Learners and Knowers – The Entrepreneur’s Journey With The Learning Loop

Brendan Tolleson from Rev Partners interviews Matt in summer of 2021. There is a 14 minute interview here that covers the topics in this post.

Experience is a great teacher! This simple truth is one I have long held dear. We gain information, insights and possibly wisdom from both the real experiences we face and their impact on ourselves and others. And, since we all make good and bad choices, there is an endless string of opportunities to continually learn from and improve our decision-making skills and judgement.

Another aspect of learning from experience is that others want you to share your hard-earned knowledge with them. Said another way, others hope to learn from what you know. They want to avoid making and incurring the costs of those same mistakes and benefit from your experience. It is rewarding to share your experiences and insights with people to help them on their journeys and turn past successes and failures into value for others. But, as one CEO reminded me, “knowledge” earned from past experiences is an asset that is not always applicable to every future circumstance.

These two core aspects of life – being continual learners and sharing what you “know” – are at times at odds with each other. And, this is especially true for entrepreneurs on the road to company building. My core belief is that learning and knowing are both critically important to entrepreneurial success. But, in all the key aspects of the entrepreneurial journey, a continual learning or “growth mindset” is far more important than relying upon on what you or others “know” (or think you know). This is primarily true because the market context, the capabilities and personalities of the people involved and even the probabilistic nature of outcomes will shape the decisions and results of each entrepreneurial venture.

It is admittedly a little ironic to write a piece on how to systematically be a perpetual and iterative learner. It implies that I have some knowledge that can provide insights on this topic. Thus, my goal here is to inspire more conversation on learning and knowing and to continually learn myself. The “Learning Loop” approach suggested below, while a work in progress, hopefully offers some useful ideas for entrepreneurs and innovators of all types. We can all aspire to be lifelong learners with a passion for understanding and positively impacting the journey of life more deeply.

Introducing the Learning Loop

Partnering with talented founders and innovators for over twenty years, there are patterns I have observed around continual learners. It starts with genuine and passionate curiosity around a problem or issue. From there, having an ability to anticipate and frame the priority questions you plan to address starts you on a path to answers. But, perspectives on the answers to those questions are often varied, and the necessary facts and data incomplete. One technique for creating a more complete picture of a situation is something called triangulation which is a form of synthesizing information. However, you are often faced with making key decisions without complete or well-triangulated information. Those situations require a combination of good judgement and humility. And, since no one makes the best call 100% of the time, there are ample opportunities for feedback loops and iterative learning. We might even think of this cycle as the Learning Loop outlined here:

One of the most interesting questions about the learning loop is: when do I reach the point of “knowing” something? This question is even harder to answer in the ambiguous and dynamic world of innovation and entrepreneurship. The entrepreneurial context leads to a preference for making rapid decisions and trying to preserve flexibility to change your mind based on subsequent data, learnings and reflection. At Amazon, for example, decisions are often categorized as one-way and two-way doors. One-way door decisions are more consequential because the expectation is these decisions are irreversible. They require more ­­­framing, more triangulation and more deliberation before being made. Two-way door decisions can be reversed and can be made allowing for more iteration. So, two-way door decisions permit more speed and iterative learning than the one-way doors.

Curiosity and the Founding of Isilon

Let’s unpack all the elements of the Learning Loop starting with curiosity. Curiosity itself is an act of humility. You are acknowledging that you don’t have the answers but are passionate about trying to find them. It is also an act of boldness and courage as you question the status quo and choose to not just accept that the way things are done today is the best they can be. The most successful entrepreneurs I have worked with started by asking the question: why? Generally, their top line question is: why has a customer’s problem not been solved better than the way it is solved today? From there, a whole series of “why”, “what” and “how” questions flow. This trail of questions, with a genuine commitment to listening to customers and market forces, is the foundation for successful problem solving and product innovation.

Sujal Patel and Paul Mikesell founded Isilon Systems almost twenty years ago leveraging their immense curiosity and market understanding. They were software engineers at Real Networks and were deploying servers their teams built for streaming music files. However, the file storage they were pulling the music from couldn’t handle the size, volume and concurrency of how the files were being read. They wondered, especially in the context of increasingly standardized servers, why a file system hadn’t been built that could scale across servers and handle these types of files. They started asking other types of customers if they also experienced this problem with bigger files and volumes of files. The early feedback was compelling enough to quit their jobs (during a recession no less!) and start a company that would go on to redefine the storage industry.

