Sean Sheppard of GrowthX on the importance of “Stage Fit” in SaaS growth

Elias Rubel: (00:02)
Hey there all you cool cats and kittens. And welcome back to another episode of best in SAS, where each week we take you behind the scenes for conversations with some of Silicon Valley's best and brightest operators and investors, crack a beer, get comfortable and join us on our quest to find the patterns and playbooks that accelerate the sprint to 10 million of that good stuff. That repeatable stuff, that stuff we call a R R.

Sean Sheppard: (00:31)
Okay. Today we have a special guest on the show. We have Sean Shepherd who as many of you know, has three successful exits to his name and has helped grow dozens of early stage companies across a wide variety of industries. Sean, welcome to the show. Thanks for having me Eli. I'm glad to be here. Absolutely. So, I mean, among other things, you're, you're the founder or co founder of growth X and growth X Academy. I'm curious, like you've done so many amazing things so far in your career and it only continues to pick up steam. How did you land on focusing in the space that you're focused on now with growth X and growth X Academy? Great question. I was just trying to solve my own problem. Um, I was an RA, I was a serial entrepreneur, turned investor, turned frustrated investor because companies, uh, that I was investing in weren't growing and, and I learned that the primary reason they weren't growing had nothing to do with their ability to, uh, get a product into the market.

Sean Sheppard: (01:32)
It had to do with their ability to get traction for it in the market. And, uh, I noticed a couple of things that were going on. Um, one of them had to do with operational issues and then the other one had to do with just the fundamental shift that's happened in the market in the last decade or so. Um, and, and the market shift was, is we had gone from an age of developed technology where, you know, the people that were winning were the ones that were building deep science that was very defensible. Um, took a lot of capital, took a lot of great talent, took a long time. Um, but you could build monopolies and you could build things that were very defensible with intellectual property and, and, uh, and patents and things like that. Um, meanwhile, you had this move towards, um, cloud-based infrastructures, hosted infrastructures, um, and, and a move towards a lot of workflow automation, businesses that SAS and, and, and otherwise that are really what we now call applied technology, where we're now optimizing based on an infrastructure that's in place for everyone, easy to access, very low cost to, to utilize.

Sean Sheppard: (02:50)
Um, and as a result, it's never been easier or cheaper to get products into the market. Um, the downside that is, is that it's also never been more difficult to get traction for them in the market. Um, and then operationally, you started to see that the reason these companies were failing had more to do with people and the behaviors of the people, the makeup of the team, um, the skills or attributes of those people and, and the markets, um, willingness or lack of willingness to adopt those technologies. Things like for market timing, lack of differentiation. Um, and that's the overwhelming majority of the reason why these companies don't make it out of the seed stage. In fact, CB insights now covers the space very closely and has validated our intuition around that since we went down this path, and that is, is that eight of the top 10 reasons these companies fail and 70% of them fail by the way, uh, at the seed stage, um, have to do with people in markets, not products in tech yet most of our founding teams are very much focused on their technology and their product, much like they were when they were doing developed, uh, technology.

Sean Sheppard: (04:03)
And they're not to say, it's not to say that developed technology still doesn't exist. It does, but it's not where the majority of the investment goes. And it's not where the majority of the founders are playing. So they need a way to reduce those failure rates and improve those scale rates. And so, um, we looked at it and said, all right, well, there's gotta be a better way. And my experience in 25 years of doing this stuff as the market side guy was all right, well, maybe I can come up with a framework to help these companies accelerate their path to product market fit. Um, and so that's what we went to work on. And then through the course of that, we found out why venture capitalists in the seed stage don't help companies more because economically it doesn't make sense for them the way their business model works.

Sean Sheppard: (04:49)
And so we, uh, we changed the way we invest as well. We hacked venture. We came up with a new model that allowed us to help more often earlier and still earn additional equity for that, um, and help our, our, our investors and LPs, um, gain more insights earlier into whether or not a company should get more capital later. So we've built a very capital efficient framework, uh, for, um, software businesses. And, um, and as a result, it's worked very well for us. Failure rates are way lower than industry average. Our returns are higher than the industry average. And, um, and then the next thing we found out was as well, we need talented stage relevant people to help these companies grow. And no one was training them. Nobody was collecting them. Nobody was really focusing on them. And so we launched growth X Academy as, as a way to solve that problem. How can we take a bootcamp model and apply it to, uh, attraction based roles and startups and how we got here?

