#175: The Hidden Founder Psychology Patterns Behind Stuck SaaS Companies - Dave Hersh

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This week, my guest is Dave Hirsch, a former founder and CEO of a software company himself. He works with a lot of software founders and companies these days, just bought another software company, but he's the author of Reignition, Taking Stuck Startups and Bringing Them Back to Breakout Winners.

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You know, most software companies, as they grow up, go through phases and hopefully it's not too permanent where you get stuck and it isn't moving as fast as you want. And bootstrap founders don't have investors that want to shoot them when things slow down. But, you know, every founder and every company gets stuck along the way. So we talk about the journey of getting unstuck.

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And Dave shares his own journey there. as the former CEO and co-founder of Jive Software, which was bootstrapped and then raised VC funding and eventually went public, and the challenges they had to make the most of that dream. Many of the challenges were brought on by Dave's own psychology as the CEO, and he talks about that and now works with founders.

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The software founder is a part of getting unstuck, and there's other levers in the business as well. We talk about those. in the current AI world. It's a great discussion with Dave Hirsch. Hey, Dave, welcome to the Practical Founders Podcast. Thanks so much for having me. Excited to be here. Yeah, we met in person in Park City, Utah, a couple months ago at the Leiter Capital Founder event there.

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You were a speaker on a very engaging topic, talking about stuck software companies in their growth path, stuck founders and the challenge that goes on inside their heads as well. You've been through the game a long time and you've got a new book called Reignition about getting startups unstuck to, you know, the back to breakthrough growth game.

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And they were like, be chairman, because they had no idea how to deal with emotions. So they just pushed me into the chairman role in a really awkward way. change of power as the company geared up to its IPO and the NASDAQ. And it kind of died on the public markets. And so I watched this play out from the sidelines. And obviously, you could tell it was pretty frustrating.

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And I was angry at the people for running it into the ground. But then when I rewound the tape, I was like, well, I set those wheels in motion. That was really me inviting all those people to

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And so a lot of the work that I do now is certainly a reflection of what I went through and what it really takes to build a healthy, sustainable, long term company and seeing the shadow side of insecurity and fear and a an attachment to our identity. as the company. And so people over-identify with the company, meaning the company's success or failure is their own.

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And that tight grip they hold on to the success of the company really strangles the company in a way and is one of the things that is really contributing to its failure in the long run. And so if we can let go of that, then we can let the company breathe and have a much better chance of succeeding in the long run. Well, there's a lot of stuck software companies out there.

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And, you know, there are different standards of stuck. If you raise 10 or 20 or 30, 50 million VC funding and you don't have a crazy growth year, like successful growth year, you're stuck. It's like you can't raise another round. It's kind of a wounded process.

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Yeah, I think we went into it. We were tentative about raising because we had this beautiful company and we controlled it ourselves. And the board meetings were just us at a restaurant hanging out. Right. And you go from that world into having Sequoia breathing down your neck and all these other people coming in and expecting you to run the playbook and do the thing.

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And it really I wouldn't say everybody in the company was excited about it. They really did like what we had and the culture that we had built. And that was signaling a pretty big change. And it really was a big change. You know, not everybody was excited about it, but we liked the idea of going big. And to us, this equated to the idea of being on a much larger stage.

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Well, that's a common attraction of VC Capital, the Silicon Valley way, which is... You're not cool unless you're going big and you can't go big unless you get VC funding. When you look back at it right now, could you have gotten much bigger, you know, in your beachhead and then expanding and, you know, with a different, let's say, speed or something like that?

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Could you have gotten too big without taking the bait of you can't go big unless you raise big VC funding? Absolutely. Well, Atlassian did it. They eventually raised VC funding, but now they're a $50 billion company. And they didn't raise for a long time, and they maintained ownership and control.

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And they kept doing the thing they were doing, where I eschewed the old business for the new one and took this left turn. They kept doing what they were doing. They embraced the soul of their business and being in Australia probably helped and just kept doing what they were doing. I think if we kept doing that, just growing at 30% a year and supporting that, that's a really big company.

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And that's part of the soul and the magic of these companies. It is built on our superpowers and our way of thinking that gets the thing moving in the world. And that's really exciting. But, you know, are you saying that eventually you have to evolve or, I don't know if you give that up, but like be more healthy about it or something like that? How would you say that?

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Yeah, I would say that there is an element of it that is a shadow side where in order to maintain that identity, you make decisions that are there to look good as opposed to in the best long-term interest of the company. And those can be insidious. It's not like the person's bad or good. There's no value judgment on this. It's just something we do.

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We get programmed as kids, you know, to have this identity and to want to achieve, to earn love in the world. And that may support decision making that is burdened by that desire. So, for example, raising too much venture capital or trying to expand too quickly or trying to hire the fancy sales leader because they came from this company.

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There's a lot of things that we don't see happening that subconsciously are driven by that desire to earn love through the company. And to the extent we can see that, we can start to feel what's really happening. We can be more aware of

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of the subconscious machinations that are at play, we can start to emerge as a leader that can really see through the short term and into the long term perspective that can really skate to where the puck is going over the long run and build something that's hugely valuable, not something that is meant to look good in the short term. Well, there's a lot of profound wisdom in what you just said.