Framing (and Focusing)

These curiosity questions and observations can take you and your team in many directions just like an engaging conversation with a trusted friend. But, to enable a learning loop, you typically need some framing and a focus around a core question or problem you are passionate to solve for a specific type of customer. There are many helpful resources for focusing on and framing the key questions. Clayton Christian’s book Competing Against Luck and its Jobs Theory is helpful to deeply understanding “what job you are hiring that product to do.” Greg McKeown’s book Essentialism helps you prioritize the most important problems or opportunities you want to take on in your work and your life. And, through that prioritization, he exhorts us to do “less, but better.” At a broader level, Michael Porter’s classic book Competitive Strategy helps frame how likely a new solution and market participant might be at succeeding in a given market. Finally, W. Chan Kim and Renee Mauborgne’s book Blue Ocean Strategy can help frame the specific strategic questions and choices your company might choose to combine in a unique way to prevail in a dynamic market. These books, and other resources, can help entrepreneurs frame and focus the core questions they are trying to answer around customers, products, alternative solutions and markets. In addition, the practical advice from other entrepreneurs, functional experts and experienced investors/VCs is invaluable. Experiential learning and contextual awareness consistently provide the type of guidance a framework can’t offer. So, balancing the real world with good concepts and theories leads to successful framing of analysis and ultimately decision making.

Triangulation on Data and Facts at Apptio

While this framing phase of the Learning Loop can feel overwhelming, it is intended to help clarify and simplify the core questions and issues to be addressed before digging deep into discovery. The discovery or triangulation stage of learning is when you are combining facts, observations, opinions and early experimentation as the inputs for making key decisions. And, it is critical to push yourself to find hard data and accurate facts so that you can make judgement based on the best information available at the time. I find this phase to be the most challenging and complex as data is incomplete and perspectives are often different. Your circumstances are made more challenging by the doubters and skeptics who believe that a better solution from an upstart is improbable, if not impossible. So, it takes incredible inner strength to continually learn and persevere in the valley of triangulation.

One of the greatest triangulators I have ever worked with is Sunny Gupta. He has founded multiple companies, and we have worked together on building three companies over the past 18 years. He remains CEO of a highly successful technology company called Apptio. I recall his approach to triangulation at work in the formative days of the company back in 2007 and 2008. He was constantly asking the Chief Information Officers (CIO’s) of enterprise customers and their direct reports how they linked financial and technology operations data together to manage the IT organizations relationship with finance and the business units. And, he would also ask these prospects for the type of solutions they would buy, and their willingness to pay for the solution. When the data points sometimes came in to conflict (one big bank said they would NEVER buy software delivered “as a service” and years later bought Apptio’s SAAS offering), the triangulation process provided the information required for Sunny and his team to make some one-way and two-way door decisions in the early months of the company. Over a decade later, they are still using triangulation to rapidly iterate and decide.

Decision Making and the Continual Learning Mindset at Smartsheet

Decision making can be daunting for an entrepreneur because even the best triangulation leaves us with some uncertainty at the decision point. And, as Annie Duke so effectively lays out in Thinking in Bets, good process and logic does not guarantee successful outcomes. Outcomes can be impacted positively or negatively by macro forces (mainly political, economic and societal) you can’t control, the Learning Loop approach you have significant control over, and the probabilities inherent in an uncertain world that you can only estimate. These risks and dependencies highlight why so many start-ups fail and why every entrepreneurial journey has its ups and downs. That is why an agile, data-driven and iterative approach is generally better than a “big bets” approach to learning and decision making. To clarify, I am an advocate of making big bets, but also learning into those bets in a rapid and iterative way.

Sometimes key decisions lead to positive outcomes like a successful hire, a paying customer or a key partner, and sometimes the outcomes are negative. However, there are opportunities for learning in every outcome. As my college soccer coach, Bobby Clark, would say after a match: “every outcome is a stepping stone or a stumbling block, and you get to decide which one it is.” And, those learnings are critical to a company’s ability to iterate and improve. Thus, the new learnings bring you back to curiosity and the “trail of why’s” that set you up for the next lap around the Learning Loop. If you want to dig deeper into the psychology behind this approach, Carol S. Dweck’s book Mindset is excellent on distinguishing between a growth mindset and a fixed mindset in many aspects of life. Hopefully the Learning Loop model can be a helpful and additive construct for you as an entrepreneur and as a lifelong learner.