Speaker 3: (05:51)
You used a really interesting word there that I were afraid that I want to key in on. We said, stage people, can you,

Elias Rubel: (05:58)
Can you unpack what you mean by that for us?

Sean Sheppard: (06:01)
Yeah. Um, so there are people that are really good at starting something. There really are people that are really good at creating things or people that are really good at standardizing them, uh, and, and optimize, and what makes them great naturally at what they do well also tends to show weakness if they're not in their lane, if you will. Um, so I know you talk about companies going from one to 10 million from zero to one and one to 10, it's a different kind of deep human DNA and set of attributes that, um, determine, um, what makes someone successful at a given stage. And so, um, we kind of look for that and focus on that. And that means, you know, um, it has less to do with someone's background or experience or industry or domain expertise, or how big of a network of people. They have. All those, those things certainly matter, but it has more to their longevity and their likelihood of being successful. It has more to do with their basic characteristics of the human and their attributes. Like, so

Elias Rubel: (07:19)
Let's take like the later stage, I wonder where this makes sense to me at the early stage, but I'm curious, how does it scale? Like, you know, if you're talking to someone who needs to take the company from five to 10 in a certain seat that presumably requires a certain amount of finesse that you get through experience and gut that you get through experience, that's hard to teach someone who's green in a role. So how does that kind of, how do you think about that model scaling up or down, um, as far as it being the right fit?

Sean Sheppard: (07:52)
Yeah. So what I think about first is I look for people who've already done that who's done that role in a 5 million to $10 million growth path and been successful. That's the first thing we look for because you don't have to explain it to them. They get it, they understand it. They've been there, done that and gotten that t-shirt. Um, I see too many people focused on industry experience, customer base Rolodex, um, uh, their affiliation with a company who's been successful in that industry, but I don't see them looking at things in terms of the stage. So if you're at 1 million and need to go to 10 and it's time to hire a head of sales or head of revenue, um, then find somebody who's done one to 10. Um, I don't, it's less important to me and this might shock a lot of people, but if I got to stack rank industry, uh, experience or product and market experience against stage relevance, maybe from another product market, I, I will lean towards the stage relevance because at the end of the day, the rules are still the same. It's still human selling to humans, it's humans, uh, hiring and supporting and developing and growing other humans and getting the most out of them. It's organizing and structuring your business in a way to be successful at that, at that given stage while you're still in what I call the expansion phase and so great expansion people, um, are more important to me than somebody who's done that role in a similar business at a different stage. If that makes sense.

Elias Rubel: (09:32)
It does. So, so do you, I mean, where does say, for example, you know, it, we're talking about a hypothetical, um, customer service, AI powered customer service company, and you're, you're looking at a VP of sales. Who has he, was he or she were the VP of sales at a company just to help them go from 10 to 20 same, same, or similar product, uh, same or similar industry or application. And now there's a hot, new startup seed stage about to be series a, maybe they just crossed a million in ARR, but they're going to be selling to the same ICP, same buyer personas with, uh, with the newer hotter version of the product. Like, is it, so you're saying you'd prefer not to take this person who just finished doing the, the 10 to 20 sprint, same product, same industry. And instead grab someone who's just finished doing the, the one to 10 sprint regardless of their industry.

Sean Sheppard: (10:34)
Not necessarily, it's not that cut and dry. I would, if you, if you think about things from a red, yellow, green perspective, like you put people in a stoplight bucket, right. There's just no there's yellow, which means I need more information. And then there's green, which is like, this is a perfect fit. And that's obvious I would put that 10 to 20 million in legacy customer service business, selling into the same industry, a similar, more advanced, continuous innovation in the yellow category. Cause I'd want to know where were they from one to 10 and do they have experience from one to 10? And I want them to tell me how different 10 to 20 is than one to 10 and be real comfortable with that. If that makes sense. Now, all of our, all of the things being equal, if you've got the 10 to 20% in the one to 10 person and everything else has been the same, I'm leaning on the surface towards the one to 10 because they know what that's like, and they've demonstrated that they can do it. Right.

Elias Rubel: (11:36)
So as you're training these, these stage relevant people, is there a certain stage that you're especially focused on training or do you train multiple stages across similar practices?

