20VC Why Virtually All Companies Hire The Wrong Way, Why EdTech Is The Most Brutal Market & How To Scale Your Sales Team for Engineering Founders with Mike Sliagadze, Founder & CEO @ Top Hat



In this episode of Founders Friday on the 20 Minutes VC, host Harry Stebbings interviews Mike Silagadze, the CEO of Top Hat, a leading student engagement software company. Mike shares his journey from being an engineering student at the University of Waterloo to founding Top Hat, which has raised over $47 million and is utilized by millions across North American universities. He discusses the challenges of selling in the edtech market, emphasizing the importance of a go-to-market strategy and the unique approach Top Hat took by selling directly to professors. Mike also touches on hiring practices, stressing the need for a scientific approach over intuition and the value of internal promotions for employee growth. Additionally, he shares insights on the venture capital market, the potential bubbles in crypto and VC funding, and the future of Top Hat in transforming higher education with modern, peer-to-peer educational technology.

Summary Notes

Introduction to Top Hat and Mike Silagadze

  • Mike Silagadze is the founder and CEO of Top Hat, a leading student engagement software.
  • Top Hat is widely used across North America by millions of students.
  • Mike's background includes working as a developer at Maya Vision Technologies.
  • Top Hat has raised over $47 million in VC funding from notable investors.

"Mike is the founder and CEO at Top Hat, the market leader in student engagement software now used by millions of students at three quarters of the top 1000 college and universities in North America."

The quote highlights Mike's position and the scale at which Top Hat operates, emphasizing its impact and presence in the educational technology sector.

The Motivation Behind Starting Top Hat

  • Mike was motivated by his own undergraduate experiences at the University of Waterloo.
  • He observed that the traditional classroom environment was outdated and ineffective.
  • The ubiquity of smartphones presented an opportunity to transform educational experiences.
  • Top Hat aimed to make learning more adaptive, engaging, and active.

"It was just based on my experience in undergrad... I found that the course environment just was out of touch with the way that students wanted to learn."

Mike explains the disconnect between traditional teaching methods and modern students' learning preferences, which inspired the inception of Top Hat.

The Stigma Surrounding EdTech in VC Circles

  • EdTech is perceived as a difficult market to succeed in by many venture capitalists.
  • There has been a resurgence of investment in EdTech, but success stories are rare.
  • The difficulty in disrupting education is attributed to its long-standing traditional methods.
  • Most EdTech investors have not seen returns on their investments, leading to skepticism.

"They are 100% correct. It is arguably one of the most difficult markets to succeed in."

Mike agrees with the VC community's hesitancy towards EdTech, acknowledging the challenges and the high failure rate of startups in this space.

The Fundamental Challenge in EdTech: Go-to-Market Strategy

  • The primary difficulty in EdTech is the go-to-market strategy.
  • Many companies with impactful products fail due to an inability to navigate the market.
  • Selling to higher education often involves lengthy committee processes.
  • K-12 sales are even more challenging, involving political games and district-level decisions.
  • The disconnect between decision-makers and users often results in poor product quality.
  • Top Hat has succeeded partly due to its innovative go-to-market strategies.

"So ultimately, it's go to market. That encompasses a lot of different things, but it's very, very difficult to take products to market in education technology."

Mike identifies the crux of the challenge in EdTech: getting products successfully to market despite the complex and slow-moving nature of educational institutions.

Opportunities in EdTech Despite Past Challenges

  • Mike suggests that there are still untapped opportunities in EdTech.
  • The conversation implies that Top Hat has found some of these opportunities but does not elaborate on specifics.

"Mike, I'm utterly flummoxed then I wasn't expecting that. So tell me, where's the opportunity then that you see that maybe the past hasn't produced and the current"

The host expresses surprise at the challenges described and prompts Mike to discuss potential opportunities in EdTech that have not yet been fully explored or capitalized upon.## Educational Technology Market Challenges

  • Mike Silagadze warns entrepreneurs about the difficulty of the educational technology market.
  • He suggests that many startups in this space are likely to fail due to the market's brutal and frustrating nature.
  • The educational technology market is not prioritized in higher education, where teaching is surprisingly low on the list of priorities.

"You're probably going to fail. This is one of the most difficult markets. In all likelihood, it's going to be brutal and frustrating for you."

The quote emphasizes the challenging nature of the educational technology market and serves as a caution to aspiring entrepreneurs considering entering this space.

