the last 24 months, the software industry has been in a recession. This period has necessitated numerous reforecasts in our businesses. A reforecast involves reassessing your plan partway through the year upon realizing the original goals are unattainable—not just challenging, but so far from achievable that a new plan for the remainder of the year is required, aiming for better alignment, efforts, and outcomes.

During this software recession, the need to conduct several reforecasts each year has underscored to me that setting unrealistic goals can actually harm startup morale. Goals should be challenging yet achievable. With good faith, effort, and smart, diligent work, they should be within reach. However, if goals are unrealistic and the team’s efforts fall significantly short, this can have detrimental effects.

As an entrepreneur, it’s crucial to find that balance for your organization—setting ambitious goals without making them so lofty that they become unrealistic and harm morale. It’s a delicate balance with no straightforward solution. Entrepreneurs would do well to find their own approach to this and be intentional about how they lead their organizations in respect to goal setting.

Yesterday, I met with an entrepreneur, and we discussed a variety of ideas related to building community. Late in the conversation, he shared one of his favorite mental models and asked for one I liked. After thinking for a second, I knew my go-to: simply distilling the financial model or business down to its most basic format. The idea behind this exercise is that if the financial model doesn’t work at the most basic level, it’s unlikely to work at a more complex level. Conversely, if you can’t break it down into a simple form, understanding it at a complex level becomes challenging. If it’s so complicated that you can’t understand it or help others understand it, the chance of success significantly decreases.

Let’s look at a couple of examples. In the first example, with software as a service, it’s easy to describe what the product does, whom it serves, and how it will work in the real world. Even with all that, if it’s not clear that our business model is to sign up 1,000 customers, who will pay us $10,000/year, and we plan to sign up this many more customers over the years, and we believe that with the gross margins and everything else, it will be a viable, if not great, business, then all the other pieces don’t matter. Of course, businesses are much more complex than that, but at a simple level, what is the financial model?

Look at a second example. If you talk about something like co-working space, it’s a similar pitch. How do you distill the business model as simply as possible? We’re going to have 200 desks and we’ll charge $350/month per desk surrounded by incredible community and services. This will provide the scale and revenue to offer an amazing experience to our members. 

When thinking about different businesses and exploring entrepreneurial opportunities, my go-to is a simple distillation of the financial model in a way that can be described quickly and easily out loud. Start simple before adding complexity.

Last week, I caught up with an entrepreneur, discussing how things were going with his startup. We delved into the usual topics, sharing what we’ve learned over the years. A question arose: “What should you do to prepare for selling your business in the next couple of years?” After pondering, I shared a pivotal course of events before a highly successful exit.

The eventual acquirer, a holding company with a diverse tech portfolio, had one of its companies become our customer. Their positive experience led to a referral to another portfolio company. Gradually, several more became customers. Recognizing the value, the holding company decided to integrate our solution into their playbook for all subsidiaries. As we continued to excel with more portfolio companies, we became the obvious choice for acquisition. We were a) a preferred vendor, b) already integrated into multiple subsidiaries, and c) standardized in their operations. This made the acquisition a seamless, win-win situation: they knew exactly what they were getting and how to leverage it for future growth.

While there’s no surefire strategy, having your software adopted as a standard by a business or strategic partner can create a strong acquisition opportunity. My advice for entrepreneurs is to look for ways to deeply embed their products or solutions in a manner that’s more than a standard customer/vendor relationship. This not only strengthens your market presence but also opens doors to a potential acquisition in the future.

Last week, I was catching up with an entrepreneur, and he shared with me that he kept receiving the same advice over and over again. However, after digging deeper and analyzing it from a first-principles perspective, it just didn’t make sense. We talked more and tried to delve deeper into it, and it became clear that there was a difference of opinion between what the entrepreneur believed and the commonly accepted advice he was receiving.

