Sam Hall: When and How to Functionalize Your Business

The following thought piece is written by Sam Hall, (pictured) a member of our Strategic Advisory Board (SAB). Sam currently serves as the Chief Product Officer (CPO) at Epidemic Sound. Before joining Epidemic Sound, Sam was also the CPO at Clear and Grubhub. 

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Tech startup founding teams are inherently lean and flat. Oftentimes it’s a founder or a couple of co-founders passionate about how to solve a problem in the world and a small group of engineers that they bring in to execute on the idea. 

The best companies at this stage are fast, nimble, and quickly test different approaches to identify where their best product-market fit is. There is a magic in the earlier stages of a company that is integral with the whole team surging from one project to another. Everyone is focused and a small team makes communication fast and clear. 

As the company grows both in headcount and with product complexity, this organizational structure no longer works, and creating a more functional organization including separate engineering, product, and design teams is a must.  

However, a difficult question that many founders have to answer is precisely when the right time to functionalize their organization is?

Here are a few questions for founders to ask themselves to help them know when the right time to functionalize could be:

1. How fast is the company growing?
2. Does the company operate in a highly competitive or regulated environment?
3. Does the company have a large, expanding engineering department?
4. Is the company’s product extraordinarily complex or do they now have multiple products?

If most of the answers to these questions tend to be a “strong yes” it is likely an indicator that functionalizing the organization makes a lot of sense.

Another good sign that it could be time to functionalize is if the technical founder finds themselves moving from prioritizing 1-2 items at a time to 4-6. For example, if their role used to just entail leading the development of the product but now includes a focus on growth, retention, creating a second product or upselling, functionalizing could take a meaningful load off their plate.

I also always communicate to founders that in highly regulated environments like FinTech and Healthcare, functionalizing on the earlier end is often the right move. When there are many regulatory and legal nuances to consider, functionalization is important in order to ensure that those critical areas are given the attention they require.

Additionally, I want to point out a common misconception that raising a growth round means that it is time to functionalize. This is not necessarily the case. I have seen several times where companies can still grow very quickly without needing a full-fledged product organization. Of course, everything is a case-by-case situation but running to “staff up” and taking on the additional expense and complexity is not necessarily the right decision after raising capital. Creating a functional organization too soon can create unnecessary organizational functional complexity before it is necessary.  

Finally, I have always felt that the best products are built with a divine tension between product, engineering, and design. In order to create this unique tension, each one of these groups needs to be similarly powerful within the organization and have representation at the table. They tend to solve problems in different ways and building off the best ideas from one another is how great things happen. Functionalizing at the right time and in the right way is integral.

Finding the Right Functional Leader

At the earliest stage, the first head of product is often the founder as they are the one that created the original product vision. However, when the time comes to start handing over the reins to a product manager, often this person can be found internally. 

For example, an engineer that helped build the product but wants to step back and work on projects from a higher-level and strategic perspective is a great candidate. This individual can help facilitate and translate interactions between designers and engineers while creating a seamless environment where the engineering team can move even faster. 

As the company continues to scale and the product team grows to include multiple product managers, it may be time for a senior leader to lead this function. At this point it may be best to recruit from the outside. The skillset of managing product for a $50-$100M run rate company versus that of one for a $500M run rate company is very different. When reaching that more mature stage, it is integral to have someone in that seat that can anticipate what various challenges will be coming their way and have experience solving them. You will likely want someone that has led product teams at the scale that you aspire to be (as opposed to where you are today). 

Product is also such a leveraged position that small mistakes can be really costly for a company – specifically from an opportunity cost perspective. If your product isn’t scaling, it might be better to bring someone in from the outside. 

Finding the right functional leader is contingent on what stage your company operates at and the specific dynamics of the competitive environment and company culture. In the scenario that a company does decide to bring a leader to scale, it is important that the co-founders are ready to let go of control as a new leader will likely have an aligned, yet different, view when it comes to the vision of the product. 

The final point I would share with CEOs is to not just hire for the resume. This is your baby and you have put your life’s work into this. Make sure that it is someone that you can trust and be a real partner for you.

–Sam