by Y Combinator6/14/2017
Ali Rowghani is CEO of Y Combinator Continuity, where he invests in and advises growth-stage startups. Ali directly contributed to the growth of two great companies — at Twitter, as CFO then COO, and at Pixar as CFO and SVP of Strategic Planning.
Craig Cannon [00:00] – Hey, this is Craig Cannon and your listening to YCombinator’s podcast. Today’s episode is our second edition of office hours and this time we are joined by Ali Rowghani who’s the CEO of YC Continuity. Before YC, Ali was COO at Twitter and CFO at Pixar. Becuase Ali invests in growth stage companies, today’s office hours featured questions from growth stage founders. Alright, here we go. How’s it going?
Ali Rowghani [00:24] – Terrific, thanks for having me.
Craig Cannon [00:25] – No problem, so the first couple questions are just mine, I wanted to ask you about your background, so the first one is how did you get a job at Pixar?
Ali Rowghani [00:36] – It’s actually an interesting story, the short version is when I was in school I started researching, first of all I loved pixar movies, I love the product, and I loved it because I felt it was unique in that it was entertaining both for kids and for adults, and so there was an appeal that crossed generations with the Pixar films and I didn’t really see that anywhere else in children’s entertainment at that quality. So after falling in love with the films, I started doing some research on the company and I discovered, wow, I really believe this company’s story, I believe what they’re trying to do, I think this is gonna be a big business that they can kind of defend and continue to innovate on, and after I’d done that research I wrote a blind letter believe it or not, to the woman who is the CFO of Pixar at the time, I went on their website, she was the only person who had kind of a business background, and I wrote her a blind letter to ask for an internship.
Craig Cannon [01:30] – Okay.
Ali Rowghani [01:31] – And I followed up with her a week or so later and unfortunately she was going on maternity leave, her assistant told me, but she said that she read my letter and she asked me to come in to interview and I sort of went in and talked and talked myself into an internship there and that became, that was the beginning.
Craig Cannon [01:53] – Wow, so was that your first job?
Ali Rowghani [01:55] – Well it wasn’t my first job, I was at business school at the time and I worked for a few years beforehand, but I would say it was certainly my first post-business school job, my first like, kind of career job, meaning the first place I’d worked that I could imagine spending a long long time.
Craig Cannon [02:12] – Yeah, and how long did you end up spending there?
Ali Rowghani [02:14] – I spent almost 10 years there, believe it or not.
Craig Cannon [02:15] – So from my context then, what movie to what movie, is that roughly?
Ali Rowghani [02:20] – Good question, I think about it the same way, so I joined as they were finishing Monsters Inc. which they released in 2001, and I left in early 2010 when they had finished Toy Story 3, so in order I was there when they made Monsters Inc., Finding Nemo, The Incredibles, Cars, Ratatouille, Wall-E, Up, and Toy Story 3.
Craig Cannon [02:49] – Wow. I was gonna say glory days, but I feel like everything is glory days at Pixar. It’s one home run after the next.
Ali Rowghani [02:55] – Well certainly, it was certainly a great period of time and it was a wonderful, wonderful environment to work in, wonderful company to be associated with and part of me feels like I always work there, so.
Craig Cannon [03:05] – You’re definitely a proud Pixar employee.
Ali Rowghani [03:08] – Definitely, yeah.
Craig Cannon [03:09] – And so how did you go about transitioning to Twitter?
Ali Rowghani [03:11] – Well I got a call from a headhunter, I had a friend who worked at Twitter, and she had submitted my name to the headhunter, and he called me out of the blue and he asked me if I would be interested and I said no, and he was persistent and he sent me the job description and so on, and it’s a funny story, I spoke to my brother who’s an investor, and I said hey I have the opportunity to interview for a position at Twitter to be their CFO, and I think I’m gonna turn it down. Would that be a bad idea? And, he said listen, Ali, you’re not gonna get the job, just go talk to them. So with that vote of brotherly confidence in my abilities, I went confidently into the interview room, but in all honestly it was kind of the perfect thing to say because he was right, it’s an interesting company, I had nothing to lose, and why was I taking it so seriously, the decision to interview there, and I went in and I really liked the people I’d met, and sort of one thing led to another, and unexpectedly they did make an offer, and I ended up accepting, so.
Craig Cannon [04:22] – There’s also nothing more motivating than being the underdog, by like a family member.
Ali Rowghani [04:26] – Actually it wasn’t that, it wasn’t like I’m gonna prove him wrong, it was, what he said took all the pressure off, it was like oh yeah, why not? It wasn’t like oh I’m gonna get him, I’m gonna prove him wrong, not at all, it was just like hey, go satisfy your curiosity, and you know, don’t worry about it, and so it was actually a very helpful thing to hear.
