Coming up with a game-changing idea or tackling a massive, entrenched industry isn't the biggest challenge faced by disruptive companies. It's the challenge of transitioning a fast-moving start-up that breaks all the rules into a sustainable business that plays by the rules. It's the need to transition "from pirate to navy," as LinkedIn co-founder and venture investor Reid Hoffman puts it.
This year several companies on our 2018 CNBC Disruptor 50 list felt that pressure to "grow up" quite acutely. And they responded. Take Uber, in the midst of scandal, replacing founder Travis Kalanick with veteran CEO of public Expedia, Dara Khosrowshahi. Or SoFi booting out its founder Mike Cagney following sexual harassment allegations and replacing him with another public company veteran, Twitter's longtime CFO, Anthony Noto. And whether it's Uber and Airbnb battling city governments, or 23andMe and Veritas Genetics pushing for FDA approval, playing by the rules is increasingly crucial to many start-ups' long-term success.
The challenge of growing and transitioning a start-up was a key theme of the "Defining Disruption" panel at CNBC's first-ever Disruptor 50 Roadshow event, held in Los Angeles on May 23. Three CEOs of 2018 Disruptor 50 companies — Ezetap's Bobby Bose, Thinx's Maria Molland Selby, and Lisnr's Rodney Williams — all agreed that companies that grow fast have to grow up just as quickly.
In the beginning, said Williams, "you fail fast and learn faster, and you sell things you don't have," but then "all of a sudden you figured [the technology] out … which is allowing you to sell it. ... Consumers are starting to see the benefit or the vision that you always saw," and that's when Williams said he was able to draw on his prior experience working for large companies, like Lockheed Martin and Procter and Gamble, which he says taught him how to mitigate risk and build a team.
For Thinx's Selby, building the team was job No. 1. Like Noto at SoFi, Selby stepped into her role in the wake of a CEO ouster. Thinx's founder and former CEO, Miki Agrawal, was pushed out last year following accusations of sexual harassment and a culture of bullying and inappropriate conduct under her leadership. So far, Selby has met the challenge of steering Thinx into its next stage as a company, codifying employee policies and focusing on rebuilding the culture. In fact, she embraced the challenge, seeing it as a unique opportunity that similar sized companies don't typically get.
"I really felt like the foundation of the business was really strong," she said, speaking about the time she took over the company. "Especially when I met with the team. ... I was really impressed with what they were able to do with this negative PR cloud around them … and then that gave me the opportunity when I decided to join, [to focus] on how do we change the culture, how do we change systems and processes, hire an HR department, ensure that we have the right cultural values that we hire and retain people by, and that I think will actually end up setting us up for success, because there aren't that many companies…at that early a stage has to think about those things."
The challenge of growing and transitioning a start-up was also a dominant theme in our CNBC Disruptor 50 companies' responses to our annual survey, conducted from April 16 to May 16, 2018. Nearly 30 percent of the CEOs who responded said their biggest challenge to date as an entrepreneur has been scaling the company. An equal number said hiring qualified talent was their most difficult task.
Airbnb CEO Brian Chesky said he has needed to adapt his strategy as the company grew to become one of the highest valued on the Disruptor 50 List — $31 billion as of its last fundraising round last year.
"We've needed to change our approach so that we can cast our nets far and wide while still maintaining the close connection to our community," said Chesky. The key to building a sustainable business, he said, is for entrepreneurs to institutionalize their intentions early on. "It can be easy to get caught up in growth when you're trying to scale, but it's important to think beyond the numbers and outline your long-term vision," Chesky added. "Enduring companies must not only do what's good for shareholders but also what's good for society."
Staying focused on mission while growing was a key concern for founders we polled.
Duolingo's CEO Luis von Ahn said his company has struggled with how to reconcile its mission of making education free and accessible to everyone, while also making money to build a sustainable business. "This has been a source of tension at Duolingo," he said. "How can we make it so that providing free education isn't at odds with us earning the revenue we need to keep the company running and provide returns to investors?" After five years of trying different revenue models, von Ahn said they've found a combination of ads and in-app purchases that work and support the larger vision of the company.
For others, people are the biggest challenge.
Tom Siebel, the billionaire founder of software company Siebel Systems, which merged with Oracle in 2006, is now CEO of Internet of Things start-up C3 IoT. He said success always hinges on human capital.
"The way people work today differs drastically from my Siebel Systems and Oracle days, when the employee base consisted primarily of baby boomers who shared similar perspectives and sources of motivation," said Siebel. "C3 IoT is composed of baby boomers, Gen Xers and millennials, creating a richer, more complex tapestry of values and goals. ... Given the rate of technological change we are facing, you need to find and attract people who are agile, who like to learn, who have a book in their hand, who want to solve the previously unsolvable."
More from CNBC Disruptor 50:
23andMe founder Anne Wojcicki is leading a DNA revolution by going directly to consumers
SpaceX leading the space race to launch humans to Mars by 2019
Oscar Health has a vision of fairer pay for doctors and clearer pricing for patients
Selby also stressed the value of smart hiring, saying without the right people even the best ideas will fail. "Specifically, hire only for what you need right now. If you hire someone too senior or if you hire for a role that isn't absolutely essential, it will likely cause issues in terms of being able to get things done quickly and efficiently. It also will be costly not just in terms of the bottom line but also on the culture as well."
Of course, hiring the right people, building a corporate culture and staying committed to a mission all take more time than most entrepreneurs would like. The founders on the 2018 CNBC Disruptor 50 List have had to balance the disruptive potential of breaking rules with the long slog of sustaining their companies. Or, as Rent the Runway co-founder and CEO Jenn Hyman put it, "Overnight success is a 15-year-plus journey. Make the right decisions for the long term."