Sean Sheppard: (11:48)
You mean at the Academy? So what we do is let people select, we give them, expose them to everything. And then, and then with a combination of the work we do on their personal development and their mindfulness and what we call the growth mindset, um, we help them become completely aware of where they best fit based on their characteristics and attributes. Cause the majority of the Academy students are adult learners. Who've already been successful in some other walk of life. And then we do the, the, uh, the side by side comparison analysis of what experiences are they bringing with them that translate quickly and easily into the tech world in a role that is a value that they can immediately walk into and start contributing. Um, and then are they, um, and then from there, what, what stage do they most like and are going to be most successful in?

Sean Sheppard: (12:53)
So you kind of think of it, like there's a two, two by two matrix, right? There's things you're good at there's things you like, there's things you're not good at there's things you don't like. Um, our belief is, is that anybody can be really good at something if they choose to be. So if you like something that you can learn it, um, if you don't like something, you already know it, you're probably not going to continue to enjoy it. That's probably why you're here anyway. You've checked every word, every box in life that you thought you were supposed to and you're miserable. So there's some something, a myths. What is that? It typically means that you don't enjoy what you're doing or who you're doing it with. Um, so find the things that you enjoy and are good and good and good at. And that's the perfect top right?

Sean Sheppard: (13:40)
Quadrant of the two by two. But if you're not good at it yet, you can learn it because the pedagogy of the Academy is there's really four pillars, um, mindset, mastery, career, and community, and mastery is all about the building blocks of becoming great at something with intentional and deliberate practice and knowing where you sit in that quadrant and knowing where you sit in that world and knowing what your past experiences have done, uh, or, or, or how your past experiences can translate. And that means in terms of knowledge, skills, and behaviors. So what, you know, what you're able to do and then how you behave while you're doing it. And so that's the next layer of it. Um, so we take knowledge and skills and behaviors, and then we apply it into that box and say, here's where your best, here's where you're going to be really good at something, or could be really good at something. And like, and then from there, it becomes a picture becomes clear around what you want to do and with who, in what kind of environment, product market, stage, vertical, et cetera, makes sense.

Elias Rubel: (14:52)
So I'm curious, I mean, you travel all over the world, speaking and, and engaging with business leaders. Where do you think the, this kind of early stage growth market is headed? I mean, there's a lot of market forces and, and changes in the world today. How do you think that's gonna affect this early stage growth industry?

Sean Sheppard: (15:14)
I think it's, I think it's going to, everything's going to be, well, number one, I think we're in the middle of what the world economic forum is just coined at the great reset. Um, that's ha that's, what's going to happen as a result of, of, of the period that we're in now, where everybody's going to reset their priorities personally and professionally. Um, and they're going to try and align them. Hopefully I think the idea is to align them, not just with what you need personally and professionally from a business perspective or a needs perspective, but also in a way that contributes to the larger, greater good, um, social responsibility, corporate responsibility, environmental responsibility, um, in personal respect. And, and so, so I think right now everybody's trying to get some people who have been in triaged for several months and are now starting to think about things in that way, reinventing everything that they're doing.

Sean Sheppard: (16:06)
For example, many of our corporate innovation clients are recognizing that they no longer need really expensive real estate and downtown markets, uh, to be productive. Um, so they're going to rethink what that looks like in the future. They're finding out that their, their employees are just as productive from home as they work from the office. Um, there is a couple of that with the fact that the entire digital transformation, um, that people have been talking about for a decade is now being forced upon everyone. There's no getting around it. Um, so that is going to accelerate. Everyone's need for the digital products, uh, that people have been building for a long time. So the opportunity is tremendous. Um, that said, uh, that means it's going to be a noisier place. That means there's going to be more competition, more claims, uh, of value being made by more players.

Sean Sheppard: (17:07)
Uh, that means a lot of people are going to fail and get washed out of the bottom. And they're going to have to come back out with some new approach. Um, that means the strong, yes, they're not only going to survive, but they're going to thrive because they can consolidate full up and or survive. Um, but I would say that it's not necessarily just the strong survive, it's the most resourceful. And so everybody needs to get paid, um, entrepreneurs, especially leaders, especially we need to recognize that what they thought was product market fit before this happened, may no longer be, and they have to be open to starting over with the concept of what do my customers have right now that I can really solve and growth mindset is going to be more important than it's ever been. And the ability to learn quickly, um, adapt quickly and, and respond to the signals in the market that you can capitalize on or are, are going to be the difference between winning and losing. And it's going to come down like it always does to people. It's not our hardware that it's not the software that wins. Right. It's the hardware, it's the people. So aligning yourself with people that you really, um, really, uh, uh, know like, and trust that are stays relevant is I believe the winning formula, um, uh, going forward.