Craig Cannon [04:45] – So given that, do you give advice to the companies you advise around retaining executives, I mean you were there for 10 years so that’s a long period of time, but you know, what do you tell founders who have to deal with headhunters calling their best people?
Ali Rowghani [04:59] – Yeah, I think the question of retaining great people, particularly retaining executives, comes down to three or four things. The first is maybe obvious or maybe not, is try to hire the right ones. You should expect some turnover on your team and on your executive team. My observation is that even companies that hire well, one out of five or one out of six employees they hire, or even executives they hire, end up not working out over the long-term, because the company evolves and changes, and some people are a fit at one point and they’re not a fit later. And hiring isn’t perfect, as hard as you work on it, you’re not always gonna be able to bring in people who are the right long-term fit, so the best first step is to focus a lot on hiring the right executives. Spending a lot of time with people before you hire them, particularly at the executive level, making sure not only do they have the competence and the experience that you need, but they’re bonded with you in terms of the values, that you share a common set of values and common set of goals, and that you’re not gonna have sort of like daylight between you and your executives in terms of what’s important. So hiring well is probably the first most important thing you can do, and then it’s important to manage executives differently than you manage ICs, and this is something that founders sometimes struggle with, because in a small company when they’re managing ICs or they’re managing relatively junior managers, they tend to have to be involved in the details, and they have to tend to be very task-oriented, you know, do this, then do this, then do this, then do this, that’s often a good way to manage junior people or to manage ICs. When it comes to managing executives, you really have to change your model, and you have to basically help collaboratively define a vision for what you want them to achieve, you want to measure them on outputs, not inputs, and it takes an adjustment to learn how to do that, to think three, six, nine months forward and describe, this is what I have in mind, this is what I want you to work on, this is how I’ll measure you in terms of how I think you’ll be successful, and create that context in which they can work and do things that you would never be able to direct them to do, because they have experience and capability that you don’t have. And so the takeaway is you shouldn’t micromanage them, and you shouldn’t manage them based on inputs or process, but rather outputs and accomplishing a vision that you guys put together jointly. And the last thing I’d say, this makes a big difference, and I don’t think it’s intuitive for a founder’s focus as you bring in executives to really build excellent rapport and a sense of teamwork at the top of the company, I think executives find it really motivating and fun to feel like they’re working collaboratively with excellent peers, who are in other parts of the company, to build something great. That sense of team, especially at the top of an organization is just really psychically satisfying and fun, and it creates, not only does it help depoliticize a company, when you have people really feeling like they’re a team, but it’s also sort of a subtle way to keep people really engaged and involved, and keep them happy in their jobs, so I would encourage, your goal isn’t to build a bunch of strong siloed executives, rather to build a really high functioning executive team, and that’s really the goal of a founder.
Craig Cannon [08:50] – That’s a great answer, it also segways perfectly into the first question from office hours. So they wrote in, one disadvantage of being young is that you’re usually inexperienced in managing people and conducting business. So how do you recommend young people improve their skills in people management and business?
Ali Rowghani [09:08] – You know, there are obviously a lot of resources out there, books on management, blog posts that have been written, YC has a great blog.
Craig Cannon [09:17] – You have some great blog posts, I’ll say it.
Ali Rowghani [09:19] – Thanks, thank you, but you know, YC and the YC community has, tries to basically bring a lot of experiences and observations that we have to help, so there’s lots of materials and I think being a great student of materials, read the Andy Grove books on management, so on and so forth, there’s a lot out there, and there’s a lot out there that’s good and there’s a lot out there that’s so-so, but try to find the good stuff and read it, and be a student of it, and see what you can get out of it. I think there’s no, if you’re gonna become a good manager, it’s really, you learn more from practicing than you learn from reading, now having said that you can draw some principles and some dos and don’ts from the things that you practice, and so I would urge anyone who wants to be a good manager to kind of get started, set that as a goal for themselves, and try to measure themselves as much as possible, and you measure yourself as a manager by getting feedback, and try to set up a system where you’re getting comprehensive, 360 degree feedback from the people that you’re working with, people who work for you and the people who work around you, and so on and so forth.
Craig Cannon [10:29] – To be more specific, what kind of feedback are you looking for to show progress?
