20VC Databricks CEO, Ali Ghodsi on The 3 Phases of Startup Growth, How to Evaluate Risk and Downside Scenario Planning & Who, What and When To Hire When Scaling Your GoToMarket

In this episode of 20vc, host Harry Stebings interviews Ali Ghodsi, the founder and CEO of Databricks. Ghodsi shares his journey from fleeing Iran as a refugee to becoming a tech unicorn founder, highlighting the stark contrast between his privileged childhood and the hardships faced in a Swedish ghetto. His unique experiences shaped his risk-taking yet cautious approach to business, including implementing "sky is falling" exercises at Databricks, which proved beneficial during the pandemic. Ghodsi discusses the intricacies of achieving product-market fit, scaling go-to-market strategies, and the challenges of transitioning from a single-product to a multi-product company. He also emphasizes the importance of culture and hiring in leadership while advocating for a direct approach in decision-making over gut feelings. His vision for Databricks is grand, foreseeing AI and data science's potential to revolutionize industries and improve lives on a global scale.

• Harry Stebbings introduces the podcast and the guest, Ali Ghodsi, the founder and CEO of Databricks.
• Ali Ghodsi's background includes being one of the original creators of Apache Spark and his research influenced Apache Mesos and Apache Hadoop.

This is 20 VC with me, Harry Stebbings, and we're joined today by an incredible unicorn founder. His journey is pretty remarkable and unique.

The quote introduces the podcast and highlights the significance of the guest's achievements and unique journey.

• Ali Ghodsi is the founder and CEO of Databricks, a company that integrates data engineering, science, and analytics.
• He has successfully raised over $897 million from notable investors.
• Prior to Databricks, he was involved with the creation of the open-source project Apache Spark.

And so with that, I'm thrilled to welcome Ali Godzilly, founder and CEO at Databrace, the company bringing together data engineering, science and analytics onto an open, unified platform so that data teams can collaborate and innovate faster. To date, Ali has raised over $897,000,000 for the company, including from the likes of Andreessen, NEA, Microsoft, Battery CO2, Green Bay and more.

This quote details Ali Ghodsi's current role at Databricks and his success in fundraising for the company, emphasizing the importance of collaboration and innovation in data teams.

• Ali Ghodsi's life changed dramatically when he fled Iran for Sweden at the age of six, transitioning from a wealthy family to living in a poor neighborhood.
• This experience provided him with a unique perspective on life, demonstrating both the difficulties and the possibility of overcoming them.

Yeah, I mean, I guess the interesting thing was that we fled as refugees maybe when I was six years old, from Iran to Sweden. But the really interesting aspect of that was that I was from a wealthy family and I was quite spoiled as a kid in Iran.

Ali Ghodsi shares his personal history of fleeing Iran and the stark contrast in living conditions he experienced, which contributed to his unique life perspective.

• Ali Ghodsi reflects on the relationship between happiness and material wealth, having experienced both abundance and scarcity.
• He emphasizes adaptability and finding contentment regardless of changing circumstances.

So what happened is we didn't have much money, so we were living in these one room student dorms with shared kitchen, my parents in their kids in this tiny room. So they kept evicting us because we're not supposed to be this for students, right.

Ali Ghodsi discusses the challenges faced when living in Sweden, including frequent evictions and the need to adapt, which influenced his understanding of happiness.

• Ali Ghodsi takes calculated risks, balancing optimism with a sense of paranoia due to the awareness that success can be fleeting.
• His experience as a refugee has informed his cautious yet opportunistic approach to risk in business.

I actually approach risk maybe a little bit different from some other people. At least I take calculated risk, and I believe in taking calculated risk. Otherwise, I don't think anything great can ever happen.

This quote encapsulates Ali Ghodsi's philosophy on risk-taking, highlighting the importance of calculated risks for achieving greatness while being mindful of potential loss.

• During Databricks' rapid growth, Ali Ghodsi would annually conduct a "sky is falling" exercise with the executive team to prepare for potential downturns.
• This practice proved beneficial during the pandemic, as the company had contingency plans in place.