Top Hat's Unique Sales Approach

  • Top Hat initially tried enterprise sales in universities but found it to be a dead end.
  • They pivoted to selling software directly to individual professors, bypassing the lengthy and complex institutional sales process.
  • The sales model was based on the way textbooks were sold, with students paying a subscription fee.
  • This approach allowed for high velocity sales, immediate revenue generation, and valuable user feedback for product improvement.
  • Once significant user adoption was achieved at a university, Top Hat would then approach the institution for a broader agreement.

"We had this crazy idea, what if we sell software or software product the same way the textbooks had been sold... we go to a professor, individual professors at university, get them to adopt the product and the content in their course, and then there would be no cost to the professor or to the university."

The quote outlines Top Hat's innovative sales strategy which involved selling directly to professors, a method that diverged from the traditional enterprise sales model in higher education.

Hiring Practices and the Science of Success

  • Mike Silagadze criticizes the intuitive approach to hiring that most companies use.
  • He points out that research on predictors of workplace success is often ignored in favor of biased hiring practices.
  • Work samples, cognitive assessments, and structured interviews are highlighted as effective, science-backed hiring methods.
  • Top Hat has implemented these practices and continuously developed and innovated their hiring process.

"There's a handful of things that actually predict success in the workplace... work sample... intelligence cognitive assessments... Structured interviews... those are the things that we ultimately have implemented."

This quote summarizes the key components that predict success in the workplace, which Top Hat has incorporated into their hiring process, moving away from traditional, intuition-based hiring.

Top Hat's Hiring Process

  • The hiring process at Top Hat varies by role but generally includes a high-level competency screen, cognitive assessment, work sample, structured interview, and competency-focused interviews.
  • For engineers, this might involve a coding test or pair programming, while sales reps might do a presentation.
  • Top grading is used for structured interviews, and competency-focused interviews assess specific qualities needed for the role.

"There will be a cognitive assessment and a work sample... followed by a structured interview... finally, then we do competency focused interviews."

This quote details the stages of Top Hat's hiring process, highlighting the importance of a structured and scientific approach to evaluating candidates.

Overemphasis on Culture vs. Raw IQ in Hiring

  • Mike Silagadze agrees with Mark Mader's statement that companies often overvalue cultural fit and undervalue raw intelligence during the hiring process.
  • He believes that companies should not neglect cognitive abilities when assessing potential hires.

"Absolutely. Because most companies don't"

The quote agrees with the sentiment that there's a common imbalance in hiring priorities, with too much focus on culture and not enough on intelligence.## Correlation Between IQ and Job Performance

  • IQ has a significant correlation with job performance, with a 0.6 correlation factor.
  • IQ is the most predictive element for hiring decisions when only one factor can be considered.
  • Smart individuals working together in one environment can create a synergistic effect that is difficult to quantify.

"There's a 0.6 correlation between IQ and job performance. And that is, in fact, if you could base your hiring decision on one factor, you could only base it on one factor. IQ is actually that factor."

The quote emphasizes the statistical relationship between IQ and job performance, suggesting that IQ is a strong predictor of job success when limited to using a single criterion for hiring.

Internal Upscaling vs. External Hiring

  • Internal hiring demonstrates career progression to employees and can be crucial for retaining talent.
  • Hiring young or junior individuals and providing them with opportunities to grow can yield top performers.
  • Experienced candidates are often difficult to recruit as they are typically retained by their current employers.
  • External hiring is necessary when specific skill sets are not present within an organization.

"Internal hiring is essential to show people career progression, to show them that there's a future with the company."

This quote highlights the importance of internal hiring in fostering employee loyalty and showing a clear path for career advancement within the company.

The Risks of Premature Promotion

  • Promoting individuals before they are ready can lead to difficult situations.
  • Allowing employees to demonstrate their capability in a role before officially promoting them can mitigate risks.
  • Premature promotions often result in the employee leaving the company due to inability to demote and the employee not meeting the business's growing needs.

"Promoting someone too early is quite disastrous. That's really something to avoid."

The quote underscores the negative consequences of early promotions, stressing the importance of timing and ensuring readiness before elevating an employee's position.

Sales Team Scaling and Mistakes

  • Lack of sales experience can lead to fundamental errors in building a sales team.
  • Sales organizations operate differently from engineering teams and require a distinct approach.
  • Common mistakes include hiring the wrong type of sales reps, mismanagement promotions, and lack of a defined sales cycle and methodology.

"I think all of my intuition about how to run a sales team based on how engineering is run was wrong."

This quote reflects on the speaker's realization that sales teams need to be managed differently than engineering teams, acknowledging the unique challenges in sales management.

Advice for Technical Founders on Sales

  • Technical founders often make the mistake of hiring experienced sales leaders, which typically does not work out.
  • Founders should develop sales skills themselves through mentorship and learning rather than relying on a seasoned salesperson.
  • A core executive team with sales expertise is essential for a thriving business.