Ali Rowghani [10:33] – I think what you’re looking for is more than anything, you’re trying to sort of heighten your self-awareness about whether you’re doing the kinds of things that are helping the people who work for you be more successful, and achieving the things that you set out for them to do. So, leaders, especially CEOs, there are few things they have to do, most other things they can delegate and should delegate over time, and one of the things they have to do which pertains to the prior question is they have to be able to build a senior leadership team, both hire them in and make sure that they work well together over time, that’s not delegatable. A second thing they have to do is create strategic alignment, to create a sense of purpose in the company, what are we trying to achieve, like what bigger end does it serve and how are we going to go about doing it, what’s our product strategy, and go to market strategy, achieve that end, and how do we measure whether we’re successful. In things that I’ve written I call this defining a mission to metrics of an organization, can’t really delegate that, you can get feedback, et cetera, but you can’t delegate it. And then finally as a CEO you need to be really cognizant of nurturing the right culture at your company, and that’s a group activity, it’s not something you go off and write and come back and say, hey this is our culture, everyone follow it. It’s more organic, but you have to be a part of it, you have to embody it, you have to make sure that you are acting in ways that are consistent with it, and so you have to nurture the right culture in the company. These three things can’t be delegated. So when you talk about what do you want to get feedback on, if those are the things that you have to do, particularly the point around strategic alignment and how we’re measuring success, and are we doing the right things, do we have the right strategy, is it clear to everyone, et cetera. I think that’s probably of the three, the one that you should try to get the most feedback on. There’s also stylistic issues, to make sure that your style isn’t rubbing people the wrong way, or that you’re not too uncommunicative or oftentimes, oftentimes young CEOs are surprised at how many times they have to repeat themselves, or how many ways they have to find to reinforce a given message for it to really sink in to a company, particularly as the company grows, and so are you being an effective communicator is also another important thing. Last point I’ll make on this, there are also lots of really good executive coaches out there, again like everything there’s some great ones and some so-so ones, but if you can find one if you feel that would be helpful, I know a lot of founders who have really productive relationships with an executive coach. Most of all, they help gather feedback and heighten a CEO’s or leader’s self-awareness, and sometimes will help brainstorm through, how do I handle this hard situation, how do I communicate through it. So lots of resources, and more than anything, be the owner of your own improvement, be the owner of your own education here, I think that orientation is helpful.
Craig Cannon [13:42] – That’s a great answer. Next question, how do you find good early employees in fields that you are not familiar with, say for instance, sales, marketing, HR, I assume this question comes from someone technical.
Ali Rowghani [13:54] – Yeah, so almost every founder goes through this, you’re gonna have to hire people particularly if you’re a first time founder or even a second time founder that didn’t get very far the first time. This is kind of a universal problem, and there are I think two broad answers to it. The simple one is there are lots of search firms that can help you source candidates and kind of get up to speed, help you with the process, and if it makes sense for you at the given time I think that’s a good thing to do. But More importantly, the sort of way to hack this problem is to use your networks, use your investors, use anyone you know to try to get introductions to people who are considered best in their field, in whatever discipline it is that you need to hire for. And so whether if you’re trying to hire a head of HR, and let’s say you’ve never done that, and you don’t even know exactly what an HR person does, which by the way, there’s no shame in that, it’s very common, I get that question a lot. Or, you don’t know what a CFO, you’ve never met one, and you don’t know exactly what they do, and you don’t even know when the right time to hire one is. If you can get introduced to a few heads of HR, who are operating in bigger companies and have experience and are really respected, even if they’re not candidates who would never dream of leaving their current position, try to meet them so that you can, first of all, learn a little bit more about what they do, what their teams look like, what their experiences have been in the past, so that you get your own sense of what greatness is in a particular position that you’ve never hired for before, and ask questions, familiarize yourself with what the job is, what they think the key skills are to look for, et cetera. You can get a long way, you can get a lot smarter by just meeting a handful of people who are top of their craft in each of these positions, and I would strongly urge people to do that.
Craig Cannon [15:53] – I think that’s a great point, people love to give advice, so if you come in and not as someone trying to poach them, but just like tell me, teach me, that would be powerful. Next question, so we have tested our product in Europe, and now we’re thinking about expanding our business to US markets. What are the most common mistakes that foreign companies do when they expand to the US?
Ali Rowghani [16:13] – So this, it depends a little bit what the product is, and whether for instance there’s kind of differences in a regulatory environment, US, Europe that pertain to the product, et cetera, assuming there’s none of those edge cases are involved, I think generally the biggest mistake when you take your product from one market to the next is assuming that the customer is very similar and that the customer has the same pain point, this is often a little bit less of an issue if you’re a B2B product than a B2C product. But I think that the best first step is to make sure that you’re familiar with the customer in the US in this case, and what are the issues that US customers face and how are they the same versus different than the customer that you already serve. And then the second thing is in almost all cases, again it depends on what type of company you are, but if you’re formally thinking about introducing a product in a new market, particularly a market as big as the US, it almost always requires feet on the ground here, even if the product and engineering team stays away, that you need sales and marketing et cetera to be here on the ground, to be able to open the right doors, interact with the customer and be able to help you sell. So I would say the mistaken path would be assume everything’s the same, be blind to regulatory and other issues across markets and try to do it without any presence in this country.
Craig Cannon [17:39] – Okay so following along with that, someone asked a sort of related question, if you try to enter a market, say the US market, and it didn’t work out, how would you go about shutting down that office?
