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Learn to scale your startup with a roadmap to the all-important part of the business lifecycle between launch and IPO In The Builder's Guide to the Tech Galaxy: 99 Practices to Scale Startups into Unicorn Companies, a team of accomplished investors, entrepreneurs, and marketers deliver a practical collection of concrete strategies for scaling a small startup into a lean and formidable tech competitor. By focusing on the four key building blocks of a successful company - alignment, team, functional excellence, and capital--this book distills the wisdom found in countless books, podcasts, and the authors' own extensive experience into a compact and accessible blueprint for success and growth. In the book, you'll find: * Organizational charts, sample objectives and key results (OKRs), as well as guidance for divisions including technology and product management, marketing, sales, people, and service operations * Tools and benchmarks for strategically aligning your company's divisions with one another, and with your organization's "North Star" * Templates and tips to attract and retain a triple-A team with the right scale-up mindset * Checklists to help you attract growth capital and negotiate term sheets Perfect for companies with two, ten, or one hundred employees, The Builder's Guide to the Tech Galaxy belongs on the bookshelves of founders, managers, entrepreneurs, and other business leaders exploring innovative and proven ways to scale their enterprise to new heights.
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Cover
Title Page
Copyright
Dedication
The Builder's Guide Partners
Forewords
Building the Third Way
Strengthening Europe's Position in Times of Digital Transformation
Scale-ups as the Future of Our Economy
Partnerships as a Driving Force for a Strong European Tech Ecosystem
Boosting the Likelihood of More European Unicorns
Forewords
Preparing Europe for maturity
Introduction
NORTH STAR
1 Six Dimensions of Direction
Purpose beyond profit
Practice 1: A company that makes the planet a better place
Company values
Practice 2: Guiding principles for aligning the crew
Business ambition
Practice 3: Business outcomes to aspire to in the long run
North Star metric
Practice 4: The PRIMARY metric that matters NOW
Value proposition
Practice 5: Unmet customer needs that you solve uniquely well
OKRs
Practice 6: Making direction operational
Notes
2 Environmental, Social and Governance Criteria as Drivers of Business Success
Environmental
Practice 7: Measuring, reducing and offsetting your environmental footprint with clear responsibilities and targets
Social
Practice 8: Building a culture that embraces diversity and inclusion
Governance
Practice 9: Establishing internal governance that facilitates growth, compliance, and employee representation
Notes
PEOPLE & MINDSET
3 People (HR) Excellence
OKRs
Practice 10: Establishing the right people OKRs
Organizational chart and roles
Practice 11: Defining the roles & responsibilities for a people function
Practice 12: Scaling the right people roles at the right time
Recruiting & candidate experience
Practice 13: Building the candidate sourcing muscle
Practice 14: Evaluating candidates in record time while creating an outstanding candidate experience
Practice 15: Boosting the offer acceptance rates
Organizational development
Practice 16: Establishing a strong job architecture with clear levels, career paths and tracks
Practice 17: Putting fair appraisal and promotion processes in place
Employee experience
Practice 18: Driving employee happiness by enabling meaning, mastery, psychological safety, autonomy and community
Employee stock option programs
Practice 19: Building the right employee stock option program
Notes
4 Scale-Up Mindset
Obsession with customer experience
Practice 20: Improving key customer journey experiences as a top priority for leaders
Impossible is nothing
Practice 21: Setting impossible-is-nothing goals by thinking “and,” not “or”
Learn-it-all beats know-it-all
Practice 22: Embracing learning cycles by establishing psychological safety and an idea meritocracy
Autonomy to act
Practice 23: Empowering cross-functional teams to make decisions rapidly & independently
Notes
FUNCTIONAL EXCELLENCE IN SCALE-UPS
5 Product Management Excellence
OKRs
Practice 24: Establishing the right product OKRs
Organizational chart and roles
Practice 25: Defining the roles & responsibilities for a product function
Practice 26: Scaling the right product roles at the right time
Product vision & direction
Practice 27: Developing a clear product vision and deriving your roadmap from it
Practice 28: Focusing your product organization on outcomes, not just designing a “feature factory”
Practice 29: Investing in the core product while pushing adjacent opportunities and venture bets
Product development process
Practice 30: Creating a crystal-clear picture of your target customers
Practice 31: Aligning your product value proposition with the underserved needs of your customers
Practice 32: Developing your roadmap as a communication tool with the right prioritization logic
Product management basics
Practice 33: Getting the brand and product design right early on
Practice 34: Building a thriving user research engine quickly
Practice 35: Implementing best-in-class product management tools
Notes
6 Technology Excellence
Practice 36: Establishing the right technology OKRs
Organzational charts and roles
Practice 37: Defining the roles & responsibilities for a technology function
Practice 38: Scaling the right technology roles at the right time
Your way of agile development
Practice 39: Creating your own version of agile development
Development operations (DevOps)
Practice 40: Establishing lean software development principles
Practice 41: Establishing technical DevOps practices for continuous delivery
Practice 42: Enabling a team of doers through the right DevOps culture
Scalable architecture
Practice 43: Creating a “good enough” software architecture that can evolve over time
Practice 44: Establishing a resilient cloud architecture
Information security
Practice 45: Mitigating the top 10 web applications’ security risks
Practice 46: Integrating the key information security practices into design, development and deployment early on
Data management
Practice 47: Democratizing data with self-service data tools while building a scalable data architecture
Notes
7 B2C Marketing Excellence
OKRs
Practice 48: Establishing the right marketing OKRs
Organizational chart and roles
Practice 49: Defining the roles & responsibilities for a marketing function
Practice 50: Scaling the right marketing roles at the right time
Marketing basics
Practice 51: Establishing a single source of truth for key marketing and growth KPIs
Practice 52: Bridging the gap between marketing quants and creative brains
Practice 53: Equipping your teams with the right marketing and growth tools
Practice 54: Finding your product-channel fit quickly and maintaining it
Organic and viral marketing
Practice 55: Leveraging the power of organic conversions to drive down customer acquisition costs
Practice 56: Getting your PR machine up with trust
Paid online marketing
Practice 57: Harnessing the six key hacks for buying online ads efficiently
Offline marketing
Practice 58: Leveraging the power of offline marketing in the digital age
Monetization
Practice 59: Nailing your monetization strategy to drive revenue
Growth hacking
Practice 60: Establishing cross-functional growth hacking teams for activation, retention and monetization
Notes
8 B2B Sales Excellence
OKRs
Practice 61: Establishing the right sales OKRs
Organizational chart and roles
Practice 62: Defining the roles & responsibilities for a sales function
Practice 63: Scaling the right sales roles at the right time
Sales playing field
Practice 64: Exploiting the right niches
Sales basics
Practice 65: Creating a commission plan that fits your growth stage
Practice 66: Enabling your sales teams with the right sales tech stack
Practice 67: Attracting and hiring a world-class sales team
Practice 68: Training and coaching a “challenger” sales team
Practice 69: Getting your basic sales pitch in place
Qualifying and closing leads
Practice 70: Becoming rigorous with lead qualifications
Practice 71: Enabling your sales teams to close leads
Retaining and “farming” customers
Practice 72: Measuring customer health to predict and prevent customer churn
Notes
9 Service Operations Excellence
OKRs
Practice 73: Establishing the right service operations OKRs
Let's look at each objective in more detail.