So during the years when databricks was sort of growing super fast, every year, I would force the executive team every year to do this skies falling exercise.

Ali Ghodsi explains the value of preparing for worst-case scenarios, even during periods of success, to ensure resilience in times of crisis.

• Success can mask problems, and hypergrowth may lead to neglecting thorough processes and diligence.
• Ali Ghodsi emphasizes the importance of maintaining attention to potential issues and weaknesses, even when a company is performing exceptionally well.

The problem is, as everybody says, success masks all problems. So you can do really, really well, and you don't need to do all your homework.

This quote highlights the danger of complacency during periods of success and the need to stay vigilant and attentive to underlying issues.

• The search for product-market fit is compared to creating a hit song or movie; it's more art than science.
• It involves a feedback loop with customers, embedding engineers with them, and addressing core problems they are willing to pay to solve.

Yeah, I mean, I think product market fit is this really nebulous topic. I think there's lots of books written about it, lots of people proclaim to be experts in it, but I actually think it's one of those things.

Ali Ghodsi discusses the elusive nature of product-market fit and the importance of customer feedback in achieving it.

• In the early stages of a startup, it's essential to attract risk-tolerant talent who are comfortable with uncertainty and motivated by the building phase.
• Celebrating successes and maintaining a shared vision are crucial for keeping morale high during slower growth periods.

Yeah, I mean, first of all, I think you attract a certain type of talent. There are these people that join early startups. They take more risk, and they love that phase where they're sort of building stuff.

Ali Ghodsi speaks on the importance of aligning early-stage startup employees with the company's risk profile and mission to maintain morale.

• Early-stage startups require leaders who are versatile, intelligent, and capable of handling a wide range of tasks.
• Specialization occurs as the company grows, but initially, leaders need to be generalists who can solve problems and take on various roles.

Yeah, I mean, in the early phases, it's more the kind of jack of all trades. The super smart can roll up their sleeves and do pretty much everything themselves.

This quote describes the type of leaders needed in the initial stages of a startup, emphasizing the need for adaptability and a broad skill set.

• Early-stage startups benefit from hiring generalists who can handle a variety of tasks.
• As startups grow, the need for specialists increases, and reliance on generalists can become a hindrance.

"They can do a decent job at pretty much anything. Those are the kind of people that you need. It turns out in the later stages, that actually will hurt you, but that's the kind of profile you're looking for."

This quote emphasizes the value of versatile generalists in the early phases of a startup but acknowledges their limitations as the company scales.

• Startups should be cautious with their burn rate, especially after raising significant funds.
• A common mistake is hiring too many people too quickly, which can lead to financial strain if fundraising becomes more difficult.
• Startups should aim for a minimum of two years of runway to ensure stability and flexibility.

"Raise money if you can, but make sure you have Runway. I mean, at least two years, ideally."

Ali Ghodsi advises that while raising funds is important, ensuring a sufficient runway to sustain the business is critical.

• Startups should raise as much capital as possible when the opportunity arises.
• However, large fundraisings can create high growth expectations from investors, leading to pressure on the company.
• Startups must be careful not to scale prematurely before achieving solid product-market fit.

"The only problem is the more money you've raised, the more pressure there is for you to grow into that."

Ali Ghodsi warns of the expectations and pressures that come with raising large amounts of capital.

• Early-stage valuations are less important than many founders believe.
• Obsessing over a slightly higher valuation can be a distraction and may not significantly reduce dilution.
• High valuations bring high expectations, which can add pressure to achieve substantial revenue targets.

"It doesn't really matter in the long run that you got that a little bit higher valuation."

Ali Ghodsi suggests that founders should not fixate on achieving the highest possible valuation in the short term, as it has limited impact on long-term success.

• Founders often feel pressure from valuations and the expectations to grow into them.
• This pressure can be beneficial if it drives accountability and attention to detail.
• Different types of people respond differently to pressure; some thrive, while others may struggle.

"For us, I think we thrive under that pressure. So I think it was good for us. It made sure that we dotted all the I's and crossed all the t's."

Ali Ghodsi reflects on how pressure can be a positive force for some teams, leading to meticulous work.

