Episode 372 - Todd Westra / Stephen Wolfe

00:25 Hey, welcome back to another episode of the Growth and Scaling Podcast. Today, we are working with someone who is, has built a business around helping businesses grow and scale, which is always fun. Steve, will you tell us who you are and what you do?

00:40 Yeah, I'm the co-founder of Growth Street Partners. We're a $200 million growth equity firm based in San Francisco. At Growth Street, we make minority growth investments in founder-owned and led businesses running vertical SaaS and tech-enabled services companies. Typically, they have one to five million of annual recurring revenue. We partner with the founders that are from industry, typically, people who live the problem their business is now solving. We call this founder market fit, which is really a proxy for product market fit. There are experts in their field.

01:17 I like it.

01:18 Yeah, yeah, there are experts in their field and we're the experts in helping these founders at this stage grow faster and with less risk.

01:25 Love it, love it. I mean, it totally makes sense. And I think that you're targeting people who are post-launch, they got revenue coming in the door, they're looking for what to do next. Is that right?

01:38 Yeah, that's exactly right. Yeah, they know they have something that's working, but they haven't quite figured out how to scale it. And that's where we come in and help them with some real tactical help.

01:50 I love it. Now, this is, you are like a perfect guest for this podcast because that's who we're talking to. That's my target as well. And as we talk to people who are in this stage of growth, like a lot of them feel like, hey, I'm generating revenue. Surely I'm doing things right. Why do I need someone to tell me what to do next? What is your response to an attitude like that or I'm sure you see this a lot, but how do you kind of see that and how do you help them?

02:20 Yeah, I think a lot of the times entrepreneurs actually feel pretty lonely. And some of the more competent ones think that they've got it all figured out. But, you know, in a cold, dark place, sometimes they wonder, right? They wonder if they really truly have it figured out. And we can be a great sounding board for them because we have all this experience, all these portfolio companies where we can say, oh, geez, you know, these two people have gone through this same issue before, or this person went through it and they totally messed it up. And here's how not to mess it up, you know, and this woman, she figured it out, you know, why don't you go talk to her? And it's a really nice way to be a well, an experienced and well-educated sounding board, hopefully.

03:16 I love it. So you're leaning into your community that you're building of portfolio companies.

03:22 Yeah, absolutely. You know, yeah, when an entrepreneur is thinking about hiring a director of marketing, you know, the first thing we do is say, hey, why don't you talk to these two directors of marketing in our portfolio or in our past portfolio where we know that they were good, ight? And that helps the entrepreneur calibrate. And so we've developed a whole process for like how to make sure that they don't stub their toe you know, 

03:52 I love it.

03:53 as many times as they would otherwise.

03:54 I love it. You know, a lot of people are scared at the point where they realize that they've got a business working and they aren't exactly sure what to do next, but they know they need money, but they don't know really how to raise the money, and they don't know how to get strategic money. How do they find someone like you? I mean, what is the process that you see from a lender, from a, I guess, what do you call yourself? I mean, you help them. You got a portfolio of companies you're investing in. How do you find these companies? What do you speak to them? How do you speak to them?

04:29 Yeah, well, so I think it really all starts with founding or excuse me, finding founders from industry, right? So what we're, what we're looking for is somebody that spent a career in a particular end market and, and the problem that their business is now solving that problem found them. 

04:53 I see. I see.

04:54 They didn't go, they didn't, they didn't go, they didn't go searching for a problem. I think a lot of venture capitalists out there are looking for the smartest person that can go find a problem and go figure it out. For us, it's like Mike Martin, the founder of Hotel Effectiveness, he worked for IHG for a long time. And he saw the labor issue that his business now solves. And so we look for those attributes. And those people have deep customer empathy. But they usually haven't experienced scaling a SaaS business before. And so, that's where our partnership is really valuable, right? We have seen that before, and so we can be really complimentary. And so we're just, we're looking for that match of experience and skill sets.

