LESSONS FROM HIGH GROWTH COMPANIES
How the Smartest Money in Private Capital Spotted the Edge Hidden in Plain Sight
The Monday morning when Eric Yuan realized his company might collapse under its own success, he was staring at a dashboard that shouldn't have been possible. Zoom, his video conferencing platform, had just added more users in three days than in the entire previous year. As cities across the world shut down in March 2020, Zoom was becoming a verb, a noun, and potentially, a cautionary tale of success breeding catastrophe.

"We had never thought of these users before," Yuan would later confess in an interview with YPO, as his platform rocketed from 10 million daily meeting participants to 300 million in a matter of weeks.[1] The irony wasn't lost on him. The very pandemic that created unprecedented demand for his product was the same force that could destroy it. If Zoom crashed under the strain, the world would find alternatives. Once-in-a-lifetime opportunity and existential threat arrived in the same package.

Most companies facing 30x growth in 90 days implode spectacularly. Zoom didn't. Understanding why reveals something fundamental about high-growth companies that venture capital firms consistently overlook.
PART I: THE STRESS TEST
Silicon Valley mythology reveres the pivotal product insight, the elegant code, the brilliant business model. Operations—the unsexy machinery that makes businesses actually work—rarely gets the spotlight. But when Eric Yuan founded Zoom, he had spent enough time at Cisco's WebEx to know something that most founders don't: great products fail when operational infrastructure can't support them.

His lesson came from personal pain. As VP of Engineering at WebEx, Yuan had watched customers struggle with a conferencing product that engineers could no longer improve fast enough. The codebase had grown unwieldy. The infrastructure couldn't scale efficiently. Simple feature requests took months. Yuan didn't leave to build better video technology; he left to build a better operational foundation for delivering video.

"We needed to take action proactively," Yuan explained about the pandemic surge, "like adding new servers quickly without breaking existing functionality, and ensuring no privacy issues emerge."[1] What sounds like technical jargon reveals a profound truth: Yuan had built Zoom's operations to expand by orders of magnitude from day one.

But the operational challenge wasn't merely technical. Overnight, Zoom's customer base transformed from enterprises with IT departments to kindergarten teachers and yoga instructors. "We started playing the role of information technology technicians," Yuan said. "We learned quickly to overcome this challenge."[1]

By 2021, the company that had been valued at $1 billion during its IPO was worth over $100 billion.[2] The pandemic provided the opportunity, but operational excellence enabled Zoom to seize it.

Venture capital firms celebrate companies that grow fast. They should be studying companies that can transform their operations just as quickly.
PART II: THE INFRASTRUCTURE BUILDERS

Patrick Collison likes to point out something strange about Silicon Valley. For an industry obsessed with disruption, it has peculiar blind spots.

"Silicon Valley doesn't tend to place a lot of value on process and operational excellence," he observed in a 2024 interview. "We culturally value the spontaneous, the creative, the iconoclastic, the path-breaking. Building mechanisms that can enable the very reliable provision of important services at scale, and removing the sources of variability... I don't think these things get quite as much cultural credit."[3]

Collison knows this firsthand. When he and his brother John founded Stripe in 2010 to make online payments easier, they entered a market that already seemed saturated. PayPal, established banks, and dozens of payment processors offered similar capabilities. On paper, the opportunity seemed minimal.

But the Collisons had identified a gap. Existing payment systems were functional but operationally burdensome. Developers spent weeks integrating them, merchants lost transactions to complicated checkout flows, and international expansion required re-engineering everything.

The insight that built Stripe wasn't primarily technical. It was operational. The Collisons realized that by creating systems that operated flawlessly across borders, currencies, and regulatory regimes, they could capture market share even where the core service—processing a payment—was essentially commoditized.

"What happens is so much additional investment is required to keep up with growth—the original 3 people can't operate the full system anymore, it's just so much bigger than when it started," Patrick explained in a 2021 Stanford lecture.[4] This operational wisdom led the Collisons to make investments that competitors viewed as excessive. They built API stability that developers could trust for decades. They created cross-border payment operations before they had customers in those countries. They invested in documentation and support systems that seemed disproportionate to their size.

The result? Stripe processed over $817 billion in 2022, giving it a larger payment volume than many established banks.[5] By 2021, an operational infrastructure built to handle growth became Stripe's most valuable asset, leading to a $95 billion valuation.

Venture capital firms often fund businesses with innovative products. They should be looking for innovative operations.
PART III: THE OPERATIONAL FANATIC

In 1997, Amazon was just another online retailer fighting for survival. That year, Jeff Bezos wrote something in his shareholder letter that seemed innocuous but would define the next two decades: "We have shifted our focus from features to customer experience."[6]

What Bezos understood before his contemporaries was that in digital businesses, operational excellence created customer experience. The website could be beautiful and the prices compelling, but if the package arrived late, the customer service representative couldn't solve problems, or the checkout process failed, customers wouldn't return.

"We've had three big ideas at Amazon that we've stuck with for 18 years, and they're the reason we're successful: Put the customer first. Invent. And be patient," Bezos would later explain.[7] That patience wasn't passive—it manifested as obsessive attention to operational details that competitors dismissed as irrelevant.

