How To Grow Your Team & Company Without Losing Them: An Interview With Rand Fishkin
When you see the terms “tech startup”, “rapid growth” or “online marketing” what comes to mind? What if I threw an awesome mustache in there?
No, I’m not talking about Lyft. I’m referring to the founder, former CEO, and self-proclaimed “Wizard of Moz”, Rand Fishkin.
Over the last decade, Rand has seen Moz grow and become one of the most visible companies in the marketing world. He’s spoken to teams at Google and Microsoft, co-founded Inbound.org with Dharmesh Shah, and given presentations for the United Nations and Stanford University. He co-authored The Art of SEO book for O’Reilly Publishing. You can learn more about Rand here.
I interviewed Rand recently about growing a subscription SaaS business, finding employees to contribute to Moz’s epic culture during their rapid growth, and the importance of transparency in the workplace…
Q: Moz grew in revenue very quickly over the first 7 years. What’s your number one piece of advice for SaaS companies who are growing?
That depends. Moz is a self-service SaaS business. It’s technically SaaS but really a subscription business – operating more like a Netflix than a SalesForce. That’s a distinction that I wish the tech startup world would embrace more, because it can be dangerous to lump the two together.
For a subscription business, the biggest danger is to start scaling up effort, money, people and time into marketing and growth before you have high enough retention and a low churn rate. That’s generally true for SaaS and Enterprise SaaS as well, but usually slightly less dangerous because enterprise tends to have lower churn rates than subscription SaaS.
[Tweet “The biggest danger is to start scaling before you have high enough retention and a low churn rate.”]
The benchmark for a subscription business is that you are looking for globally under 5% churn monthly and less than 2% annual churn rate for your most loyal cohorts. If you can do that, you can really pour on the growth. If not, as you grow, you’ll burn through a huge percentage of your market. In an industry where many companies share heavily about the tools they use (whether online or at events), you end up burning bridges with many of the folks who cancelled.
We currently have about 24k Pro subscribers and we have historically had about 140k subscribers who have paid at some point over 8-9 years, and have left us. Now there’s a huge cohort who were not completely satisfied and there are far more people who aren’t going to recommend us than those who are.
That’s a tough hurdle to overcome because you have to rebrand and remarket to previous customers as well as marketing to new customers. You almost have to change industry perception after you’ve had huge growth.
It might seem counterintuitive to investors to say, “we need to stop growing and figure out our product-market fit, and then nail churn and retention before we start accelerating”. But, if you’re going to try and grow big and become IPO worthy, you almost certainly have to do it that way (unless you’re lucky/smart enough to somehow nail it right at the start).
Q: I have worked at companies where we pumped a ton of money into marketing before we had a lot figured out, because we were trying to get to #1. How does having a main competitor fit in strategically?
Moz was something between a strong leader and a runaway leader in our field between 2008 and 2013. We were faster, bigger, better funded, had more people and momentum, and a better brand with much stronger traffic and reach than virtually anyone else.
But over the past three to four years, our growth rate has flattened out and competitors took advantage, especially single-focus competitors. While Moz was trying to do ten things in the field, we had many competitors who tried to do just one or two things well. There are now three or four of those single point solutions that are Moz’s size or bigger. It’s tough to think, what if we had just focused on that one thing? My suspicion is that they don’t need to acquire as many customers because their churn and retention metrics are better.
[Tweet “Do what you’re best at, the best you can, and don’t try to grow just for growth’s sake. “]
As far as competition goes, you have to be very cautious and know your field really well. Do the thing you’re best at, the best you can, and don’t take your eye off the ball just to grow for growth’s sake. That’s another struggle of taking investment dollars – you have to grow at a certain rate and be a certain size instead of being comfortable with growth that isn’t quite as aggressive. Moz will maybe be about a $43M business this year, and we’ve got to figure out how to do $100M+ in the next few years in order for our investors to return money to their funds.
Q: You talked about how you gave a $12K referral bonus for engineering referrals, but it mostly backfired and people came in that created internal culture issues. What were the lessons from that? How do you caution other executives when hiring during rapid growth?
It’s healthy to take a conservative approach to growth, particularly in our type of market. High churn and burn is not as bad for an Uber or a Netflix. They are trying to grab as much land as fast as they can before anyone else notices or capitalizes on the opportunity.