05:46 I like it. So what do you do for them? Are you bringing them money? Are you bringing them community? Like what is it that you're doing to actually help them?

05:53  I mean, I think the answer is yes. So we're doing all of that. They definitely get money. For every investment we make, maybe 50, 60% of it is going on the balance sheet. And the balance is liquidity to the founder, to the early investors, things like that. And we're definitely putting growth capital on the balance sheet. And then we're definitely introducing them to our founder community so that they can learn from them. And frankly, they can learn from this new founder. And then we do a lot of the basic stuff, right? Like we're helping them recruit the team. We're helping them put in place the systems and processes to be able to scale. We're getting them the data that they need to be successful so that you need to get all of your prospects into your CRM. You need to get all the attributes about them and you need to be able to figure out a way to shoot fish in a barrel.

06:57 100% you do, yeah, yeah. No, this is fascinating, because a lot of, to your point, I love your avatar. I love who you're going after here, because these people literally, in many cases, accidentally started this business, because they just needed someone to help them fix this problem. And when you find someone with that empathy and that experience in the industry, you know they're not just trying to come up with an idea out of the back of their head, saying, oh, this would be cool if someone did this. It's solving a problem, but they really don't have the experience of running and operating a business. Is that right?

07:33 Yeah, absolutely. I mean, you know, sometimes we'll come across entrepreneurs where they've done it a few times, but they've still come from industry. But like our view is that it's incredibly hard to scale a business from a couple million to 10, 20, 30, 40 million. 

07:56 It is.

07:57 That is a extraordinarily difficult process. And I've never once in my entire career seen it be a straight line, right? It goes up and down and sideways and all over the place. And the domain knowledge and the real passion for what they're doing and the, like having a non-monetary goal where they're, you know, it's like, as I said, Mike Martin coming out of industry, he's desperate to improve his end market, right? He loves his customers. He loves his industry. And that allows you to navigate that nonlinear path, right? Because you've got to have a lot of grit and you've got to have a lot of passion to get through.

08:42 Yes you do, yes you do. Especially when you're trying to do it on your own. And I'm imagining that you probably pick businesses up that are at all stages of growth. I mean, you mentioned the one to five million, but you also gotta consider, there's some people that have higher ticket items that are in that 20, 30, 40, 50 million revenue that are still figuring out the same problem as the $2 million guy. It's just, they have a larger ticket item.

09:04 Yeah, yeah, I mean, I'm sure that there are those situations for us, we're extremely focused on this stage, right? 

09:14 Cool.

09:15 So we, we want we want to make sure that a company, you know, has, call it, as I said, one to 5 million of revenue, maybe 20 to 50 employees, because that,

09:26 Yeah, that's a good size.

09:27 Yeah, that stage of development is really unique, where we believe that a great founder can almost single-handedly get a business from zero to a couple million in revenue, right? 

09:39 Agreed. Just by sheer will. Yeah.

09:40 Just by sheer will. Yeah, exactly. If they're willing to devote their entire life, all their money, everything to doing that, then they can do it, right? The tricky part is then getting to this point where, hey, can I recruit in great people? You know, am I willing to put in place a system and a process for scaling where I'm not going to be the hero, right? I'm not going to swoop in and get the big deal. And through our experience, we've gained a lot of lessons along the way for how to help the entrepreneur get to that point.

10:16 Right, right, right. I love it, I love it. And I think that you're exactly right to target this market because every founder kind of gets in their head, hey, I'm doing it, I'm making money, but they get stuck in that one to five area because that's as far as their tentacles reach. I mean, you've only got two arms and 10 fingers and when you stop touching certain areas, sometimes that means that area stops getting any attention but it's helping them get out of that where they're not touching any of it, except for the leadership.