Ali Rowghani [17:53] – I don’t think there, I’m not aware of any tricks here, I would say that you should, the labor laws differ country to country, they’re very strict in places like France for instance, about how you can lay off employees, I would say in all cases you should try to be very open and transparent, compassionate with the people you’re letting go, but, and I would be sensitive to the legal environment in which you’re operating, but generally if you decided that you wanna shut something down, I would get started and try to get it done sort of quickly, but in a way that’s again sensitive to the legal constraints, and also to the people that you have.
Craig Cannon [18:36] – Great, next question. What are the most common mistakes you have seen growth founders make?
Ali Rowghani [18:43] – Probably the most common mistake or category of mistakes, is due to the fact that sometimes founders don’t realize that their job description changes when they go from a smaller company, 10, 20 people who are just, everyone’s jamming and trying to build out the product, to a company that’s 50, 100, 200 people. The job description of a Founder/CEO changes dramatically as a company changes, and said simply in the first phase, it’s really just about building a product, and the company’s only going to succeed if the product finds product market fit, and so in most cases the CEOs are involved in building the product, designing the product, selling the product, demoing the product to customers, et cetera or all of the above, and unless you’re doing all of that, you’re probably not doing the right thing, you’re not supposed to be specializing and worrying too much about leadership and building a team, et cetera. Phase one is all about building a product that people love and getting an early enthusiastic group of adopters, and it’s all hands on deck, and the CEO is just sort of one among many, the first among many when it comes to like, building, selling, designing, supporting the product that you have. But as the company grows and you get to this growth stage, so call it 50, 100 employees. At that stage the company needs real leadership, so the CEOs job shifts way from doing to leading, and so you have to transition from doing less, you shouldn’t probably be answering support tickets anymore, or being the only person who demos the product to customers, or being the primary sales person, or being the person writing a bunch of code, and that transition is hard psychically for someone who maybe is really great at writing code, and now really shouldn’t be doing it anymore. It’s also sometimes jarring to the company, like wow you used to be the biggest code committer and now you’re not writing any more code, what do you do? At the growth stage, the unique job of a CEO is to build the company. If in stage one it’s to build a product and stage two is to build company. And so as I mentioned, building a management team and making sure those people worked together establishing the strategy and alignment around that, and worrying about culture and nurturing that, those are the characteristics of a job description for phase two, and it’s hard to make that transition, so where I see people go wrong or when you have bumpy times, often it’s because a CEO doesn’t understand that their job needs to change, they grasp things they shouldn’t do and they become a bottleneck to decision making and action for the company. Probably the second biggest mistake I see has to do with mistakes in hiring, and either it being rushed or forced, or decisions that are made that end up not working out, and setting the company back. And those mistakes are often made because hiring decisions are rushed, and the CEO is too involved in the doing to be able to steo back and spend enough time recruiting and getting to know executives, that I think is the highest correlate to executive hires that don’t work out, so I would say those are the two biggest, patterns that I see when things go wrong.
Craig Cannon [22:07] – And so related to that, last question, is about a board, so what do you think an ideal board looks like?
Ali Rowghani [22:14] – So this really depends on the stage of the company, if you’re a series A company, the ideal board is probably you plus some co-founders, plus your series A investor. I don’t think you want it to be very big. I don’t think you want it to be very noisy. Boards generally at that phase of life don’t matter a lot, I think that they matter in the sense that they can keep you accountable, they can create a cadence where you can think about the business and present your progress. Board members can be helpful outside of a board room, but the board itself shouldn’t be a big deal when you’re an early company. As you progress, and as you, especially as you start thinking about maybe being a public company or approaching an IPO, the notion of an ideal board changes, it needs to shift from being more investor driven to having independence, the reason for that is when you ultimately do go public, there are gonna be thousands and thousands of shareholders who don’t get to sit on your board, and the board essentially becomes this sort of fiduciary representative of all of those board members that don’t have access to management or access to the data of the company. And so they need to be independent people who don’t have prior investments in the company, and they also need to represent a diversity of skillsets, a diversity of backgrounds, a diversity of ethnicities, to be representative of the kinds of issues that are important to the company, and also are representative of this population at large. So you need to start thinking about that probably one to two years before you go public, bringing on independents who have a perspective that can help the company, but also over the long term, have the type of backgrounds that would make them effective fiduciary representatives of shareholders who aren’t on your board.
Craig Cannon [24:10] – Okay, great, that’s it, thanks Ali.
Ali Rowghani [24:13] – My pleasure, thank you.
Craig Cannon [24:15] – Alright, thanks for listening. So, if you have a question for a future office hours episode, you can send them to email@example.com and as always please remember to leave us a rating and review wherever you find your podcast. See you next week.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon