- Todd McKinnon quit his lucrative Silicon Valley job at Salesforce to start his own business during the Great Recession.
- His tech startup, Okta, is now a $14 billion-dollar company.
- McKinnon took six essential steps to launch his business that can also help other entrepreneurs find success.
- He explained how to find business opportunities that will weather economic downturns and encouraged entrepreneurs to get comfortable with uncertainty.
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When Todd McKinnon decided to quit his lucrative Silicon Valley job at Salesforce to start his own business, he first had to give the pitch of a lifetime - to his wife. So he created a PowerPoint to convince her that starting a tech company during the Great Recession was a good idea.
His main argument was software giants like Microsoft and Oracle were all started during recessions.
"There could be advantages to starting a company now. We know we're not going to have a product for a couple of years anyways," he told his wife.
Luckily his wife was supportive, and in 2009 McKinnon founded Okta, an identity management service, that has since grown into a $14 billion-dollar company. The company has 7,400 customers and is making more than $150 million in revenue per quarter, he told Business Insider.
While not all startups can match his billion-dollar success, McKinnon said there were several strategies in his business plan that can help other entrepreneurs grow their businesses.
Here are the six steps that McKinnon said are essential to launching a successful company.
1. Identify a macro trend and use timing to your advantage
Although McKinnon started Okta during a recession, he didn't base his decision on the economy. Instead, he noticed many companies moving into cloud computing - Google was starting business applications and Amazon launched Amazon Web Services. "I saw the big trend that would lead to a number of potential changes and a number of different products," he said.
Recognizing a "macro trend" is the first step in developing a viable business, McKinnon said. Using this trend, you can identify a product or service that will be successful. "Make sure there's some big macro trend that you're on the right side of," he said.
McKinnon said starting Okta in 2009 was a blessing. "It was a little harder to raise venture capital, but it was a little bit easier to hire people," he said. It also gave them some time to get a product to market, as the economy picked up again.
2. Ensure your business doesn't rely on economic stability
In 2020 recession is a top concern for CEOs, according to a recent survey by The Conference Board. Some experts say the US economy is headed for a brief recession that will start in the spring of 2020 and last for roughly two quarters.
Your business idea should be able to weather the ebbs and flows of the economy. During a downturn, leaders will stress the bottom line and investors will be looking for a nimble vision that can outlast the lean times.
That's why McKinnon said a business' success is the difference between a "nice-to-have vitamin" and a "mission-critical medicine." A product or service that doesn't fulfill a dire market need will quickly find itself sidelined during an economic lull.
"It was pretty clear in our minds that cloud was going to be a big part of the future," he said. "It was not very likely that cloud would hit a wall and be a hype thing that didn't take off."
If your product or service meets that prerequisite, an economic downturn isn't necessarily a bad thing. "It's going to take time to build this business," he said. As it happened with Okta, a slow economy could give you time to develop your product and hire a team.
Many businesses fail during a downturn because investment markets freeze up, McKinnon said. It's important to be conservative with your money, so as not to burn out before you reach profitability. During Okta's first few years, his team made sure the business was efficient and could cut costs without having to raise more money. "We didn't want to be at the mercy of the investors or relying on raising more money to survive. That's where people really get in trouble," he said.
3. Validate your idea with feedback
The next phase of building your business is developing the product or service from the macro trend you've identified. This is one the hardest parts of building a business and requires feedback from multiple stakeholders, McKinnon said. "Feedback and having a product or a prototype to test and talk to customers about is really important."
In Okta's early stages, McKinnon shared a 15-page business plan with a few friends in venture capital to help him improve his vision. "It's really hard to just think of it in a vacuum and think, what will someone buy or not buy?" he said.
Their feedback wasn't entirely positive, but he said it was an important step in developing thick skin - which you'll need whether you're a startup founder pitching VCs or a CEO leading a company of 2,000 employees.
4. Communicate expectations with your family
If you're married, have children, or have dependents who rely on your income, they are important stakeholders in your business decisions. They may not hold monetary equity, but your success will certainly impact their livelihood, so it's important to communicate how your business will affect them.
When McKinnon pitched his wife with his business idea, their daughter was six months old. He outlined every practical concern, including how his salary would work, how they would manage health insurance, and how they would handle major expenses. He told her both the negative and positive feedback he received from investors, where he'd get financing, and four scenarios of potential outcomes.
5. Get comfortable with uncertainty
McKinnon said one of the biggest mistakes entrepreneurs make is getting carried away with things that aren't in their control, like the highs and lows of the stock market.
While at Salesforce, McKinnon grew accustomed to the certainty of working for a big company - and the paycheck, success, and stability that comes with it. So when he started Okta, embracing uncertainty was one of his biggest lessons.
"No one can tell you if it's going to work. The best venture capitalists in the world, the best industry experts, your friends, your family, your coworkers, they can't tell if it's going to work. No one knows. So you have to get comfortable with not knowing that," he said.
Uncertainty can prevent people from quitting their jobs to start a business in the first place. But McKinnon encourages entrepreneurs to go all-in, even if the economy scares you. And if your idea is big enough to get venture backing, it's not a side hustle.
"A lot of these great, big ideas with broad reach and scale, there's a number of people that go after them. So it's important to be in with as much skin in the game as soon as possible," he said.
6. Create a timeline for milestones
Setting personal and business milestones also helped McKinnon with the uncertainty of starting a business. His goals kept him motivated and focused his team on incremental wins. For example, he told his wife that he would find a new job or return to Salesforce if he couldn't secure venture financing within six months.
"It gives everyone that you're trying to build trust with - whether it's your wife, or whether it's your team, or whether it's customers - it gives everyone an anchor point that you're making progress," he said.
Even when one year wasn't going well, he set a small goal for his team to get five customers live and deployed. "[It] seemed small at the time, but it felt like we could take away a little uncertainty, if we just get there," he said.
Transparent communication is essential for rallying a team behind your business. McKinnon warned that your team will grow skeptical of your leadership if you're missing your targets and you don't communicate or revise your goals. "The more you can share there and get the team buying into the milestones, the better," he said.