Organizational chart and roles
Practice 74: Defining the roles & responsibilities for a service operations function
Practice 75: Scaling the right service operations roles at the right time
Preventing contacts
Practice 76: Preventing unnecessary contacts in the first place
Deflecting contacts
Practice 77: Deflecting transactional contacts to an automated self-help
Resolving contacts
Practice 78: Investing in a hybrid operating model and specialization to ensure availability at all times
Practice 79: Resolving customer inquiries with autonomous teams and close-knit performance management
Practice 80: Investing in Lean Six Sigma processes while giving teams enough room to create moments of service delight
Practice 81: Investing in a loosely coupled, yet highly integrated suite of service tools
Practice 82: Steering external partners to jointly drive business goals
Practice 83: Boosting back-office throughput with performance management, automation and centers of excellence
Practice 84: Investing in resilience to quickly recover from demand and supply shocks
Notes
10 Supply Chain Excellence
OKRs
Practice 85: Establishing the right supply chain OKRs
Organizational chart and roles
Practice 86: Defining the roles & responsibilities for a supply chain operations function
Practice 87: Scaling the right supply chain roles at the right time
Supply Chain
Practice 88: Hiring supply chain specialists early on
Practice 89: Investing in supply chain resilience to quickly recover from demand and supply shocks
Practice 90: Boosting partner and supplier relationships with smart and scalable contracts
Practice 91: Becoming proficient in supply chain operational excellence and maintaining a hands-on attitude
Notes
GROWTH CAPITAL
11 Six Questions Every Growth Stage Investor Asks
Future vision
Practice 92: Do you capitalize on the next inflection point?
Rockstar team
Practice 93: Have you assembled a great team that can scale?
Business model
Practice 94: Does your company's performance to date show a path toward becoming profitable in the long term?
Venture-scale market
Practice 95: Can you achieve USD 100 million in annual revenue within 7-10 years?
Category-leading product
Practice 96: Have you created a unique customer value proposition which is 10x better than any other in that market?
Fund fit
Practice 97: Does your company fit the investor's fund in terms of industry, size, and funding needs?
Notes
12 Fifteen Key Issues in Growth Term Sheets
Negotiating guidelines
Practice 98: Following major guidelines for term sheet negotiations
Key term sheet issues
Practice 99: Negotiating the 15 most important term sheet issues during a growth round
Notes
Contact Us
End User License Agreement
Introduction
Figure 1: The Four Building Blocks to Organizational Scale
Figure 2: The Builder's Guide Focuses Primarily on Early and Late Growth Sta...
Chapter 1
Figure 3: Dimensions of Direction (with example Airbnb)
Figure 4: Longlist of Potential Values
Figure 5: North Star Metric
Figure 6: Our Formula for a Value Proposition (example of Shopify)
Figure 7: Evernote's “Accomplish more with better notes”
Figure 8: Unmet Needs of B2B Startup Customers
Figure 9: Unmet Needs of B2C Startup Customers
Chapter 2
Figure 10: The ESG Universe for Builders
Figure 11: The Deloitte Diversity and Inclusion Maturity Model
Chapter 3
Figure 12: People-led Growth Formula
Figure 13: Typical Annual Objectives and Key Results for a People Function O...
Figure 14: Typical Candidate Funnel (for Tech Leads in Central Europe)
Figure 15: Possible Organizational Chart – People Function (FinTech)
Figure 16: Typical Dimensions of a Job Description
Figure 17: Building a Unified Leveling System
Figure 18: Example of a Dual Track for the Engineering Job Family
Figure 19: Employee Performance and Growth Trajectory
Chapter 4
Figure 20: Selection of Customer Journeys at a B2C FinTech
Chapter 5
Figure 21: Product-led Growth Formula
Figure 22: Product OKRs: FinTech
Figure 23: A Typical Cross-functional Product Team Consists of a Core and an...
Figure 24: Product Teams Can Be “Stacked” in Three Layers (B2C)
Figures 25 & 26: Organizational Chart: Product Function (FinTech) and Organi...