This reminded me of the early days of Pardot when our business was two years old. Things were growing fast; we had over $1 million in recurring revenue, and everyone kept telling us to go raise venture capital. Not knowing any better, we talked to investors in Atlanta, Washington D.C., Boston, and all over California in an effort to raise money. We had dozens of meetings, were on numerous flights around the country, and in the end, we received two offers. When we analyzed the numbers and plugged them into some spreadsheets, we realized it didn’t make sense to raise money. We were growing fast, had great gross margins, and especially with the valuations at the time, it just didn’t add up. We were better off growing organically at the rates we were and controlling our own destiny.

Once an entrepreneur raises money, it’s almost impossible to unwind it. But for entrepreneurs who haven’t raised money or have only raised friends-and-family money, the ability to control one’s own destiny is incredibly valuable. Ultimately, we chose not to raise money for Pardot. We kept growing the business and had a great exit three years later.

My advice to entrepreneurs, when they receive repeated advice on more material topics, is to question it. Peel back the layers, understand who is saying it and why they’re saying it. Do they have an agenda? What’s their personal experience been? Work hard to see if that aligns with the goals and dreams of your own company. While most of the time, advice will likely resonate and be applicable, there’s a chance that serious recommendations, when critically examined, may not be good advice for your own business. Always question the repeated advice from experts.

Late in 2012, we sold Pardot to ExactTarget and it was subsequently acquired by Salesforce.com. Only in January, the year before, we were actually in discussions to sell the business to HubSpot. At the time, HubSpot was focused on content marketing, search engine optimization, blogging, and analytics. They realized that marketing automation and using the web for email marketing, lead generation, and lead nurturing were the next big opportunities.

So, they decided to evaluate potential acquisitions in the market. For us at Pardot, we had built a strong micro brand. We had a number of customers who loved us, were growing rapidly, and had the start of a platform. In late 2010, we received an inbound email from HubSpot asking if we were available to discuss partnerships. We got excited and thought about partnering with the content marketing giant that we admired.

After some back-and-forth it was clear that a “partnership” wasn’t the intention, so we scheduled an on-site meeting for Adam and me to fly up to Boston in January 2011. Of course, we prepared extensively for the meeting thinking through potential questions, built a new slide deck, and headed north. We arrived in Boston with plans for a full day of meetings followed by dinner and a return flight the next day.

During our visit, we had the opportunity to meet with Brian and Dharmesh, the founders of HubSpot, their executive team, and David Skok, a prominent VC on their board. We spent hours discussing the business, the market opportunity, and shared all our metrics. We talked about the potential to work together and had an incredible working session with their team.

After our meetings, during a small founders-only dinner, we had the chance to talk with Brian and Dharmesh. We discussed why they started HubSpot, their goals, what had worked well, what hadn’t, and their startup philosophies. It was a unique experience, as there are only a handful of times in a career where you get to sit down with like-minded entrepreneurs who so closely share your vision.

By the end of dinner, Brian and Dharmesh floated an acquisition offer. The offer was roughly $10 million in cash and $20 million in HubSpot stock. At that time, HubSpot had just raised financing from Sequoia Capital, valuing the company around $300 million. Our annual recurring revenue at Pardot was about $5 million and growing 100% year over year.

Adam and I considered the offer carefully. We wanted more cash upfront, given the uncertainty of illiquid stock in another private company. We went back and forth, suggesting an increase in the cash component. If not, we were willing to sit tight and continue growing our business.

Ultimately, HubSpot chose to go its own way and continued its incredible growth. Today, HubSpot is a publicly traded company valued at close to $30 billion. Meanwhile, we at Pardot stayed the course and kept building our company.

About 18 months later, we decided to sell the business to ExactTarget, which was quickly acquired by Salesforce.com. Thanks to Salesforce.com’s efforts, Pardot became one of the most widely used B2B marketing applications on the Internet.

Looking back, it’s always fun to reminisce about what could have been. It’s enjoyable to think about the experiences along the journey. The opportunity to spend time with Brian, Dharmesh, and their team, and consider what it would have been like to merge our companies, remains a fond memory.

As an entrepreneur, it’s essential not to get too caught up in the potential exit. The focus should be on enjoying the journey and continuing to build a great business. In 2011, we had one of our first serious opportunities to consider selling, but we chose to stay the course, and were better off for it.