10 Learnings from Billion-Dollar-Exit Founder Carsten Thoma

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"It wasn't mostly smooth sailing. Out of the 12 years, probably eight were very hard. There were probably three or four years, not months, where we didn't know if it made sense or if we would execute through it."

Founders often face challenges in building a tech startup, from market fluctuations to scaling hurdles and leadership dynamics.

Carsten Thoma , Co-founder of SAP Hybris (acquired by SAP for $1 billion) and President of Celonis , shares his profound experiences and actionable insights on company building, strategic growth, and the evolving role of founders versus executives.

This article (based on our (German) podcast ) distills his key arguments and takeaways, providing tech founders and operators with profound, tactical guidance.

1. Embrace the Long and Challenging Journey

Carsten's Reality Check:

• Persistence Through Adversity: Carsten emphasizes that the path to success is often long and fraught with difficulties. At Hybris, eight of the 12 years were very tough, with periods of uncertainty lasting years, not just months.

"It wasn't mostly smooth sailing. Out of the 12 years, probably eight were very hard. There were probably three or four years, not months, where we didn't know if it made sense or if we would execute through it."

Actionable Insights:

• Prepare Mentally for the Long Haul: Recognize that building a successful company is a marathon, not a sprint. Anticipate challenges and build resilience.
• Stay Committed: During tough times, revisit your mission and the value you aim to create. Let your conviction drive you forward.
• Lean on Your Team: Draw strength and inspiration from your team. A robust and supportive team can provide the necessary motivation to persevere.

Carsten’s Takeaway:

Understanding that difficulty is part of the entrepreneurial journey helps in maintaining perseverance. Success often requires persistence through prolonged periods of hardship.

2. The Importance of Market Depth and a Big Vision

Carsten's Thesis:

• Target Deep and Big Markets: A sizable and deep market provides room for growth and the ability to pivot or expand offerings when necessary.

"It's almost always a big market—a market that has a certain depth. Maybe also a market where you know it's big but can't segment it precisely yet."

Actionable Insights:

• Assess Market Potential: Evaluate the size and depth of your target market. A deep market allows for sustained growth and opportunity.
• Have a Bold Vision: Cultivate a strong vision for what your company can become in 5 to 10 years. This vision should inspire and guide strategic decisions.
• Plan Sequential Growth: Approach market expansion in stages, focusing on establishing a solid foothold before scaling further.

Carsten’s Takeaway:Founders need a compelling vision and should aim for large and deep markets to enable long-term growth and adaptability.

3. Developing an Elastic and Scalable Business Model

Carsten's Strategy:

• Understand Unit Economics Early: As you grow, particularly from $1 million to $5 million in revenue, you must clearly understand your unit economics and operating model.

"At the next stages, especially towards $5 million, you need a clear idea of your unit economics and what your operating model looks like at $5 million, at $20 million."

Actionable Insights:

• Build for Scalability:?Design your business model to be elastic and capable of scaling efficiently without proportional cost increases.
• Monitor Key Metrics: Regularly analyze unit economics to identify areas for improvement and ensure sustainable growth.
• Strategic Resource Allocation: Make informed decisions about where to invest resources, focusing on activities that drive repeatability and scalability.

Carsten’s Takeaway:

A scalable business model is essential for growth. Understanding and optimizing your unit economics early paves the way for efficient scaling.

4. The Role of Founders vs. Executives

Carsten's Perspective:

• Founders Need Visionary Imagination: A founder is driven by a deep-seated imagination of what the company can become.

"Founding isn't always a career option. I think it's a way of life. You need to have a clear idea from the beginning of what the company should become."

• Executives Focus on Leadership and Management: Not all founders become effective executives. Leading a growing company requires embracing the nuances of leadership, including people management.

Actionable Insights:

• Self-Assessment: Determine where your strengths lie—as a visionary founder or executive who enjoys leadership and management responsibilities.
• Develop Leadership Skills: If aiming to lead long-term, invest time in learning how to manage teams, provide feedback, and build a positive culture.
• Consider Role Evolution: Be open to evolving your role within the company as it grows, possibly bringing in executives to complement your strengths.

Carsten’s Takeaway:

Founders should recognize their strengths and be prepared to adapt their roles. Effective leadership in a scaling company may require different skills than those that launched it.

5. Organizational Structuring and Management Ratios

Carsten's Guidelines:

• Implement Structure as Needed: Introduce organizational structures when accountability becomes the primary driver of productivity.

"At some point, accountability becomes the main driver of productivity. That's where you have to start creating structures."

• Optimal Manager-to-Employee Ratios: Aim for a manager-to-employee ratio that supports effective management without creating unnecessary bureaucracy.

Actionable Insights:

• Assess When to Introduce Structure: Monitor when collaboration alone no longer drives productivity and introduce appropriate management structures.
• Maintain Healthy Ratios: Strive for a manager-to-employee ratio between 1:4 and 1:10, adjusting based on the department's nature.
• Avoid Overcomplication: Ensure that structures enhance efficiency rather than hinder it. Too many levels can slow down decision-making and innovation.

Carsten’s Takeaway:

Thoughtful organizational structuring is vital as companies grow. Implementing the suitable structures at the right time supports scalability and efficiency.