While competitors focused on marketing and growth, Amazon was rebuilding fulfillment centers to remove seven seconds from package processing. They were creating statistical models to place inventory closer to likely buyers before orders were placed. They were meticulously measuring and eliminating sources of variability from their operations.

Former Amazon executive John Rossman explained the approach: "It isn't just about becoming speedier or more agile. Rather, it's about striving to achieve operational excellence and always striving to raise the bar at every turn."[8]

This operational focus appeared to slow Amazon initially. The company took longer than competitors to expand its product categories. It invested in infrastructure that seemed excessive for its size. Wall Street analysts regularly criticized its margins and questioned its strategy.

But the operational foundation Bezos insisted on building created something unexpected: the ability to enter and dominate new markets with unprecedented speed. When Amazon launched AWS, it was building on operational capabilities developed for its retail business. When it created Prime, it leveraged fulfillment operations that already outperformed competitors.

By 2023, Amazon's market cap exceeded $1.3 trillion[9]—not because it invented revolutionary products, but because it built operational systems that could deliver existing products with reliability that competitors couldn't match.

Venture capital firms fund businesses they believe can become platforms. They rarely recognize that operational excellence is the foundation upon which platforms are built.
PART IV: THE INVESTOR OPPORTUNITY
When Eric Yuan was building Zoom, Patrick Collison was creating Stripe, and Jeff Bezos was expanding Amazon, they were all working against conventional wisdom. They invested in operational capabilities that seemed excessive, focused on issues that seemed peripheral, and prioritized resilience when competitors chased growth.

Time proved them right. Their operational focus created competitive moats that capital alone couldn't overcome.

For venture capital and private equity investors, these examples reveal a massive opportunity hidden in plain sight. The firms that develop expertise in operational excellence will outperform their peers in the coming decade. The opportunity takes three specific forms:

1. The Diligence Edge
Leading investors are now building dedicated operational diligence capabilities alongside traditional financial analysis. These teams evaluate a company's ability to scale operations linearly with growth—a factor that often determines whether a promising business plateaus or dominates.

"Investors need to ask not just whether a business can grow, but whether its operational foundation can support that growth," says one PE operating partner who requested anonymity. "You'd be shocked how many companies with great products have operational debt that will take years to fix."

By evaluating operational capabilities during diligence, investors can identify hidden gems whose excellence isn't yet reflected in their financials.


2. The Valuation Arbitrage
Smart investors are getting better at quantifying the value of operational assets that don't appear on balance sheets: automation systems, knowledge management platforms, and operational playbooks.

These assets directly impact capital efficiency. A company with strong operational foundations can deploy growth capital 2-3x more efficiently than a company building capabilities while scaling.

This creates arbitrage opportunities where the market undervalues companies with superior operational systems relative to flashier competitors with stronger marketing but weaker operations.


3. The Expertise Advantage
The best investment teams now include professionals with operational backgrounds who speak the language of COOs and operational leaders. These team members spot value that financial analysts miss.

Some firms are building internal operational capabilities deployable to portfolio companies. These aren't generic "operating partners" but specialized teams with expertise in specific operational domains.

This approach creates compounding advantages: better operational expertise leads to better investments, better results, and eventually attracts the scarcest resource in venture capital—proprietary deal flow from founders who value operational support over merely financial investment.
PART V: THE NEW PLAYBOOK

One PE firm I work with has completely revamped their approach to operational value creation. Rather than viewing operations as a cost center to optimize after acquisition, they now assess operational capabilities as core to their investment thesis.

For each potential portfolio company, they evaluate five key dimensions:

1. Operational Scalability
Can the operational model scale 5-10x without breaking?

2. Automation Potential
Can technology eliminate manual processes to create margin expansion?

3. Knowledge Transfer
How effectively does institutional knowledge move between people and teams?

4. Organizational Agility
How quickly can operations adapt to changing conditions?

5. Operational Leadership
Is operations led by strategic thinkers or tactical executors?


This approach has transformed both their diligence process and post-acquisition strategy. In several recent cases, they've unlocked growth that financial engineering alone couldn't achieve.

In one particularly striking example, they acquired a software company with strong technology but operational challenges. While competitors focused on cost-cutting, this firm invested in rebuilding the operational foundation. Within 18 months, the company had doubled its enterprise value not through acquired growth or multiple expansion, but by improving the fundamental economics of the business through operational excellence.
THE INVISIBLE EDGE
As competition for deals intensifies and growth becomes harder to find, the ability to identify and improve operational capabilities represents the next frontier in private capital.

The most successful investors are shifting from seeing operations as a cost to viewing it as a capability. They recognize that in a world where capital is abundant, the ability to deploy that capital efficiently through strong operational foundations increasingly differentiates between mediocre and exceptional returns.

For limited partners evaluating fund managers, asking about operational diligence capabilities and post-acquisition support has become as important as questions about deal sourcing and financial structuring.

Eric Yuan, Patrick Collison, and Jeff Bezos understood a fundamental truth that many investors still miss: operational excellence isn't just efficiency, it's the foundation upon which sustainable growth is built.

The next generation of market-leading investment firms will be those that put operational excellence at the center of their investment thesis, not as an afterthought.

In a world where capital is commoditized, operational excellence is the new edge. The investors who recognize this shift first will reap outsized rewards.
↑Back to Top