Figure 27: Product & Tech Teams Share Knowledge in “Collectives”
Figure 28: The Product Vision Board
Figure 29: Customer Segmentation: Street Snobs
Figure 30: The Kano Model
Figure 31: Example of a FinTech Value Proposition
Figure 32: Roadmap Structure – FinTech Example
Figure 33: Roadmap Structure – iOS Car App Example
Figure 34: Slack Platform Roadmap for Developers
Figure 35: Design Maturity Level
Figure 36: Five Atomic Design Level
Figure 37: Overview of User Research Methods
Chapter 6
Figure 38: Technology-led Growth Formula
Figure 39: Technology OKRs – FinTech
Figure 40: Page Load Time and Business Performance
Figure 41: Uptime Percentage
Figure 42: Security Risks
Figure 43: Typical Security Components a Scale-up Needs Source: State of Cyb...
Figure 44: Organization Chart: Technology Function
Figure 45: Eric Ries’ Build-Measure-Learn Feedback Loop
Figure 46: Agile Practices
Figure 47: Productivity Can Be Measured with a Burn-down Chart
Figure 48: Example of a Kanban Board
Figure 49: Productivity Can Go Down with More Developers Onboarded
Figure 50: Elements of Development Operations
Figure 51: Microservice Architecture
Figure 52: Top 10 Web Application Security Risks
Figure 53: NIST Cyber Security Framework from US National Institute of Stand...
Figure 54: Modern Data Architecture
Chapter 7
Figure 55: Marketing-led Growth Formula
Figure 56: Marketing & Growth OKRs – FinTech
Figure 57: Marketing & Growth OKRs: eCommerce
Figure 58: Typical FinTech Funnel B2C
Figure 59: Typical eCommerce Funnel (B2C)
Figure 60: Organizational Chart: Marketing
Figure 61: Marketing Channel Overview
Figure 62: The Content Pyramid
Figure 63: Distribution of Customers' Willingness to Pay
Figure 64: Pinterest Copy Optimization
Chapter 8
Figure 65: Sales-led Growth Formula
Figure 66: Sales OKRs: SaaS Company
Figure 67: Typical SaaS B2B Sales Funnel (“Allbound”)
Figure 68: Organizational Blueprint of a Typical B2B Sales Division
Figure 69: Six Dimensions of Predictable Revenue
Figure 70: Sales Technology Blueprint
Figure 71: MEDDIC and GPCT
Chapter 9
Figure 72: Service-led Growth Formula
Figure 73: Service Operations OKRs: FinTech
Figure 74: Organizational Chart: Service Operations
Figure 75: Service Operations Practices
Figure 76: Service Tools Overview
Chapter 10
Figure 77: Supply Chain–led Growth Formula
Figure 78: Supply Chain Operations OKRs: eCommerce
Figure 79: Organizational Chart – Supply Chain Operations
Chapter 11
Figure 80: Six Growth Stage Investment Criteria
Figure 81: Market assessments often refer to TAM, SAM & SOM
Chapter 12
Figure 82: Growth Term Sheet Negotiation Issues
Cover Page
Title Page
Copyright
Dedication
The Builder's Guide Partners
Forewords
Forewords
Introduction
Table of Contents
Begin Reading
Contact Us
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Martin Schilling, Thomas Klugkist
This edition first published 2022.
Copyright © 2022 by Martin Schilling and Thomas Klugkist.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.
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Library of Congress Cataloging-in-Publication Data
Names: Schilling, Martin, author. | Klugkist, Thomas, author.
Title: The builder’s guide to the tech galaxy : 99 practices to scale startups into unicorn companies / Martin Schilling, Thomas Klugkist.
Description: Hoboken, NJ : John Wiley & Sons, Inc., 2022. | Includes bibliographical references.
Identifiers: LCCN 2021062935 (print) | LCCN 2021062936 (ebook) | ISBN 9781119890423 (cloth) | ISBN 9781119892069 (adobe pdf) | ISBN 9781119891598 (epub)
Subjects: LCSH: High-technology industries—Management. | Internet industry—Management. | New business enterprises—Management. | Small business—Growth.
Classification: LCC HD62.37 .S35 2022 (print) | LCC HD62.37 (ebook) | DDC 658—dc23/eng/20220114
LC record available at https://lccn.loc.gov/2021062935
LC ebook record available at https://lccn.loc.gov/2021062936
Cover Design: Wiley
Cover Image: © AlexanderTrou/Shutterstock (modified by Wiley)
For Susanne and Mercedesand the many entrepreneurs who take personal risks every day,create millions of new jobs and are working on technological solutions to tackle the most pressing issues of our time.
We would like to thank the following partners for their invaluable support and help. Without them taking the time to share their knowledge and work on this book, The Builder's Guide would not have been possible.