6. Cultivating Effective Leadership and Feedback

Carsten's Approach:

• Provide Actionable Feedback: Feedback should be clear and applicable, enabling the recipient to take action and improve.

"Good feedback is when the person can really go out and apply it... and wants to apply it."

• Lead with Respect and Honesty: In difficult conversations, maintain respect and transparency to foster trust and growth.

Actionable Insights:

• Focus on Development: When giving feedback, ensure it is constructive and provides a clear path for improvement.
• Communicate Clearly: Be honest and direct while remaining empathetic to the individual's feelings and perspectives.
• Invest in Leadership Skills: As a leader, continuously develop your ability to guide, motivate, and develop your team members.

Carsten’s Takeaway:

Effective leadership hinges on the ability to communicate feedback that inspires action. Leaders should aim to cultivate trust and facilitate growth within their teams.

7. Navigating Difficult Conversations and Decisions

Carsten's Methodology:

• Handle Departures with Respect: When parting ways with team members, recognize?their contributions and clarify the reasons.

"The most important thing is that it must never become personal... Recognition and transparency are enormously important."

Actionable Insights:

• Prepare Thoughtfully: Before difficult conversations, prepare key points, emphasizing appreciation and clear reasoning.
• Maintain Professionalism: Keep the discussion focused on organizational fit and future aspirations rather than personal shortcomings.
• Offer Support: Where appropriate, assist in their transition, reinforcing goodwill and professionalism.

Carsten’s Takeaway:

Difficult decisions are part of leadership. Handling them with dignity and respect preserves relationships and protects the company culture.

8. Managing Executive Teams and Governance

Carsten's Strategies:

• Establish Clear Governance: Define decision-making processes, roles, and responsibilities within the executive team.

"The most important thing is governance—so that people understand why they're in it, why not, and the rules of the game."

• Differentiate Decision Types: Clarify which decisions are made collectively and which are reserved for specific leaders.

Actionable Insights:

• Communicate Expectations: Ensure all team members understand their roles, contributions, and the scope of their decision-making authority.
• Foster Effective Meetings:?Set clear agendas and distinguish between discussions, information sharing, and decision-making items.
• Align on Vision and Strategy: Regularly synchronize the executive team on the company’s strategic objectives and progress.

Carsten’s Takeaway:

A well-structured executive team with transparent governance enhances efficiency and drives cohesive leadership.

9. Leveraging Market Opportunities and Technological Advances

Carsten's Insights on AI and Celonis:

• Harnessing Data for AI Applications: Celonis’s ability to process and understand vast amounts of process data positions it well to leverage AI advancements.

"For us, it's a huge opportunity... Our language is the process data, and that's the most important input to trigger any kind of action or automation."

Actionable Insights:

• Identify Core Strengths: Leverage your company's unique assets—in Celonis's case, process data—as a foundation for innovation.
• Integrate Emerging Technologies: Stay abreast of technological trends and explore how they can enhance your products or services.
• Strategic Product Development: Decide whether to improve existing products or develop new ones based on technological opportunities.

Carsten’s Takeaway:

Proactively integrating technological advancements can open new avenues for growth and differentiation in the market.

10. Effective Board Management and Seeking Advice

Carsten's Recommendations:

• Active Board Engagement: Use the board as a source of strategic guidance and ensure open, honest communication.

"The most important thing is honesty... Prepare board members well so that the discussion can start immediately."

Actionable Insights:

• Prepare Thoroughly: Provide pre-reads and clear context to board members before meetings to facilitate productive discussions.
• Seek Constructive Feedback: View board interactions as opportunities to gain valuable insights that can guide your decisions.
• Value Transparency: Maintain open and honest dialogue to build trust and maximize the benefits of board support.

Carsten’s Takeaway:

An effectively managed board can be a significant asset, offering founders and executives advice, accountability, and strategic direction.

Conclusion: The Journey from Founder to Scalable Leader

Carsten Thoma’s experiences underscore the multifaceted challenges of building and scaling a tech startup. From enduring prolonged periods of hardship to making strategic organizational decisions, his insights provide a roadmap for founders aiming to grow into effective leaders.

Key Takeaways for Founders and Operators:

1. Persevere Through Challenges: Understand that difficulties are part of the journey and can be overcome with resilience and team support.
2. Aim Big from the Start: Target large, deep markets and nurture a bold vision to guide your company’s growth.
3. Develop Scalable Models: Focus on building an elastic business model with a clear understanding of unit economics.
4. Evolve as a Leader: Recognize the distinction between being a visionary founder and an executive leader; invest in developing necessary leadership skills.
5. Structure Thoughtfully: Implement organizational structures and governance that support accountability and efficiency.
6. Communicate Effectively: Provide actionable feedback and cultivate a culture of respect and honesty.
7. Leverage Opportunities: Stay proactive in adopting technological advancements to enhance your competitive edge.
8. Engage Constructively with Your Board: Use the board as a strategic asset through open communication and active preparation.

About the Contributor:

• Carsten Thoma is the co-founder of?Hybris, which SAP acquired for $1 billion, and the president of Celonis, a leader in process mining and execution management. With decades of experience in enterprise software, Carsten offers invaluable insights into scaling companies and navigating the complexities of leadership and market dynamics.

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