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We just don't see the headlines of the majority that don't make it so much. Do you work on your business first when you're stuck? Should we focus? Should we pivot? Should we add funding or not or invest less or more? Should we do something different? To get unstuck, do you work on your company or does the founder work on themselves first?

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I say work on yourself first, that the company won't transform until you do. So there's certainly strategy work to be done and they can obviously be done in parallel. But the company won't truly transform until the leader understands what have I been doing that has gotten this company in this eddy and how can my transformation help it get back on the river?

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And so I have a chapter two in Reignition, which is about the psychology. I almost didn't write it because I thought it would be a little too woo for the founders. But when I started giving the talk, that became the subject matter that people wanted to hear about.

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It's kind of like, you know, in software companies, sometimes when you put your product out in the world and you first launch it, people are like, it's a cool product, but I really like this one feature. You know, and that feature gets pulled out and that kind of becomes, yeah, exactly. The feature becomes the new product because that's what people need.

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In this case, it was the psychology that became my product and what I was sharing with founders. Because in writing that book, I realized that 90% of stuck companies and failed companies are not the reasons that we say they failed. Like they didn't have product market fit or they ran out of cash or the founders didn't get along. It's the psychology underneath.

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to have a team of people who are black belts in human communication and connection, right? They can work through really hard issues. They can be emotionally mature and responsive. They can build very deep relationships with customers. They can do active listening. These are the types of people

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core competencies that companies are developing that can hold it together over the long run when technology no longer serves that purpose. Does that mean, you know, whether it's an employment brand or a customer brand and the founder brand, right? The founder has a point of view and, you know, can speak the, you know, Elon Musk has his own point of view, right?

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That apparently is worth a lot to the company. What do you mean by the human element? I don't disagree. I'm just looking for how can we describe it to see what a lily pad might be, you know, the moat that people might head towards if it's not, it's hard to build this technology. Yeah. I mean, you think about a place where people feel alive.

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They not only feel a deep sense of belonging, they feel it's a culture in which they can flourish. They feel what it means to be human. Right. And it's in the most aware sense of that word that we are in this system where I can be who I really am. This is what I was put on this planet to do. And I feel deeply connected with these people. I feel a sense of love. I feel a sense of curiosity.

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There's humor, you know, there's vulnerability, all of these things that make us human, but in the context of work. And it's really hard for us to imagine in some respects because it's almost like we've been the processors inside the computer for a long time, right? We've been moving data around and putting it into context. We email spreadsheets with things. We're not doing that anymore.

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And so it's changing. Yeah. And it's changing because it has to. And you know that the world of capitalism will only change when there's enough pain. Right. And the pain that they are feeling is I can't recruit people. I can't get the best and brightest and I can't have them work well together unless I invest in their inner lives.

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And now that we recognize that we're not going to be doing rote work anymore, we can't treat people like computer processors. Right. You got to treat them like humans. Right. Well, you know, you went through your own journey here, which was no small feat, right?

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You left Jive eventually, and I'm sure you went through the emotional journey there, but you've done a lot of psychological work yourself and some of the topics you talked about in your talk at the conference. You know, talking about the different work that you've done and the new tools that you have and, let's say, the new view of your story. You've done a lot of work through the years.

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Is that right? I have. Yeah. I suffered. And when you suffer, eventually you... step up and do the work. It took a long time to get there for me, but I kept trying to think my way around it. I kept trying to use the intellect as a good CEO often does to try to work my way past the pain. But like a lot of people, I had a big exit and then suffered a depression.

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And that's one of those problems that you can't talk to a lot of people about because you're basically trying to say, well, my new found wealth is making me sad. I have too much freedom. You can't really talk about that. But it was real, and eventually I stepped up and did the emotional work, and that was where the real change happens. It was not in the intellect. It was in the body.

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And I know you were doing some other things too, you know, helping out companies and doing turnarounds. you know, all of that kind of thing. But was this like a five-year process? I mean, it never stops, but did you feel like you had made a dent in it? I would say there was five years of darkness followed by five years of slowly doing the work reluctantly, but it was still kind of dark.

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And then five years of like, all right, I got to really step up and do this. And that was when things shifted. Thanks for sharing that. It's a little bit like founders admitting how long they went without paying themselves. And then everybody in the room said, you know, gee, I did that too. It feels better.

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And, you know, they're building it in a certain way, but they're investing in their companies. But it's something nobody talks about. And it usually takes longer than people think, even if you're ready. It does. Yeah.

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Well, you know, the system is what the talk that I did where we met, I was basically shining a light and saying that 95% of us suffer while we're running our companies, some form of mental health issue for a 10% chance of success. And even if we do have a big success and we're in that lucky 10%, we have an 85% chance of suffering afterwards. So I was like, this is the system we're growing up in.

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Is this really what you want to be a part of? And what I said was, it's the same work. No matter where you are in that journey, it's the same work that's going to... Make you more joyful in the moment. Have more fun while you're running your company. Build a more valuable company over the long run. Have a much better exit. Have a better life post exit. Do it again.