Engineering success in a technical startup
Gil Dibner

I’ve spent 20 years investing in and working with deeply technical founders at a very early stage. Looking back, there seems to be one overwhelming determinant of success for those technical teams. In my experience, success is highly correlated with how obsessive a founding team is about developing an extraordinarily efficient GTM machine. At first blush, this statement may seem obvious. I even hesitated if it was worth trying to write about it – as I feared I would get accused of stating the obvious. But I’m going to attempt it. If it changes the trajectory of one company, it’s worth it.

The all-rounders, the humble, and the sleepwalkers. There are three types of technical founders. Group one (a tiny minority) are genuinely obsessed with achieving GTM success. Let’s call this group “the all-rounders.” These all-around athletes completely understand the entire spectrum of success drivers for their company: engineering, product, cultural, and commercial. Group two (another tiny minority) are aware that they do not understand what being obsessive about commercial success actually means. I considered naming this group “the paranoid” (because it is accurate) but let’s call them “the humble” instead because it’s more optimistic. The point is that a very small number of technical founders are truly aware of the realities of what commercial success means and equally aware of how little they know about how to actually get there. Unfortunately, the vast majority of technical founders fall into group three, which I’ll refer to as the “sleepwalkers”. These founders are blissfully unaware of what true GTM excellence looks like and feels like. Invariably, however, they are blind to their own ignorance. It is a classic case of a painful blind spot – they just don’t know what they don’t know. How could they? The reason this is tricky is that no founder ever didn’t think that commercial success was important – they all do. No founder ever would willfully do less than he or she could to achieve commercial success – but they end up there because they don’t know what could be done. After all, how could they? They are technical people and – in many cases – they are having just enough commercial success that they convince themselves that they are on a steep enough learning curve that things will work out. This post – and this message – will fall on deaf ears 90% of the time because most founders will read this and decide that they are in group one or two. Very very few will admit that they are in group three.

The journey to success. Without exception, everyone starts in group three. Everyone (including the most experienced and hard-bitten sales professional) begins their career as a sleepwalker – unaware of what great looks like and therefore unable to figure out how to get better. The first step is to graduate from sleepwalker to humble. The good news is that as soon as a founder realizes that he or she is a sleepwalker – truly internalizes how unaware of commercialization he or she is – they are no longer sleepwalking. The graduation from group three to group two by embracing humility is the critical step that unlocks the rest of the journey. From there, the progression to all-rounder is feasible and – even – likely. Once a founder who is obsessive about achieving GTM success achieves humility, the natural desire is to iterate until greatness is achieved. This can take many forms, but it usually involves constant iteration and experimentation, as well as a constant search for truly outstanding (top 1%) GTM talent to bring that DNA into the organization. That sort of organizational DNA transfusion is the best (and probably the only) way for an outstanding technical founder to become a truly all-rounder.

Don’t have faith. Have a plan. Far too many founders remain stuck in group three, sleepwalking their way to middling GTM success. This is the real reason so many companies get stuck at $1M ARR, $2M ARR, even $10M ARR. Ask any Series B investor and they will tell you that going from $10M ARR to $100M is extremely hard and very very rare. The fate of the vast majority of companies is to get stuck – and the only way to avoid that is to continually obsess about achieving top 1% GTM performance. Regardless of your current revenue levels, customer satisfaction, number of github stars, daily usage, or whatever other commercial success metric you track, the most likely outcome is that you will get stuck. Ensure you are in group two by being constantly paranoid and exceedingly humble. Seek out the top 1% talent and advice you need to maximize the odds you can get your business on a pathway of continued growth. Though it may sound harsh and painful, the best advice is to not have any faith in what you have achieved thus far. Instead, build a plan for continual improvement of the GTM machine and the human DNA that is building it.

GTM will almost always triumph over product. One way to understand this dynamic is to consider the scenario of a market with two competitors, Alpha and Beta, both selling essentially the same product to the same market. Alpha has a good product and a phenomenal top 1% GTM team. Beta has a phenomenal top 1% engineering team and a good GTM team. In the early phases of founder-led sales, Beta might rack up some wins with some customers who can see that Beta’s product is superior to Alpha’s. But over time, Alpha will crush Beta nine times out of ten. As time passes and revenue scales, the impact of GTM relative to product/engineering continues to increase. Achieving 2-3X revenue growth multiple years in a row is extremely hard. Beta will do well for a while, but Alpha will ultimately catch up and leave them in the dust.

The inverse analogy. For the technical founder reading this and wondering about how to actually do this in practice, I’ll offer the following analogy. Imagine a non-technical founder/CEO who is outstanding at sales. She knows all the top customers personally, has tons of experience scaling up a GTM operation, can raise unlimited capital, and can sell ice to Eskimos. Now imagine she has a great idea for a unique technical product whose time has come. She can do everything but actually build that product. On the technical side, she needs help. The path forward is, of course, blazingly obvious: this CEO needs a technical co-founder, a CTO, someone who can fill in the blindspots and manage the technical/engineering/product aspects of the company from A-to-Z. There is no way that the CEO could herself develop that expertise base in a reasonable amount of time. When the gap is technical, the answer is obvious. When the gap is GTM, however, it’s harder to see because most of us are still sleepwalking. We think we can perform the function (or learn fast enough), but the reality is we probably can’t.