• Tech CEOs often struggle with scaling GTM due to a focus on product development over sales and marketing.
• Successful scaling requires hiring experienced sales and marketing leaders who can execute quickly and effectively.
• There can be a cultural clash between product-focused founders and sales-oriented hires.

"How do you trust them and how do you sort of let them go run it the way they do? That's, I think, where a lot of people sort of struggle."

Ali Ghodsi discusses the challenge founders face in trusting sales leaders to scale the GTM strategy.

• Technical founders may lack experience in identifying talent for sales and marketing roles.
• Starting the search early and interviewing many candidates can help founders recognize what good looks like.
• Hiring experienced leaders with a track record of success can mitigate the risk of a bad hire.

"So if you have more time, you can actually get the quality hire even if you don't know what that person looks like."

Ali Ghodsi advises that taking time to understand the qualities of successful sales and marketing leaders is crucial for making good hires.

• The initial focus should be on hiring a head of sales to work directly with founders on customer engagement.
• The next critical hire is a marketing leader who aligns well with the sales leader.
• The conventional wisdom of hiring marketing before sales is challenged; sales should come first to establish the selling process.

"I actually think you should hire a sales leader first and you, the founders together with that person should go out and meet customers and try to figure out how do we sell this product in the initial phase."

Ali Ghodsi shares his perspective on the importance of prioritizing a sales leader hire to refine the selling process before bringing on a marketing leader.

• Successful synergy between sales and marketing is crucial for company growth.
• The marketing leader must align well with the sales leader to systematize the company's message and demand generation.
• Sales and marketing alignment ensures a cohesive approach to selling the product.

So finding the marketing leader that works well with the sales leader that you hired, that way they can sort of systematize a little bit the story, the message that you tell and start generating the demand that you need to sell that product.

This quote emphasizes the need for harmony between sales and marketing leaders to create a consistent narrative and demand for the product, which is vital for sales success.

• A strong head of finance is critical early on to balance the focus on revenue growth with financial sustainability.
• Sales leaders often prioritize revenue growth without considering cost implications.
• The finance leader provides checks and balances to ensure the company doesn't overspend.
• Without a competent finance leader, the CEO or co-founder must manage financial oversight, which is not an optimal use of their time.

And then third, you quickly, actually much faster than you think, need a strong head of finance.

This quote underscores the urgency of hiring a head of finance to monitor and manage the company's financial health amidst aggressive sales-driven growth strategies.

• Hiring a head of people (HR) is complex, especially in tech-centric Silicon Valley.
• Founders often handle HR functions in the early stages, instilling culture and values.
• A head of HR becomes essential when scaling recruitment and navigating legal employee issues, typically around the 100-employee mark.

So the first time when you really need HR, I believe is sort of when you start to scale the recruiting machinery.

Ali Ghodsi suggests that the need for a dedicated HR leader becomes significant when the company is ready to scale up its hiring processes, indicating a shift in organizational needs.

• The most common issues in phase two are slower than expected revenue growth and excessive spending.
• These problems can lead to difficult fundraising due to limited runway and weak negotiation positions.
• The initial sales leader must work closely with the founders to adapt and simplify the product's sales process for broader success.

The first thing that typically goes wrong is revenue is not growing the way you expected it to.

Ali Ghodsi identifies inadequate revenue growth as a primary challenge in the second phase of scaling, which can trigger a series of operational and financial difficulties.

• Transitioning from founders to new leaders can result in a company losing its visionary essence and becoming more execution-focused.
• Boards may bring in new leaders to address immediate problems, often at the expense of long-term vision.
• New leaders may prioritize short-term gains over the original mission of changing the world.

It becomes very good at execution, but it kind of loses its soul.

Ali Ghodsi reflects on the risk of a company losing its founding vision and becoming purely execution-driven when new leaders are brought in to resolve short-term issues.

• The transition from a single product to a multi-product company typically occurs in the third phase of scaling.
• This phase involves optimizing existing operations and expanding the total addressable market (TAM) through new products.
• It requires a shift in mindset from aggressive growth to efficiency and process optimization.