10:52 Yeah, exactly. Yeah, the way the analogy that we use is that when we invest, the entrepreneurs are kind of like bumblebees, right? They're going from plant to plant, right? So they focus on sales, and sales goes well, and then they fly over to marketing, and then marketing goes well, and then they fly. And you can't be on five flowers at once, you know? And so if we can help them figure out how to hover above the flowers and get their, you know, directors or VPs of the different functional areas and put in place a process where they're going to be informed of the things that are going on, but they're not actually going to do them, right? And that's a pretty incredible moment right because when we invest the entrepreneur can't take a vacation, right? 

11:48 Yes.

11:49 And if they do they've got their laptop open the whole time, right? 

11:52 All the time. Stop, stop talking to my wife. 11:53 And yes, exactly! Yes, so if we can help them figure out a way to be able to take a vacation and to close their laptop, then we're gonna get them to this point in their maturation where the key person risk is really reduced, right? And if we can reduce the key person risk the value of that company goes way up, right? Not just because they're bigger, not just because they have scale, but an acquirer or an investor can say, oh, Todd could get hit by a bus and the business still works, right? So the risk goes down, the value goes up. And if we get to that crazy event, right? We have a friend for life because the entrepreneur is like, wow, I got to go on vacation, I got to close my laptop and oh, wow, you know.

12:46 Things didn't die. Yeah, yeah. No.

12:52 I sold my business for a lot of money, you know? Yeah. So it's just, it's a really fun phase of the business for us. And we get to be a meaningful part of this leg of the journey.

14:39 That really is a great spot to be. I'll never forget, I was during COVID, I actually got COVID about a year into COVID and I got the respiratory one where I was, I literally got hospitalized. Yeah, I was out for the count for like a month. 

14:55 Oh man.

14:56 And I was so nervous because I had just launched a new operation beginning of COVID and I was so scared that everything was gonna be gone when I got back. Fortunately, my experience paid off. And when I got back, none of my clients even knew I was gone. 

15:10 That's the best, that's the best. 

15:12 It was the best. I had a whole month out of the picture and all my clients were still there making their payments and my business still operated. So,

15:19 Yeah. Yeah. Yeah, yeah, you gotta be careful. If your family listens to this, they're gonna force you to close your laptop on the next vacation. Yeah!

15:28 Exactly, exactly. Now when you come into these situations, it's always exciting for a business founder to be generating positive revenue. It's more exciting when they don't have to be touching everything. What are some of those key benchmarks? I guess one thing, take a step back. What are some red flags that you see? When you see a business that's in that launch mode and they're not sure if they're out of it or not, Maybe not even red flags, but warning signs that, hey, it's working, but I gotta figure this next thing out. What are some typical things you see?

16:06 Yeah, OK, so two things that we really look for. And these aren't necessarily red flags or yellow flags, but they're just flags. So one is we want to see if there's anyone on the team that we think is as smart or smarter than the founder, 

16:29 Love it.

16:30 Which is kind of a crazy thing to do. But if you walk into a room and you meet the team and you're like, wow, these are all a bunch of Dodos’ you know, that's not a great sign, right? If the entrepreneur is able to recruit in a really smart individual, then you're like, wait a second, that person decided to take this risk to start this, you know, to go work at this teeny company, they must know something, right? 

16:59 Yeah

17:00 And that's really important. And then the second one is around sales reps. So the founders that do, uh, all of the selling themselves, essentially, that's a real red flag to us, right? If, if they are able to get even just one sales rep to be productive and that person doesn't have like the founding of the business in their, in their blood, you know, really powerful because that says like, Hey, wait a second. This transfer of knowledge, this transfer has happened. It's been done once and all we have to do is clone that. And we need to figure out, well, what was it that they did to hire that person, to train that person? What systems are they using? What keywords are they using? 

17:48 Totally.

17:49 You know, things like that. And those are two things that we really look for.

17:53 Love it. Those are great things to make people aware of. And for those of you listening, if you're in this transition stage from launch to growth, there are some really key things you need to be thinking about. And I'm so grateful that Steve's touched on a lot of them, but you need to be aware that scaling is much driven than launching. And scaling indicates that it's time to hone in. It's time to focus in on some things and stop being the solution for everybody and really identify of the people you've served so far, which ones do you want to serve more and which ones do you want to serve less? Steve, how do you work through that? Because I see a lot of people still getting stuck on serving the wrong clients and it wastes all their time. How do you work through that with people?