"Resist the temptation to hire the gray hair. You need to figure out sales, but the way to do it is to go about it methodically."

The quote advises against the common practice of hiring experienced sales leaders as a quick fix for sales challenges, advocating for a more hands-on and methodical approach by the founders themselves.

Progressive Learning in Sales Scaling

  • The learning process in sales scaling is continuous, involving a series of mistakes and lessons over time.
  • Matching sales reps' experience with the business's sales cycle is critical.
  • Promoting top sales reps to management is often not advisable; alternative growth paths should be provided.
  • Sales metrics are crucial and must be measured obsessively, unlike in engineering where metrics are less clear.

"But I can certainly talk about particular lessons, which to probably anybody that knows anything about sales, these will seem borderline cliche."

This quote introduces the speaker's reflections on sales lessons learned, acknowledging that these insights might be well-known to sales professionals but were part of the speaker's learning curve.## Quick Fire Round

  • Harry introduces a rapid question and answer segment with Mike.
  • Mike is to respond with immediate thoughts in 60 seconds or less.

Absolutely. I completely agree with the focus on metrics, but I do want to dive into a quick fire round. The quote explains the introduction of a fast-paced Q&A section in the conversation.

  • Mike recommends "Antifragile" by Nassim Nicholas Taleb.
  • The book is credited with profoundly changing Mike's thinking on business and life.
  • Taleb's other works, "Fooled by Randomness" and "The Black Swan," also impacted Mike.

Antifragile by Nassim Nicholas Taleb. It's a very profound book that radically changes the way you think about how to structure both your business and your life to benefit from unpredictability. Mike emphasizes the significant influence of "Antifragile" on his perspective towards handling unpredictability in business and life.

Education as Investment or Consumption

  • Mike challenges the common belief that education is an investment.
  • He views education as a luxury good, consumed as societies become wealthier.
  • Mike believes that government investment in education may not yield the intended economic benefits.

Many people believe education is an investment that makes you more productive in a sense. And I think beyond some of the very basic stuff that you learn in primary school, I don't actually think that's the case. Mike expresses his unconventional view that education, beyond primary level, may not significantly enhance productivity.

Market Concerns

  • Mike is kept awake by market cycles and potential bubbles.
  • He is particularly worried about the crypto mania and venture financing bubbles.
  • These concerns are relevant to the future financial prospects of his company, Top Hat.

I would say there's a lot of periodic bubbles and market cycles that freak me out. Mike shares his anxiety about market instability and its potential impact on the economy and his business.

Pros and Cons of Being in Canada

  • Pros: Cost-effectiveness and good talent in engineering and sales.
  • Cons: Challenges with financing due to a less robust venture capital community and a lack of executive talent experienced in scaling businesses past $100 million.

One, it's cheaper. Basically you're 30% smarter because of the exchange rate being in Canada, and that actually has a significant impact on your ability to build a sustainable business. Mike discusses the financial advantages of operating a business in Canada due to the favorable exchange rate.

Changing the World of VC and Startups

  • Mike observes irrationality in venture capital and startup funding.
  • He questions whether this irrationality is necessarily negative as it allows for high-risk bets that can lead to significant payoffs.
  • Mike notes an echo chamber effect in the startup ecosystem, particularly in the Bay Area.

Sometimes you just get either a trend or some sort of hype machine and people will get funded for things that really don't make a lot of sense. Mike reflects on the sometimes irrational trends and hype in startup funding.

Belief in Free Market

  • Mike confirms his belief in the free market and Adam Smith's invisible hand.
  • He mentions the presence of an echo chamber in the VC ecosystem, which can stifle the free exchange of ideas.

Sure. Yeah, of course. I'm a free market guy. Mike affirms his support for free market principles.

Top Hat's Future

  • Top Hat aims to modernize the higher education system.
  • The goal is to dismantle traditional textbook publisher infrastructure in favor of a peer-to-peer system.
  • Mike envisions Top Hat ensuring students have access to the best learning materials and technology.

Ultimately, what top hat is trying to do is to bring education, the higher education system, into the modern era. Mike outlines Top Hat's vision to revolutionize the educational landscape with modern technology.

Acknowledgments and Promotions

  • Harry thanks Boris at Version One for the introduction to Mike.
  • Harry promotes his Instagram and the companies Lisa (mattress company) and Zoom (video/web conferencing service).

I do also want to say it'd be great to see you on our Instagram at hDebbings1996, where you can see all things behind the scenes at the 20 minutes VC. Harry invites listeners to follow his Instagram for behind-the-scenes content and endorses Lisa and Zoom for their services.

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