Elias Rubel: (18:36)
Well, speaking of aligning yourself with, uh, with good people, uh, I'm curious who have been influential in your career as far as, you know, either mentors or just folks, even peers that you look up to or admire their work. Um, who's been there in your life in that way.

Sean Sheppard: (18:53)
Yeah. I mean, I I'm, I'm really, I'm really fortunate because I think that conversation begins and ends, or at least in terms of the most important influence in my life is my father who sadly passed away unexpectedly from a rare form of cancer one year ago, uh, last week. Um, and he was an incredible man. Um, he was a Vietnam veteran, a Navy, a us Navy seal, um, who saw things and did things for this country. But, you know, most people don't ever understand or would realize, and he came home, uh, without a college degree. And, um, you know, with spat on at the airport, he called the baby killer because he was a Vietnam veteran and he had to work his way up from the bottom, go to school at night while working two jobs and, um, became a mechanical engineer and got on with Motorola and then hired away by, uh, you know, uh, a fast growing company in the, in the early 1980s, uh, called Intel corporation.

Sean Sheppard: (19:59)
And he Rose through the ranks at Intel to become an officer there. And, um, at one point was responsible for two thirds of their workforce in revenue, um, and then became a turnaround CEO in the semiconductor industry. Um, you could try the first time he retired, he was 46 years old and he stayed, retired for a grand total of six weeks because that's who he was. Um, but he, he shaped me in, in most, every way, um, with a tremendous leader, uh, uh, taught me that, you know, the true character of a person is not how you act in this life, but how you react, you can't control all of the circumstances, but you can control how you respond to all of those circumstances. I've never, I was when I was younger, I was never very good at that. Um, I'm still not great it by any stretch,

Speaker 4: (20:48)
But, um, he was a lifelong learner and he was always looking to understand and get better, um, even even to go to the final moments, um, when he, when he made peace with his, with his circumstances and said he had a good run and he was grateful for everything that he did and everyone that he helped. Um, and he taught me that the true, you know, the true impact you can make on this world, that your measure of you, um, and your impact is, is how many people you can help in a positive way. So he was tremendous, um, from a, from a, from a business standpoint. Um, I think, uh, there are, there have been people like my partner will bunker at growth X who's taught me so much about human behavior and how much that drives the success or failure of a company.

Speaker 4: (21:37)
You know, he founded the world's largest online dating site match.com and he did it with only $90,000 in investment. Um, and he did it in Dallas, Texas, and the Bible belt in the middle nineties when people would literally back away from him and in shame and awe when he told him what he did for a living, but he never viewed that dating website as a dating website, he viewed his mission to solve loneliness and help bring people together. Um, and he was a tremendous influence on me in that fight. Um, my wife has been an incredible influence on me in learning how to, to prioritize people over ideas, concepts, and visions, the younger part of my life I, I was, I would get so, and I still do, uh, I have a propensity to capture what things can be, um, and not think so much about who it is that's going to get it done.

Speaker 4: (22:36)
Um, and, uh, and, and that is, that has, that's cost me a tremendous amount of heartache and time and money and resources over my life, uh, choosing the wrong people to be in business with, or partner with. Not because I, uh, because I trusted people that I shouldn't have trusted. Um, and I'm very much about I get my satisfaction in this world from helping others get what they want. Um, and other people say they do that, but when it comes down to it, oftentimes they don't actually mean it. Um, and so observing human behavior and seeing how they behave when things are difficult, um, is now a very important part of my decision framework about, you know, who I choose to surround myself with, because I think at the end of the day, we're all just a collection of those people. And I would say the same thing to any leadership team or any founding team or anybody who wants to be a part of, um, get clear on who you are and the kind of people that have a very similar value system. They don't have. You don't have to agree on the day to day stuff at all. In fact, it's great when you, don't a diversity of thought is just as important as diversity of anything else, but you need to have similar values if you don't have a shared value set, when things get hard, it falls apart.

Speaker 4: (24:01)
Totally well, Sean, this has been super inspiring and thank you so much for sharing all of this knowledge with us and some of your inspirations as well. So, um, fantastic. Fantastic to have you on the show. Thank you, Eli. I'm happy to do it any time. I appreciate it. And I appreciate what you're doing for your community, too. Thank you.