Partners of The Builder's Guide
Chapter co-authors
Johannes Lenhard, Hannah Leach –
Environmental, Social and Governance (ESG)
Constanze Buchheim, Manjuri Sinha, Chris Bell –
People (HR) Excellence
Johnny Quach, Sven Grajetzki –
Product Management Excellence
Dr. Christoph Richter –
Technology Excellence
Kelly Ford –
B2C Marketing Excellence
Karan Korpal Sharma –
B2B Sales Excellence
Dr. Nikolas Glusac –
Service Operations Excellence
Matthias Wilrich –
Supply Chain Excellence
Vanessa Pinter –
Finding Growth Capital
Experts
Oliver Ahlberg Patrick Alberts Michael Anspach Jan Bartels Chris Bell Gavin Bell Neil Berrie Gilles BianRosa Constanze Buchheim Ramon Abalo Costa Filip Dames Dr. Daniel Holle Gero Decker Matt Dixon Tamer El-Hawari Jan Engelhardt Kelly Ford Florian Furthmüller Eva Glanzer Sven Grajetzki Edward Hartman Johannis Hatt Florian Heinemann Christian Hertlein Chad Jennings Stephanie Kaiser Audrys Kažukauskas
Jane Kennedy Nate Kupp Robert Lacher Samantha Lee-Kroll James Lennon Joshua Levy Oliver Löffler Andriy Lysyuk Stephan Mansfield Christian Miele Léa Miggiano Paul Murphy Christian Nagel Johann Jakob Napp Peter Niederhauser Joern Nikolay Ciaràn O'Leary Christian Osterland Pierre Dominique Ostrowski Anna Ott Christian Poensgen Marc Pohl Johnny Quach Ramzi Rafih Madhavan Ramanujam Scott Raymond Christian Rebernik
Lauriane Requena Marcus Rex Dr. Wolf Richter Christoph Richter Jeremy Richter Mark Roberge Martin Rode Lars Rysell Mika Salmi Joachim Schreiner Stephan Schulze Dominik Schwarz Thilo Semmelbauer Birte Sewing Mahdi Shariff Bogdan Shestakov Alexander Shevchenko Eusden Shing Manjuri Sinha Daniel Stammler Jacco van der Kooij Frauke von Polier Christian von Trotha Fabian Wesner Felix Würtenberger Nils Wolfram
The Builder's Guide Team
Dünya Baradari
Lead Analyst, Editor
Lucero Barrueto
Lead Analyst
Ferdinand Dabitz
Lead Analyst
Nadim Hammoud
Lead Analyst & Designer
Harriatte Tran
Designer
Tobias August
Chief Editor
Helene Jung
Lead Analyst
Isabel Kovacevic
Lead Designer
Hugo Schlesinger
Lead Analyst
Johannes Lenhard
Academic Advisor
Grant Price
Lead Editor
Lyndsey Walsh
Lead Editor
Akeli Mieland
Editor
John Mulford
Analyst, Editor
Adrian Lehmann
Video Editor
Nina Gründing
Editor
For more details on our contributors and additional resources visit www.buildersguide.org.
Europe is in danger of becoming the biggest open-air museum in the world. When it comes to the digitization race, our record is truly abysmal. Unicorn companies are rare in general, but the European variety is scarcer than the rest. While Europe is now home to an encouraging 33% of all VC-backed startups, only 14% of unicorns have found their start on this continent. Another damning figure is that only 2 of the 20 most valuable unicorn companies in the world are European. In short, we fail to scale. Everyone needs to do better: the founders, the financiers and also the state, in which I mean governments, legislation and administrations.
This is not a minor matter. It is an existential threat to our economy, our society and our way of life. At the time of writing, only Apple, the largest of the five FAANG companies (Facebook, Amazon, Netflix and Alphabet (Google)), is worth as much as all 90 companies in the DAX and MDAX combined. Tech hypergrowth has made history in the liberal United States. Meanwhile, China is further accelerating its state-controlled technological progress. We are in urgent need of a “third way”: a European strategy that can be pursued independently from these dominant players. Otherwise, Europe will undoubtedly become less and less relevant economically and politically. We simply will not get a second chance to regain our digital and political sovereignty – something that the United States, our partner on the global stage, would much prefer for us to have, too.
To establish this third way, we as politicians have a crucial duty to improve European regulatory frameworks in a number of ways. Here, the dominance of the tech giants is the single most important issue we need to tackle, and we need to do this swiftly and rigorously. Google is abusing smaller businesses that are dependent on it by acting as a gatekeeper to online services while taking the lion's share of their profits. Amazon is progressively turning into a “customs office,” which no retailer can avoid. Lastly, WhatsApp is now the de facto communication tool for people in the digital era, with few alternatives available.
To break up these monopolistic situations, we need to regain control over our most valuable resource: our data. We need to put regulation in place that makes market-dominating enterprises like Google and Amazon share the data they collect from European users with all competitors to create a level playing field. Furthermore, we are in need of regulations that facilitate genuine connectivity when using messenger services like WhatsApp (i.e., people should be able to communicate with users from other platforms like Threema or Signal with no issues). This competition will be of benefit to both users and, perhaps more importantly, to all competitors.
However, as we currently have no tech giants in Europe imposing their own technological standards and regulations regarding connectivity, interoperability will only be effective if Europe starts setting its own digital standards. We should mandate organizations like CEN/Ceneleg and ETSI to develop shared open standards. This will pave the way for more interoperability and lead to a greater sense of efficiency with lower costs for government agencies and companies. The result: a keen competitive advantage for the European tech industry on the global stage.
Moreover, the state itself needs to get better and faster (and better faster). Without digital and modern public administrative processes, the private markets will simply not be able to flourish. Additionally, we need more capital. Europe is lacking financial sovereignty, especially in terms of later-stage venture capital and SPACs. We should be creating more incentives by building up a state pension fund along the lines of Norway or Sweden, by exempting VC funds from value-added tax, pushing the exit prospects of startups through equity investments by the European Investment Bank and publicly promoting startup funds for broad, low-risk participation by all employees.
Finally, we need more expertise. Once European governments have established a functional framework, the playing field will be open for ambitious startup builders who are constantly faced with managing the unknown in a dynamic and complex tech ecosystem. This is where The Builder's Guide comes in. The expertise needed to transform a small startup with a team of fewer than a hundred people into a scale-up company with more than a thousand employees is both rare and intangible. You cannot “create” this knowledge through legislation or policy, and there is a minimal chance of encountering these skills and insights in an academic setting. The audacious goal of The Builder's Guide is to gather the secrets of company-building, structure them in a digestible format and make them accessible to a wide audience.
In Europe, we need more projects like The Builder's Guide: created by builders for builders, enriched by the collective experiences of seasoned scale-up leaders and equipped with the potential to accelerate Europe's efforts to catch up with the United States and China. I hope and believe that the future founders of the next “European Facebook” will be inspired and guided by the many actionable and well-grounded insights offered by this handbook. When this happens, The Builder's Guide will have succeeded in its ambitious mission.
Thomas Heilmann, Member of the German Parliament
Modern technology has changed our lives in countless ways and it continues to revolutionize how we communicate, work and live. It has also had a significant impact on education, health and wellbeing, as well as on our productivity.