With SaaS, the wrong hire can make an entire team dramatically less productive. You can hire one person who makes ten less effective, which is far more dangerous than not making that one hire. It’s not just about hiring fast, but also about hiring right.
[Tweet “With SaaS, the wrong hire can make an entire team dramatically less productive. “]
The more that you can do with fewer people, the better off you are as a business in a variety of ways. Automate and create more productivity from smaller numbers of people, and not by asking them to work incredible amounts of overtime. Create super efficient processes, nail down the actual work that needs to get done instead of wasted busy work that won’t lead you down the right path. That’s tantamount to hiring too fast when you’re growing.
Q: What about the actual processes for hiring? How do you interview? Do you use top-grading or screen for culture fit?
One unique thing that Moz does is the TAGFEE screen for our core values (Transparent, Authentic, Generous, Fun, Empathetic, and Exceptional). This is usually conducted by two people who are not on the team. So for example, an engineering candidate will get taken out to lunch by two people on our community support team. Those folks will address whether it’s a culture match. Does this person believe the same things we believe? If not, we won’t hire that person even if the engineering team gives them a 10 out of 10 all around.
We make sure to hire for true culture fit. We’re not talking about liking Star Trek over Star Wars or drinking beer instead of whiskey. Culture can sometimes be code for “likes the same things we like”, or “in our little pocket of society” as opposed to sharing beliefs about how work or the world should be. That’s a much better representation of culture.
True culture is in the values. It informs these questions:
– Who do you hire and why?
– Who do you fire and why?
– Who do you promote and why?
– What do you believe about the market and how to serve the customers in the market?
Those are the cultural elements that tie a team together really well. It gets frustrating and tough when it goes more to the “identity politics” of culture. Generally speaking, diversity is a very good thing. You want people from different backgrounds who’ve had many different types of experiences. You want people who don’t look like you, who are not the same gender as you. Those things create strength when there are shared values and beliefs.
[Tweet “Prototyping and stereotyping when you hire is a way to get plenty of bias.”]
I don’t think there’s a single study out there that says companies with only white dudes do really well. They don’t. Not on the board, on the leadership team, or in the company. They tend to underperform compared against every aspect of diversity. It’s a moral and ethical thing, but also a performance thing. Prototyping and stereotyping when you hire is a way to get plenty of bias.
Q: Congratulations on your book deal! I read on your blog it will partially be about transparency in business. At 15Five, transparency is highly valued. David Hassell is defeating the old view of being a stoic leader and his transparency as CEO creates a self-generated motivation in me to add value. What can you tell me about the benefits of transparency from a management perspective?
Certain people are very motivated by that. They appreciate honesty even when the news isn’t very good. Others get demotivated when they think their position is imperiled and they need to seek a new job. It depends on the culture you craft.
I certainly wouldn’t want to work anywhere where I don’t have an extremely transparent executive team, board of directors, and CEO. That’s something I have always strived to be as CEO, and now as chairman of the board and someone on the executive team.
There are some tremendous benefits, but challenges, too. In my opinion, the benefits outweigh the challenges. Transparency, when it is practiced throughout a company creates trust. When Rand says we are going to experiment with these things, and explains here’s why and how we’re going to measure the results, then employees, managers, investors, and customers can all feel confident.
[Tweet “Transparency, when it is practiced throughout a company creates trust. “]
In many opaque companies, someone might says we’re going to do this, and the why isn’t present, and what’s going to be used to judge the results isn’t present. When that happens, even at companies like Moz, people assume the worst. They think that the decision was politically motivated because one person doesn’t like the other, or they are trying to gain more influence, or to make themselves look good to be next in line for a promotion or a raise.
When there is transparency, people have trust that the other person has good intent behind all of their reasons. And whenever they do have bias, they are going to spell that out. When they don’t and someone else calls them out, they’re going to embrace that and say,“You know what, I hadn’t even considered that I was biased in that way, but you’re right I am and I need to think about that”.
That’s what you get inside a culture of transparency – great trust all around. In addition, you get an environment where people who are applying have an idea of what to expect. People who join the company early on get an idea of which behaviors get rewarded and why. That tends to be the people who do the best work for the right reasons and assume good intent from everyone else.
I can’t say for certain that it’s the highest performing culture. I think it is, but I’m willing to sacrifice a whole heck of a lot of performance to live in that kind of world instead of an opaque one.
Image Credits: Oscar Rethwill, Jeff Turner, Ivan Walsh