Developing a top 1% GTM machine is just another engineering problem, but with a completely different and unfamiliar set of inputs and outputs. Here, the inputs are people (GTM team members), sales enablement, positioning strategy, pricing, marketing tactics, etc. The outputs are ultimately psychological: a human decision to buy something. The goal is to tune all the inputs to drive the purchase decisions at as high a pace as possible. The process of personal growth from sleepwalking to humility to being an all-arounder appears to be easiest for technical founders who embrace GTM as yet another (albeit unfamiliar) engineering challenge that they can struggle with and master.

The role of venture capital in engineering GTM success. Our role as VCs for highly technical founders is to guide them through the process of personal growth I’ve laid out above. We’re basically selecting for founders that are in group one or group two, but sometimes we also work with founders who are just about to transition out of group three. In all cases, humility is something that can be expanded. Humility is like an empty space that can – over time – be filled with greatness. This is particularly true for brilliant technical founders who lack GTM experience. The more humility we can build around GTM excellence, the more potential for GTM excellence exists. At Angular we are blessed with an outstanding network of GTM advisers and a ton of experience helping founders navigate that journey. Like any journey worth undertaking, it is not an easy one.

I’ll return to where I started: For technical founders, extraordinary success is highly correlated with how obsessive a founding team is about developing an extraordinarily efficient GTM machine. This insight is, however, a lot less obvious than it might appear because – especially for technical founders – it’s extremely unlikely that a first-time founding team knows what a top 1% GTM operation looks like. Most founders, sadly, remain blissfully unaware of the gap between their understanding and what it would take to achieve greatness – and that is what ultimately leads most companies to get irretrievably stuck on the journey to scale. To achieve top 1% commercial success (and VC returns demand that), technical founders must cultivate the humility that will ultimately enable them to grow into all-round athletes that can go all the way.

If this is you, let’s talk.

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European technical founders. Antler’s latest report focuses on answering the question plaguing the European tech ecosystem: “why has Europe never produced a truly global tech giant?”. Christoph Klink, Partner at Antler, states, "The most common answer is a lack of capital. But the real picture only comes to light when you start looking at the people behind tech giants and unicorns.”” Their findings indicate that the reason is a dearth of technical founders in Europe. “There is a stark lesson from the US, where 100% of the founders of the most valuable tech companies and 70% of US unicorns have technical backgrounds.” In Europe, “only 45% of the founders of the 20 most valuable tech companies by market capitalization are technical founders, and only 26% of Europe’s unicorn founders have technical backgrounds.” However, tides are changing. Layoffs have led to a significant increase in European technical founders. “As a result of layoffs and the attraction of emerging technologies like AI, a new generation of technical founders is emerging in record numbers and with more experience than ever before. These are the founders that will build Europe’s first tech giant.”

HOW TO STARTUP

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Merging with rivals. Crunchbase reports that in startup sectors where funding has significantly declined – including e-commerce, real estate, and fintech – there has been an uptick of heavily funded startups merging with competitors. Examples include SellerX acquiring Elevate Brands, Razor Group buying Perch, and Roofstock merging with Mynd. There’s also been consolidation in fintech, with Empower acquiring Petal, and logistics, with Flexport acquiring Convoy. “Some acquirees had shuttered or were on the verge of doing so. For others, a difficult fundraising market made the option of another venture round a nonstarter. Going forward, the hope is that consolidation will put these companies in a stronger position to grow, with fewer competitors to worry about.”

HOW TO VENTURE

VCs’ GenAI bets. The Information analyzed the VC GenAI investments made in the last few years. The nine VC firms that have made the largest investments in GenAI companies – including Accel, A16Z, and General Catalyst, among others, – “collectively led or co-led 92 funding rounds that in total invested $9.5 billion in generative AI startups”. Notable winners include OpenAI and Scale AI, but some AI bets, like Stability AI, Adept AI and Inflection AI have not panned out. While many investors are still bullish on AI, it will be hard for new winners to emerge in this landscape. Richard Dulude of Underscore VC: “We are on the backside of the first tidal wave [of AI investing]. Some are going to crash.” Some VCs are now avoiding investing in the GenAI hype cycle. “"Anything not AI," partner Brian Singerman replied when asked about contrarian areas worth investing in. He compared the current wave of self-proclaimed AI startups to the pre-IPO internet companies of the dotcom era. He cautioned that many startups today aren't really AI companies, but rather are just using the tech.”

Pro rata funds. In an effort to maintain their stakes in portfolio companies as larger VCs push them out during later funding rounds, some seed VCs are increasingly turning to pro rata funds. These funds provide capital for seed investors to exercise their pro rata rights, which allows them to buy more shares and avoid dilution. “In the first quarter of 2024, $9.3 billion in capital was raised by VCs across 100 U.S. funds, which is just 11.3% of the $81.8 billion raised in the 2023 market, according to PitchBook-NVCA Venture Monitor. Investors said this leaves an abnormally high number of VCs unable to fund their pro rata rights”. Some of these seed VCs are turning to pro rata funds. Jesse Bloom, a partner at the pro rata fund SaaS Ventures, describes how it works: "When, for example, Sequoia invests in a Series A, other existing investors can participate. However, if you want to get in on the Series B, you have to be invited by Sequoia, the founder or were involved in the Series A. My job is to hear from my network that it is happening and find Series A investors and offer to stake them in their pro rata. I give them money to invest in their pro rata, and I get 10% of the carried interest.”

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