In line with this trend, the European technology sector offers attractive investment opportunities with promising valuations and excellent growth prospects for many companies. However, as the European ecosystem matures, it has become even clearer that a robust European support system to promote, challenge and foster local innovators from their very early stages to the public markets is still missing. And the technology that we use in our daily lives is missing European values and ideas.
If Europe wants to fund a thriving tech scene and foster digital sovereignty, it needs a thriving financial scene as well. Currently, European tech companies do not have the same access to capital as companies in the United States or Asia. There is a considerable need for action in Europe to provide young innovative companies – especially in the growth phase – with the necessary capital. Capital ultimately decides whether young start-ups become unicorns and global pioneers or not.
We have founded Lakestar to contribute to solving this issue: to identify, fund and grow European technology companies that are capable of reshaping our modern life. By being deeply embedded in Europe's growth-stage and pre-IPO ecosystem, we know what is needed. As a VC, you have to support European technology entrepreneurs along the entire growth journey. On the one hand, you have to offer both angel investing and strategic seed investments in order to nurture the technology ecosystem from the very early stages. On the other hand, you have to provide an efficient route to transition from private to public markets – like how technology-focused SPACs (Special Purpose Acquisition Companies) can. However, the broadened investment scope provides for not only entrepreneurs. Investors also benefit from working with a partner who covers the entire commercial lifecycle and who has the latest innovation, capital markets development and exit environment at the front of their mind.
I am convinced that Europe needs to create its own digital sovereignty to reduce dependency on foreign funds and to strengthen the control over its tech innovation. Listings via SPACs can help us close the gaps that we in Europe traditionally have when it comes to equipping our companies with sufficient capital. The biggest needs involve companies that require 200 to 300 million euros in capital to continue growing. Therefore, we aim to invest in European companies that otherwise would have needed to raise capital from US markets. This is the only way we can prevent a structural sell-off of European companies to the United States. We want to play our part in making this happen.
Our aim is to invest in companies to help develop them into European tech champions that are capable of creating European independence. The Builder's Guide makes an indispensable contribution toward strengthening Europe's position in the long term during these times of digital transformation.
Dr. Klaus Hommels, CEO of Lakestar
Startups and scale-ups are the keys to our future economy. They create new jobs, pave the way for sustainable prosperity and ensure our technological sovereignty. They are also of critical importance if we in Europe are to meet the major global challenges of the future and make the world a healthy, more prosperous place for everyone.
For that to happen, startup founders themselves need a vibrant startup ecosystem. In particular, we need to give startups in Europe the tools with which to better attract world-class talent. It is also essential to nurture existing skills within our startup ecosystem. Furthermore, talent has to be fostered at all ages and for all genders, without discrimination.
We must eliminate the talent bottleneck, or we risk squandering the incredible momentum that European tech companies have built up in recent years. The next Google, Amazon, Facebook or Netflix could very well come from Europe, but for that to happen, we need to take the regulation for employee ownership to the next level – amongst other things.
At the German Startups Association, our mission is to stand by founders and startup builders, to pass on knowledge critical to startups and to make Europe a continent of openness and innovation. The Builder's Guide is poised to play a key role in this, and the knowledge compiled in this manual will give invaluable support to startup entrepreneurs as they scale their ventures and build talented workforces.
Above all, The Builder's Guide answers the essential questions: How can a startup set its direction? How can employers attract the best possible team? How can startup leaders build functional excellence in key departments? What is the best way to acquire growth capital?
The answers to these questions matter – both now and in the future. I am delighted to see these core lessons written down. I am sure The Builder's Guide will inspire many future unicorn builders to achieve success.
Christian Miele, President of the German Startups Association
The European startup ecosystem is quietly emerging from the dominant shadows cast by its counterparts from both the East and West and shows a promise of maturity and unicorn potential. Investment in European startups tracked at $21.4 billion in the first quarter of 2021, with funding at every stage showing an uptick.
In truth, startup ecosystems are – in part – defined by the size of their unicorn herds. And though we're growing, we are drastically falling short. While Europe generates 36% of all formally funded startups, it creates just 14% of the world's unicorns. The question is: Where is this disproportion coming from?
While the size and diversity of our region engenders a breeding ground for startups, it is also our Achilles' heel. With no single epicenter to act as a beacon of guidance, our startups often lose their way, their drive and the fight. That's why there's a clear and urgent call right now for all stakeholders who can lend a hand to nurture growth and help unite the European community.
The Builder's Guide is an important step forward in developing this center of experiences and mentorship while providing guidance that will help founders shorten the learning curves and ensure the region can buck the challenges of disparity seen across the global startup ecosystem.
The vision of building a strong European ecosystem is what sits at the heart of what we do at Ciklum. JustEat and eToro are just two examples of fast-growth startups that we have supported in their mission to redefine the way things are done and place a permanent mark on the future landscape for the better. I remember these and many other companies having only a dozen employees when Ciklum joined them on their journey, and we remained with them by helping them grow from those early stages right through to unicorn status.
I envisage a market where more founders from within the European ecosystem will aim and successfully grow companies with the same international dominance of their American West Coast counterparts, building meaningful multi-product platform businesses that stand shoulder to shoulder with the likes of Google, Amazon, Facebook, Tencent, etc.
What I've learned from working with some of the most inspirational and successful European startup leaders, as well as my own unconventional journey, is the importance of partnership. I've also seen how vital it is to forge your own path – think the Gordian knot – after all, how can you truly innovate if you are treading well-worn paths?
Part of their innovation and success comes down to finding the right talent. There will be bumps in the road, and your response rate will be determined by the resilience and strength of your team – whether that's internal or outsourced, leading product engineering practices or ongoing product discovery. It's about building capabilities that can continuously evolve in a perpetually shifting marketplace. You don't want to be locked into a technology that in two years' time will leave you stuck in the past.
Look at eToro, they democratized traditionally privileged trading opportunities, or JustEat, which has brought regional restaurant-quality food to the masses in times of lockdown. They forged their own paths, partnered with the right people to leverage their potential and scale up and lastly, never stood still.
Now, we are at the beginning of a bigger journey: one where a region-wide pool of leaders, thinkers, and operators will come together to establish a vital nerve center that will shape the next generation of unicorns. For those lucky enough to have businesses that have grown from Europe, there is a responsibility to take accountability and channel back this momentum into the system and pay it forward.
The Builder's Guide is going to be essential for founders who are on their journey of fast scale. The actionable takeaways that follow will help push the next generation of startups to meet global ambitions and establish a practice of perpetual discovery that will keep you at the front of the field today, and more crucially, tomorrow.
Kulraj Smagh, CEO at Ciklum
Launching an investor-funded startup has always been a business where the outlier is king. Even before they part with their cash, a venture capitalist knows there will likely be one or two overly successful outliers that will make the fund really successful. However, the majority of startups will either deliver an average performance or fail altogether. It is down to the billion-dollar companies, or “unicorns,” as they are known, to compensate for the losers. Unicorns are then linked to major economies of scale and all the economic factors – jobs, social impact, satellite startups, etc. – that go with it.
With this in mind, it comes as no surprise that investors are optimizing their activities to identify outlier candidates as accurately as possible. Then, once the outlier is in their cross-hairs, they ramp up their support. In other words, the market for startup financing is geared primarily toward increasing the return on investing in possible outlier companies and betting on their success, rather than getting behind average startup projects.
When it comes to startup creation, recent history shows that Europe has a strong footprint but fails to keep pace at all in creating unicorns or decacorns (companies with a ten-billion valuation). Any framework that could help to improve the ratio of startups to unicorns is essential to the scene.
The Builder's Guide makes this contribution by translating the experiences of successful founders into an in-depth, yet accessible framework. Other companies can use the lessons, KPIs and best practices in The Builder's Guide to increase their chances of securing the coveted unicorn status. While factors such as luck and timing cannot be controlled, all the operational elements of the journey can be – as The Builder's Guide makes abundantly clear. In an otherwise GAFA (Google, Apple, Facebook and Amazon)-dominated landscape, where software startups are enabling strong economies of scale like never before, this kind of tool kit is immensely important. This is especially true as entrepreneurship should not, as it is claimed in Europe, be about growth as an end in itself. Instead, it is about genuine value and sustainability. Increasing that likelihood is a core element of this book. In the best case, it will generate not only imitators but more discourse about the valuable content within.
Joel Kaczmarek, Managing Director at digital kompakt
We live in unprecedented times that are not only full of uncertainty but also tremendous opportunities and ground-breaking technological advancements. Covid-19 has accelerated digital transformation by years and highlighted even more the importance of technological innovation in our times. We are closer than ever to making space tourism a norm and drone deliveries ubiquitous. Political and regulatory measures are changing consumer behavior and pushing companies to tackle global warming with evermore sustainable solutions. As a society, we have better tools than ever before to connect, work and communicate virtually.
It is therefore an absolute privilege to be at the forefront of this innovation revolution as a venture capital investor, and in particular thrilling to be one in Europe. The European tech industry has been experiencing extraordinary growth. Over the past decade investments in start-ups have gone up 14.5 times reaching $116bn in 2021. There are more European Unicorns than ever before and growth stage investment has more than tripled in 2021 compared to the previous year. The “State of Europe's tech sector” report shows that returns from European venture capital investments have exceeded those from similar investments in the US over the past 25 years. We see an unprecedented number of American funds set up shop in Europe to participate in this upside.
The above comes as no surprise, Europe has some of the biggest talent pools with world class academic institutions creating the breeding ground for the next generation of entrepreneurs and inventors. Due to Europe's fragmented nature and diversity, entrepreneurs know how to navigate complex legal frameworks, cultural and linguistic subtleties across borders to grow their business. Europe is home to more software developers than the US and arguably the cost of employment is still lower than in the very competitive Silicon Valley.
As a former founder and early employee of a, now, unicorn, I have, however, noticed some opportunities for further improvement. Europe could adopt more entrepreneur-friendly laws. Investors are still largely conservative and more driven by metrics than vision, leaving the more ambitious founders with no other choice but to reach to US funds. Culturally, Europe is more reserved in its sales technique and could do with more confident marketing of its superstars to the outside world. The open nature of Silicon Valley Investors means that access to them seems easier there than in Europe.
At Redalpine, we have been witnessing the exhilarating metamorphosis of the European tech industry over the last 15+ years. As former entrepreneurs and founders ourselves, we take pride in learning from our more experienced counterparts on the West Coast whilst leveraging the many positives that the European start-up ecosystem has to offer and elevating our local talent. We focus our investments on future superstars early on, with Seed and Series-A stage deals to help them take the leap to the next level of growth and scale. With the change in the market dynamics we have also recognized the need to offer follow on and growth funding. This means that we can guide our portfolio companies through every stage of their development up until their exit.
We are at an inflection point in European tech and venture capital and it is essential that we, the investors, politicians and academics nurture the wonderful diversity and inventiveness that Europe has to offer. We are still able to impact and shape the industry into what we believe will make it the most competitive on the global tech scene. The Builder's Guide is a fantastic aid to all entrepreneurs, current and aspiring, to take their unique innovations to the next level and not be afraid to think big. Europe has all the necessary ingredients to stay competitive on the international stage and The Builder's Guide gives practical advice on how to make the most of this opportunity.
Aleksandra Laska, Partner Redalpine Venture Partners
On a cloudless summer night in 1971, a slightly drunk young man lay in a wheat field near Innsbruck, Austria, and looked up at the sky. Beside him lay a stolen copy of The Hitchhiker's Guide to Europe. While gazing at the stars, the man decided that someone should write a “Hitchhiker's Guide to the Galaxy” – a book offering answers to “life, the universe and everything.” The name of that man was Douglas Adams and his bestselling novel appeared in 1979. Today, it has been translated into over 30 languages.
The guide you have in your hands does not quite cover that scope. But for those with aspirations to scale a technology startup, it offers a starting point to build “unicorns” – companies that are valued with more than USD 1 billion and often employ thousands of people.
As the authors of The Builder's Guide to the Tech Galaxy, we have co-scaled a variety of technology startups over the years, including the FinTech N26, the Internet provider Planet Internet and the eCommerce enterprise Vivere, along with several cultural platforms and various ventures for McKinsey & Company. During our time working on these projects, we have realized one thing: when scaling a startup, teams had to reinvent the wheel over and over again. And while much has been written about how to find a product-market fit (such as The Lean Startup by Eric Ries) and business model innovation (like Reid Hofmann's Blitzscaling), there are few practical handbooks that focus on how to organizationally scale a tech startup.
Those who start looking for the knowledge to scale tech companies can quickly become lost in a maze of topics: setting the company's direction, building a talent acquisition machine, building a tech platform that is both reliable and enables developer productivity, firing up a marketing machine and establishing a functional supply chain. And those are just to name a few, the technical literature is full of such microcosms, from which one cannot find one’s way out at some point. Most startup leaders simply do not have the time to read over 100 books and 100 blogs and listen to 100 podcasts to find answers and shorten their learning curves.
That's why we did it instead.
Not only that, but we have also drawn on our 40 years of combined experience in building companies and interviewed close to 100 top scale-up experts from successful technology companies around the world, including Airbnb, Pinterest, N26, Zalando, Salesforce, SoundCloud, Wayfair, AWS, GetYourGuide, Klarna and HubSpot. Together, we have created The Builder's Guide to the Tech Galaxy, a handbook for startup employees, leaders and (future) founders, investors and anyone interested in scaling a technology company within months rather than years. It is the book we would have liked to have read when we were scaling up our companies. These insights are especially relevant for technology companies, including those focused on software as a service, eCommerce, FinTech and healthcare.
This book is a guide in the best sense of the word. It is not a collection of eternal truths and not the answer to life, the universe, and everything, but a starting point from which to explore your own path when building and scaling a technology company. The content is intended to serve primarily as inspiration when building scale-ups rather than a strict blueprint.
Who this guide is and is not for: we neither focus on how to create a startup, nor do we tackle taking a unicorn to an IPO. Instead, our focus is on the critical scale-up stage in the middle – upgrading a close-knit pirate ship team into a large spaceship crew. This transition is not about gradually turning a startup into an old-fashioned corporation. Instead, it is about keeping the typical start-up virtues, such as bias to action, ability to quickly change direction and a willingness to fail often and learn fast, while enriching them with the minimum level of structures and processes necessary to be able to scale fast. At the most essential level, there are four key elements to this:
A clear
North Star,
an
AAA Team
,
Functional Excellence
and
Growth Capital
.
The
North Star
is necessary for aligning the company's direction, which will in turn attract an
AAA team
.
Figure 1: The Four Building Blocks to Organizational Scale
The colleagues will build
Functional Excellence
in deeply specialized teams, which will help to attract
Growth Capital
by delivering exceptional business performance (see
Figure 1
).
Being able to draw on sufficient capital then paves the way for a scale-up to aim for even more ambitious goals.
We cover all four elements in this book in the following order:
First, there is the task of finding your North Star: the direction in which the company is heading, including purpose, business ambition, values, the company value proposition, the corresponding objectives and key results (
Chapter 1
). This is also the initial moment to establish sound Environmental, Social and Governance (“ESG”) practices, which will make an aspiring unicorn company stand out even more to both future employees and customers (
Chapter 2
).
Second, attracting an AAA team with the right mindset is key. To achieve this, a “people team” needs to build a talent acquisition machine and power a superior employee experience (
Chapter 3
). Instilling a mindset geared around customer obsession, “learn-it-all beats know-it-all” thinking and autonomy can help to build bridges between organizational silos before they arise (
Chapter 4
).
While in the early startup phase intelligent generalists are of essence, a scale-up needs experts who take each function on a journey of specialization. We highlight typical OKRs, organizational charts and key practices for product management (
Chapter 5
), technology (
Chapter 6
), business-to-consumer marketing (
Chapter 7
), business-to-business sales (
Chapter 8
), service operations with a focus on contact centers and back offices (
Chapter 9
) and supply chain operations (
Chapter 10
).
Finally, to acquire growth capital, it is essential to understand the six questions asked by investors at every growth stage (
Chapter 11
) as well as the 15 key issues in growth term sheet negotiations (
Chapter 12
).
While most of the content in this book will be helpful for early-stage startups, it is also particularly relevant for companies close to or at a product-market fit. These early-stage and late-stage growth companies usually have a workforce of between 50 and 1000 employees (see Figure 2).
Figure 2: The Builder's Guide Focuses Primarily on Early and Late Growth Stage Companies
There are two ways to use this book: The first is to read it from cover to cover, gain inspiration from its pages and get a feel for the links between the individual chapters and recurring structures. Ideally, the manual will then pave the way for a deeper understanding of the workings of various very different departments and instil the ability to take a broader overall view. The second is to read the book with an all-embracing or more pinpoint focus. We have designed each chapter to be self-contained (which is why information earlier in the book may appear again later on). This makes it easier to find specific knowledge on specific interests – be it marketing, software development, product management, services tools or another area.
A technical note: As proof that the sources are mostly available online, we have made all links “available” over the Internet Archive – at the cost of longer loading times. However, the direct links are easy to find in the current permalinks; in the majority of cases, the sources will still be available.
A technical note: As proof that the sources are mostly available online, we have “published” all links over the Internet Archive – at the cost of longer loading times. However, the direct links are easy to find in the current permalinks; in the majority of cases, the sources are still able to be accessed.
We firmly believe that startup builders are the inventors of the 21st century. They are the driving force behind the creation of millions of future jobs. They are securing the technological sovereignty of their nations, and they are already making lasting contributions to solving humankind's most pressing issues: mitigating the effects of climate change, securing energy and water supply resources, providing equal opportunities for all, ensuring sustained economic growth and safeguarding global health in the face of pandemics. Builders dare to venture into the unknown and explore new frontiers. They often reach for the spectacular, making the seemingly impossible possible and the seemingly unreal real. With this book, we want to encourage and inspire anyone who is considering starting a venture or joining a thriving startup. The business world does not always have to be a golden cage gilded by pension schemes, company cars and cushy contracts. When you take your seat on a startup rocket, it may sometimes feel like the G-force is too much to handle and that you are dealing with forces you cannot fully control. However, it is also a once-in-a-lifetime opportunity to fully tap into your hidden talents and potential as you journey to the stars.
On this journey, we ourselves are forever learning. In that spirit, we intend to update this book at regular intervals. If you have feedback or any suggestions about topics we should include in future versions, please contact us at [email protected] or [email protected].
Martin & Thomas
Key pitfalls for scale-up builders:
Relying too much on founder personalities and founding myths to set the direction.
Personal charisma and the conviction of the founding team are rarely enough to maintain momentum in the scale-up phase. The larger the team becomes, the more relevant the Six Dimensions of Direction are (the “North Star”).
Confusing vision and mission statements with the North Star.
Mission and vision statements at times will not only blur into each other but can be often overloaded with buzzwords. On their own, they are not enough to inspire employees and customers in a rapidly growing company (see Practice 4).
Honing in on business ambition but forgetting the purpose.
Many entrepreneurs and startup leaders are good at defining a business ambition like “Achieving 100 million daily active customers globally,” but they fail to inspire others through the timeless good they are working toward (e.g., carbon neutrality, empowerment of underrepresented groups) (see Practice 1).
Creating a blurred company value proposition.
Many startups devise value propositions that focus on covering too many customer benefits. The best companies home in on very few unmet needs (ideally 1–2) and make a case for them clearly (e.g., Airbnb's “We enable travelers to benefit from a truly local experience and hosts to benefit from extra income.”) (see Practice 5).
Insufficiently communicating your North Star to your employees, investors and customers.
In the scale-up phase, many teams forget to double down on refining and communicating their North Star. With new employees joining in the hundreds per year, it is usually worth it to invest in the Six Dimensions of Direction, as outlined in this chapter.
What is the one thing that leaders of a startup often lose sight of when upgrading a startup into a scale-up? An aligned direction. When bogged down by 100 operational emergencies while being relatively clear on direction themselves, they forget to co-create and align the direction of the venture with the teams. In the early startup life, the team is often so small that founders and leaders can interact directly with all employees, but when upgrading a “pirate ship” startup (<100 FTEs) to a “spaceship” scale-up (>1000 FTEs), having a sense of clarity on a direction – a shared North Star – makes the difference.
Why?
A clear North Star drives growth and profitability.
Organizations that score high on direction and purpose are more than twice as likely to be among top total shareholder return performers as those with low purpose scores. And companies that score high on “organizational health” metrics (e.g., values, culture, alignment) have EBIT margins that are 2x as high as businesses with low metrics.1
A clear North Star helps to attract investors.
In particular, before start-ups can show strong business metrics, many investors use clarity of direction as one proxy to assess the strength of a top team. Many top investors even see a “lack of vision” or “lack of why” as an exclusion criterion when funding start-ups.2
A clear North Star attracts an AAA team.
In particular, millennials demand clarity on purpose and values from employers. For example, companies with a clear purpose report 40% higher levels of workforce retention than their competitors.3
There are six mutually reinforcing dimensions for defining a meaningful “North Star,” which many unicorns follow at least in part (see Figure 3). Few startups have all of them in place at once, but the more they have, the brighter their North Star will shine.
First, start with the “Why.”
What is your company's purpose beyond profit? Why does your company make the planet a better place? Scale-ups with a clearly articulated purpose are a magnet for attracting top talent and are twice as likely to have above-average shareholder returns.4
Second, add company values.
The clearer the guiding principles are for aligning teams, the less prescriptive one needs to be on the “how” and “what.”
Third, build a crystal-clear long-term business ambition.
This is what investors demand and teams expect. Homing in on the business outcomes that truly matter and defining the 10-year aspirations (e.g., “Give a hundred million people an opportunity to earn income”) gives teams something tangible to work with.
Fourth, derive a “North Star metric” from the business ambition.
If one had to choose a singular metric through which to achieve this business outcome, which one would it be?
Five, ensure the customer value proposition is crystal clear
in order to achieve the business ambition.
What are the 1–2 unmet customer needs that your company solves uniquely well? This is the driver of growth.
Finally, use quarterly and annual OKRs
as a vehicle to jointly shape the company's direction and align teams on a way to move forward.
Airbnb is a great example of a company that has all these dimensions in place (see Figure 3).
Figure 3: Dimensions of Direction (with example Airbnb)
All Airbnb offices feature a large sign in dark red letters that reads “Belong anywhere.” This is the purpose, or the “Why,” put in place by founders Brian Chesky, Joe Gebbia and Nathan Blecharczy. They do this for one reason: scale-ups with a clearly articulated purpose are twice as likely to have above-average shareholder returns (see an excellent analysis by BCG). Additionally, a purpose beyond profit is just as essential for many employees and can be necessary to retain them. In the 2018 Edelman Trust Barometer, 79% of the population surveyed from 28 countries on all continents expected CEOs to personify the company's purpose.5
When do you know that you have found a good purpose? A good purpose usually fulfils three characteristics:
It describes a
timeless social good