In the early days (2006 – 2009) of Smartsheet, there were plenty of skeptics who doubted the need for a flexible, cloud-based collaboration service. And, while the founding team had great depth and experience designing and building software applications, they learned the degree to which business users had starkly different preferences than technical users on discovering and leveraging modern software. The company almost shut down in 2009, but collectively they decided to understand the needs of business-based customer better and persevered. The team iterated into a better product front-end, but at that point had limited capital to acquire customers. Learning how to cost effectively acquire customers through Search Engine Optimization (SEO) and Search Engine Marketing (SEM) became an enduring strength of the company. In 2011, they discovered that some customers would benefit from interacting with inside sales reps and customer success reps. And, as Smartsheet successfully hired people and built those skills through trial and error the company’s growth accelerated. Since then, under Mark Mader’s continued leadership, Smartsheet has iteratively learned how to sell their product, expand capabilities and deliver solutions that create even more value for their customers. Today, they are a rapidly growing public company and outstanding example of a culture of continual learning.

Applying the Learning Loop to Your Priorities

Let’s return to the initial question about the balance between being a learner and knower. I must admit that it is fun and satisfying to be “in the know” or to be asked to share past experiences, knowledge and advice with others. Since many elements of human nature and business dynamics remain constant, these learnings can be incredibly valuable to others. But context, technologies and market dynamics are ever changing, so one entrepreneur’s experience will vary from another’s. The most successful entrepreneurs often exhibit the right balance of conviction and coachability when they are faced with a difficult choice. It is important as a decision maker to make those choices based on what you know or at least believe to be true (your convictions), while continuing to embrace the Learning Loop to see when and where your convictions should shift. The act of deciding focuses an organization on a path to collective best actions and outcomes. However, maintaining the humility and curiosity of a learner is the key capability that tends to serve your customer, your employees, your partners and even yourself well in the long run. My biggest hope for each of you is that you can find people whom you trust and enjoy learning together with for years to come. And, through teamwork and your own approach to applying a Learning Loop, you find success and satisfaction along the journey of entrepreneurship and life.

Insight from the “Day One To IPO” Experience

Technology IPOs have rebounded the past couple of years with an especially strong start to 2018. In the first four months of 2018, there have already been 17 tech IPOs raising over $8 billion which is double the pace of 2017 in deals and capital raised. And, three companies founded in Seattle (Docusign, NLight and Smartsheet) all went public last week. At Madrona, we have had the privilege to support four portfolio company IPOs the past 2 years; Impinj, Apptio, Redfin, and Smartsheet. In every single case, we were involved at or near Day One and on average it took 12 years from our initial investment to IPO milestone.

When you invest in entrepreneurs and their companies from Day One, you build deep, trust-based relationships. You also learn some key insights that could help the next generation of innovators who are aspiring to build companies change the world. These insights include:

  • Be obsessed with early customer-product fit
  • Maintain “unreasonably high” expectations and standards
  • Constantly look “around corners” to anticipate what needs to change
  • Align for long-term and mutually beneficial strategies
  • Establish and maintain deep, trust-based relationships

Be obsessed with early customer-product fit

Successful companies always begin with a maniacal focus on a core customer and problem. This initial focus is on customers and not “markets.” Markets often don’t exist yet when a team starts a company to solve a problem better than it could ever be solved before. And, the customers themselves take two general forms – the user and the buyer. Sometimes these two roles come in one person, but often in B2B businesses they are separate.

Today end users are increasingly empowered to find, try and adopt innovative new products. This bottoms-up adoption creates momentum for new solutions in both the consumer (Spotify, Redfin) and commercial (MongoDB, Smartsheet) worlds. Often these better solutions to real problems lead to customer adoption and early monetization. And, it is then that new channels in the consumer world or economic buyers in the commercial world emerge. But, it always starts with an end-user with a specific need (either explicit or latent) that can be better addressed with new products. The broader market or category for innovative products usually emerges later.

At Madrona, we find that you want to work with entrepreneurs who have high conviction about what the customer is hiring them to do. But, we also look for people who will hold their convictions “loosely in their hands” and willingly alter and shift their convictions as data and experience point to the need for changes in products, strategies or team members.

Mark Mader, CEO of Smartsheet and Matt McIlwain

The Smartsheet team’s vision for a cloud collaboration platform for teams has been a constant, but it took two versions of the user interface to gain broad customer adoption. And, over a decade later, they are using machine learning, API integrations and workflows to continually improve how customers leverage Smartsheet.

Maintain unreasonably high expectations and standards

Entrepreneurs have a complex mix of personal attributes that often include substantial confidence and conviction combined with genuine humility and curiosity. Better yet, successful founders have a healthy dose of self-awareness of their strengths and weaknesses.