18:44 Yeah, yeah, that Todd, that's an amazing question. We we talk about hiring backwards, right. So, so the average entrepreneur, or maybe the below average entrepreneur, hires forwards, right, they're always like, well, you know, if I just hired a VP of sales, you know, or I just hired a VP of marketing, that would be the solution, right. And we say, well, wait a second, you don't even know who you want to sell to yet. You don't know who you want to market to yet, right? Like, let's go figure out who are our best customers, who are our worst customers, and what do they look like? And, you know, what attributes do they have? And then let's go find as many of our lookalikes, our best customer lookalikes. Let's go find as many as we can. And then once we have all the fish in the barrel, right? Let's figure out, okay, what does a VP of marketing look like that's gonna be best suited for these fish, right? 

19:52 I love it19:53 What does a VP of sales look like that's best suited for these fish? And so we always start with looking at the customer base first, not leaning in. So that actually, you know, to your last question about red or yellow flags,

20:07 Yeah.

20:08 like when an entrepreneur says to us like, oh, geez, all I need is a VP of sales. We're like, all right, maybe not the entrepreneur that's perfect for us.

20:18 Right, right, that is a red flag.

20:22 Yeah, yeah. It might be a good indicator if they've done all, if they put in place all these building blocks that, and they're ready for the VP of sales, but oftentimes at, you know, one or two or three million of revenue, they're not quite ready.

20:40 Well, and even to the point of this conversation, we started off by asking you, who's your avatar? Who do you like to serve? 

20:49 Yeah.

20:50 You knew exactly who you liked to serve. And even when I tried to push you into another category, you said, no, we just like this one. That is indicative of a company that is going to grow in scale, is when you know the person you wanna serve. And I just think so often when we're launching, it's like, hey, You're gonna give me some money? I will help you. Let me just help anybody and everybody. But when it comes right down to it, we all know that, let's say the last 20 clients we onboarded, I can't stand these five people. But I love these three. How do you get more of those three and less of those five, right?

21:24 Yeah, yeah, that, that whole process, or that mentality is paramount to success, right? That the best board page, you know, in a board deck I've ever seen was the first page of one of our portfolio companies and the founder, the put it in first page and the sub or the title of the page was what we're not going to talk about today. Uh, and it was awesome. It was awesome. And that mentality of like, hey, we need to be really focused. We need to say who are our customers and who are not going to be our customer. You know, in our, in our, in our product, what's going to be like a feature in our product and what is not, you know, like, uh, where, where are we going to partner as opposed to build, you know, and those, though that mentality, uh, is, is crazy valuable.

22:24 And you don't need to look any further than Steve Jobs, who came back into Apple and said, why do we have 300 products? We need 10, right?

22:32 Yes, yeah, totally. Yeah.

22:34 Hone in, become the expert, dial a delivery of how you're gonna do your product or service, and then just lean in on it all the way. This is so awesome. What a great conversation. Steve, I didn't even get a chance to ask about your business, and I want to spend just a couple minutes, because I think there's a lot that you've shared that is so applicable to everyone listening. How have you been able to apply these to your business? And just give us a little insight, like. Do you eat your own cake? Is this something that you are really implementing yourself?

23:08 Yeah, absolutely. So Growth Street is a small investment firm based in San Francisco. We have, call it 10 employees. So we're at a growth stage too. We've been in business called seven years and the people grow with the funds and we're on our second fund now. 

23:25  Awesome.

23:26 First one was 70 million, second fund's 130 million. Third fund we'll raise in another year or two.

23:28 Good for you.

23:29 The, the thank you. Yeah. The, you know, the trick, you know, uh, for us has been about building the team, which is, you know, exactly what the trick is, uh, for our portfolio companies too, right?