Yeah, I mean, that's more for the third phase, I would say. I would say first phase, you're just trying to figure out this one product.

Ali Ghodsi discusses the stages of a company's growth and the strategic shift needed when transitioning from focusing on a single product to managing a portfolio of products.

• Leaders must adapt from hands-on involvement to strategic oversight as the company grows.
• In phase three, efficiency becomes paramount, and leaders must avoid the temptation to solve problems directly.
• The focus shifts to process implementation and doing more with less to prepare for profitability.

Rolling up your sleeves and doing it yourself is actually an anti pattern at our phase, because that means you.

Ali Ghodsi highlights the need for leaders to evolve their approach from direct problem-solving to fostering a culture of efficiency and process-driven solutions as the company scales.

• Emphasizes the need for sustainable solutions rather than temporary fixes.
• Shift from individual responsibility to creating processes that ensure problems don't recur.
• Importance of scalability in solutions as the company grows.

"Initially, we used to say, in the early years, we used to say, you have to be a co-founder, you have to own it... At this stage, the shift in mindset is more like, no, let's not pick up what's on the floor. Let's figure out how I got there in the first place."

This quote reflects the evolution of company culture from a startup, where everyone takes immediate responsibility, to a scale-up that focuses on systemic solutions to prevent issues from happening again.

• Discusses the self-doubt founders may feel about scaling through different leadership phases.
• Suggests that founders should reflect on what they enjoy and consider their long-term goals.
• Highlights the importance of humility and learning from others who have scaled successfully.

"If you actually really, really like the first early phases, then maybe you should do go do another one in the early phases... If you do want to learn it, then I think you will be able to do that."

Ali Ghodsi suggests that founders should assess their preferences for the company's stage and their willingness to learn and adapt to lead through various growth phases.

• Advocates for a process-driven approach to decision-making rather than relying on gut feelings.
• Acknowledges the importance of cultural fit in hiring decisions.
• Emphasizes the need for compatibility in startup teams, likening them to marriages.

"I don't believe in gut feeling... I believe in having a process and cerebrally thinking it through and then working through it that way."

Ali Ghodsi expresses his personal leadership style, which relies on thoughtful, methodical decision-making processes, though he recognizes the importance of cultural considerations.

• Stresses the long-term impact of company culture and hiring decisions.
• Believes that cultural issues and hiring mistakes are difficult to correct later.
• Allocates a significant amount of time to ensure the right hires and maintain company culture.

"Culture in the company, communicating with employees, being transparent... Those are two things that I think I spend more time than most other people on."

Ali Ghodsi considers culture and hiring as critical areas that require substantial attention, as they have long-lasting effects on the company's success.

• Discusses the pressure and responsibility leaders feel regarding the company's future.
• Shares personal concerns about the potential failure to achieve the promised vision.

"As a leader, you're always painting the vision of how amazing the world will be in the future... You feel this responsibility that, what if we can't get there?"

Ali Ghodsi opens up about the insecurities leaders may experience, particularly the fear of not fulfilling the vision they've set for their team and company.

• Uses physical exercise, like running, to manage stress and emotional responses.
• Believes in the power of reasoning through problems once emotions are in check.

"A long run will make sure that the cortisol and adrenaline and all of those kind of balance out a little bit."

Ali Ghodsi explains how he deals with stress by running to balance his emotions, allowing him to return to a more rational state of mind.

• Advocates for direct communication when delivering difficult feedback.
• Considers the ability to handle conflict and make tough decisions as essential for CEOs.

"I think if you're very conflict averse... that's a really important characteristic of a CEO, is that they should be able to deliver that."

Ali Ghodsi emphasizes the necessity for CEOs to be capable of giving direct feedback, as avoiding conflict can lead to detrimental decisions for the company.

• Believes in the transformative potential of AI and data science.
• Envisions significant financial opportunities for companies in the AI and data science sectors.

"I personally do believe that AI and data science can transform the whole planet in crazy ways... In terms of sort of tam in my book, this is the thing they say, don't say so."

Ali Ghodsi shares his optimistic vision for the future impact of AI and data science, including the potential for Databricks to capitalize on these opportunities.