With these attributes as a foundation, it is possible to set unreasonably high expectations. High standards attract other talented people to be part of a team building truly breakthrough products and go-to-market models. And, high expectations motivate those talented people to do their best as individuals and as a team. This dynamic often creates a virtuous cycle of talent attracting talent, experiments that deliver iterative learnings, and ultimately the creation of market leading products that exceed customer expectations. Jeff Bezos summarized this dynamic well in his most recent Amazon Shareholder Letter.

The biggest risk to setting such aggressive standards and aspirations is when founders/executives don’t have sufficient humility and self-awareness to recognize their limits. These limits may be their personal development areas or the limits of those things they can’t directly control. These can produce internal dysfunction or cultural decay. Combining high standards and high self-awareness is often a path to success.

Constantly look “around corners” to anticipate what needs to change

One critical way to constantly calibrate which standards and expectations are reasonable is to look around corners and anticipate strategies, systems, structures and even functional leaders that need to change. Companies, and their leaders, are often better at introspection and adaptation when they face struggles. But, many of the very best performers are looking ahead, in the face of rapid growth, at how scale drives the need for adaptation.

Several years ago, Apptio founder and CEO Sunny Gupta identified that their strategic platform approach to cost transparency products would not enable them to predictably and

Matt McIlwain and Sunny Gupta

sustainably grow. He and his team developed a complimentary strategy to “appify” core customer use cases, including IT planning and financial management, and sell them to relatively smaller enterprise customers. Their enterprise applications strategy has meaningfully contributed to customer and revenue growth in recent years.

I think of the CEO role as really the Chief Alignment Officer. They are constantly looking out ahead toward the macro trends, market dynamics and internal constraints that need to be addressed. Often these forces are not going to show up in current operations in a clear way. CEOs need to find systematic ways, both quantitative and qualitative, to identify what is breaking (or will be breaking soon) and prioritize what must be fixed. Then, it is essential to align their teams, strategies and structures toward overcoming these challenges before it is too late.

Align for long-term and mutually beneficial strategies

Companies that focus on the long term are often internally aligned. And, of equal importance this clarity of objectives and goals helps produce external alignment. The best CEOs are seeking alignment externally with customers, partners, investors and more. They triangulate their own perspective along with internal and external viewpoints to make decisions. And, they look for mutually beneficial ways to win in the market.

While innovation can negatively impact outdated and legacy products and customers, finding alignment around a “growth mindset” can create a bigger pie of economic success. Satya Nadella has emphasized this mindset as CEO of Microsoft. He constantly encourages the company to be more customer and externally focused rather than competitor and internally focused. From a partnering perspective, this means actively working with game changing startups and balancing platform goals with the temptations to build products to that will compete with partners.

For startups this external alignment is crucial to long term company health and success. Entrepreneurs like Kabir Shahani of Amperity or Bob Muglia of Snowflake have identified a customer pain point and worked hard to align their product approach to meet this customer pain. They have also recognized the power of go-to-market partners such as Microsoft and AWS which provide core computing platforms for these global customers. These go-to-market partners can be extremely valuable for a startup, but it creates some inevitable tension between the platform and application provider. For start-ups, partner alignment becomes one of those key areas to be regularly assessing and looking “around corners” at what is on the horizon.

Establish and maintain deep, trust-based relationships

The mission of taking a Day One idea from improbable to inevitable is a daunting one. It is filled with mountaintop moments and times of doubt and discouragement. The reward, far beyond the financial benefits, is truly in the experiences and the people you get to travel the journey with together.

These relationships are built on respect, candor and integrity. They are best strengthened by how you handle the more challenging moments in a company’s life. When you miss a quarter. When you lose a key employee or customer. When you uncover unethical or self-centered behavior. When an external partner lets you down. When you must decide whether to sell or not to sell. There are many of these moments along the journey. And, nobody’s judgement or demeanor will be perfect. But, trying your best to do the right thing in the right way will strengthen the bonds of trust and respect with others. It is simply amazing how often those people who impress you most in challenging times become lifelong friends and professional colleagues.

Every journey from Day One to long run success is indeed a winding road. Customer obsession, high standards, looking around corners, long-term alignment and mutual trust are a powerful combination of attributes that I have found increase the potential for success along that path. Success has many dimensions including product success, customer success, team success and most importantly success in life. While an IPO is just a milestone along a bigger journey, it is a monumental one. It signals a coming of age for a team and a company that is ready to embrace new opportunities and expand their horizons. And, if a company is ready, current market dynamics are highly favorable for companies to access capital and leverage the benefits of being public. We look forward to helping to build more teams and companies that get to experience these great moments – and we hope you are on one of those teams!

Interested? [email protected]