23:49 Right, right.

23:50 And the, the thing that we think about for our portfolio companies and for growth street is like people that want to join, uh, smaller firms or, uh, startups or scale ups, uh, they're, they're generally risk takers, right? 

24:02 Right.

24:03 Like they're not going to go work for this big, huge corporation. They want to take a little risk. They want to bet on themselves. Risk from my perspective is like volatility, right? It's like you can have a fantastic employee and you can have a terrible employee, right? The risk associated with that process. Right? And so figuring out how to make sure that you eliminate those very bad employees and you really figure out what, how you identified those great ones, right? And there are little tricks over time that we figured out at Growth Street and we've also helped our portfolio companies figure out. So like, for picking entrepreneurs, one thing that we really like is like an entrepreneur that by their nature is a risk taker because they started this business, but maybe they have an MBA, maybe they have a law degree. Maybe they worked at a big company where they saw some structure and saw what a, how a well-run business is. And finding that balance of, hey, somebody that's willing to take the risk for, you know, to go join Growth Street or go start a company or go work at a small company balanced with that structured experience, that combination can be a really exciting and we've had a lot of success at Growth Street with that too.

25:30 Love it. love it. You know, and in closing, I would love to get your take on this because you've mentioned a few times, you know, the aspect of the community, you know, you talked about how you love to have your portfolio companies kind of interact with each other and ask those difficult questions. How much of a benefit do you see having a community like that as a resource? How does that help those companies get past that transition stage?

25:55 Yeah. So every entrepreneur thinks their challenges are unique. So, and in some ways, in some ways they are, but in a lot of ways, you know, companies at this scale, this stage, they're all seeing, you know, things that are somewhat similar. It's like, you know, they rhyme. And being able to connect the dots for those entrepreneurs is really valuable. So like, you know, we have a few HR tech related businesses and somebody, you know, one of them raises their hand and says, we're thinking about the ADP marketplace. You know, we were wondering, and it's like, well, geez, this other entrepreneur thought about the ADP marketplace. Why don't we set up a call and you could talk about like the issues, you know, the opportunities. And that just accelerates their development and there are, you know, I can't tell you the number of times there have been situations like that. It's just an infinite number. And an entrepreneur operating in isolation is just inherently gonna move more slowly.

27:08 Slowly and make more mistakes that they could have easily avoided if they'd asked somebody for advice, right?

27:14  Definitely. Yeah, exactly. Our motto here is grow faster with less risk, right? So make fewer mistakes, yeah.

27:26 Love it. I like that a lot. Steve, this has been a fantastic conversation. For those listening, I highly recommend you look at Steve's organization. Growth Street is an amazing place where people like you can come to not only raise the money but also be a member of a community. You know, I'm a huge, huge fanatic about community and how that can affect your ability to grow and scale with less bruises, as you mentioned. And so, I think that as you consider your path forward, really look into some of these options. There are some great, great people like Steve who understand your pain, understand what you're trying to do, and I highly recommend you dig into this and take a look. Steve, thank you so much for being a part of our conversation today. Is there anything you want to leave? Any last 10 bits of advice or ways that people can connect?

28:11 Yeah, so I really appreciate you inviting me on Todd, and you can reach me through our website, growthstreetpartners.com, or you can email me directly at steve@growthstreetpartners.com. I'm really excited about what you're building. I think some of the stuff you're doing around the Captain's Council is really exciting, and our entrepreneurs, we always encourage them to build other networks or groups and it's not, they're not purpose built for this stage. And what you're doing with this podcast and what you're doing with that community is really exciting and that's why I wanted to join it.

28:56 Thank you, I appreciate that. And for those of us saying, just do us both a favor, don't go it alone. You've got to tie yourself to some people who can guide you. So congrats on the launch, move forward together, and move forward stronger. Thank you so much Steve for being a part of it today.

29:13 Awesome, thank you for having me.

2023 The Growth and Scaling Podcast, Inc. All Rights Reserved.