From startup to scale-up: real growth cannot come by taking the easy way

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istock
Rhys Marc Photis
Founder, MD & Human being
GPi Global Performance Improvement
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There came a point in time when I realised the nature of my business had changed. I wasn’t even sure whether it was for better or worse; it was just different.

I remembered when there were ten of us and everything always happened so quickly. After all, moving fast and being nimble gives entrepreneurs an advantage and a better chance to succeed.

We were driven by doing the right things; a new idea was quickly tested, adapted and shared with everyone during implementation. It didn’t even need to be formally shared because everyone was always involved somehow. A chat over lunch or a pint after work and you were up to speed. When we needed a new player, one of us would have the right contact to bring on board our speedboat.

When the world changed

Then suddenly we were 100. It seemed like a natural progression, a proof our concept worked. But the business had lost some of the feel that got it there in the first place.

At that point, we had teams, working on one specific service, managed by heads with whom I sat more regularly. It was no longer about having great new ideas, but planning things through just right. I knew everyone in the business but didn’t know what they were working on, let alone what they were thinking. We were talking about reporting lines, roles and responsibilities, defined working steps; everything seemed more formal and long-winded. And, don’t even ask about our recruitment process. What had happened?

Real growth cannot come by taking the easy way

It is clear that a business of 100 people is much more complicated than one of ten. Running such a diverse business may not be quite ten times more complicated, but you get the idea.

You may start a company with high hopes, but eventually – like Ben Horowitz at Loudcloud – you’ll experience what he calls “the Struggle”. Naturally every startup encounters challenges. Your product turns out to have costly flaws. Your cash runs low and your venture capitalist tells you fundraising seems unlikely. A loyal customer threatens to leave you. A key employee walks away. All these challenges increase in number and impact as the business grows.

Two different beasts

Let’s look at different areas such as strategy, leadership, role descriptions and how they change as the business grows. 

Micro-business (under 10 employees)

In most industries, a micro-business is very much about uncertainty. No two days are the same, there is a variety of jobs and no one knows where they or the company will be in 12 months.

The driven startup entrepreneur takes this one step further by trying to continuously grow the business. Most people get a thrill from having few restrictions; fire-fighting is the norm and being on the edge is part of the thrill. This environment attracts risk-takers. The main objective of a startup is to drive business development, sell, sell, sell and gain market share.

Then suddenly we were 100. It seemed like a natural progression, a proof our concept worked. But the business had lost some of the feel that got it there in the first place.

Strategic direction is often led by the founder or boss. S/he has a good intuitive understanding of the market, often guided by gut feeling. Others usually follow the lead without questioning. They will know the boss well enough to sense when an idea is important and what to prioritise.Everyone has different strengths, usually focuses on certain areas and will naturally do whatever it takes to get a job done. There is natural sharing, a kind of ‘all hands on deck’ most of the time.

Recruitment is just as ad-hoc and, as there is no budget, a staff member will find a suitable candidate. As mentioned in The Founder’s Dilemma, founders often hire from their personal networks during the startup phase. Such ground-floor employees are usually less experienced generalists who will accept lower salaries for the promise of future reward.

SME (up to 250 employees)

A company of 100 employees usually feels quite settled and organised. You have functions and departments.

People know what to work on, one month might not be like another but otherwise everything has its time and place. There are still opportunities to break out of the norm when new areas are developed or the company continues to grow.

The main objectives are safeguarding what has been achieved and considering further development when and where possible. This business attracts more and more people who will want clear job descriptions and less risk.

Fire-fighting is the norm and being on the edge is part of the thrill. This environment attracts risk-takers.

At this point heads or VPs often equal or outnumber founders; call them ‘senior executives’ if you like. There are regular strategy meetings where people exchange viewpoints and direction is set or discussed, depending on the founders’ steer. Leaders often seek more insight on strategic direction so they may understand and pass it on.

The majority of jobs have defined roles and responsibilities, often still a bit vague, but nevertheless an attempt at clarifying expectations.

This is also necessary because the hiring process has become more formal and taken on another level of complexity.  At this point, a company often engages professional recruitment firms to compensate for a few bad previous hires and address increasing concerns about nepotism.

The way forward

An organisation successfully evolving from one state of operations to another undergoes a full transformation. This has an impact on the role of the founders and their egos. Communication has to become more formal to align a larger number of individuals. Better clarity is needed in recruitment because the faster employees are fully on board, the faster they can contribute.

We managed another transformation and today we are back in balance with 120 people and what we call ‘lean blue’ – only as structured and formalised as necessary and without reaching the maximum headcount.

How to grow whilst having fun and preserving the soul of your business

Let’s look at a few typical trends in growing companies. What often happens is less sharing and more specialising, over-formalising and structuring, loss of focus on people, and the founder changing tasks and priorities.

You, as the boss, front the company, focus on finances, ensure quality, manage teams and provide vision. As pointed out in the Startup Playbook, this work is demanding and requires a calm, positive attitude, so ask for help and delegate where possible. Stay close to your people and avoid using depersonalizing titles like CEO if you are managing a small company.

It is crucial you instill this idea of openness in your leaders because hierarchies have a tendency to cut off human engagements. Leaders don’t convey optimism alone; be honest about threats to the company. People can sense when something is wrong and their jobs are as much on the line as yours. Ensure your people feel they are part of something that is alive, shared and has a common purpose.

We all know it helps to organise a larger group before going into action. This step is important to create formal clarity. However, it is even more important not to get lost in it. Clarifying all the roles, responsibilities and processes is easy, but you should always apply the necessary pragmatism and put people before processes and procedures, provided you are clear about why you are doing it. This is an agile principle that is a helpful guideline for sustainable and lean growth. Google’s agile development manifesto, which was originally drafted for software development in 2001, provides a lot of useful insight into more up-to-date management.

Follow Jim Barksdale’s example from Netscape, who once said: “We take care of the people, the product and the profits – in that order.” If people like working for your company and you look out for them, they will reward you with loyalty and hard work. If you don’t take care of your people, the product and the profits won’t matter.

Let your leaders handle most of the people aspects of their business. Don’t let them shift into operational mode that leans towards micro-management, but rather into coaching mode. Furthermore, leaders need to be responsible for the hiring and firing of employees; never outsource this task to HR.

Define a clear hiring process and invest a lot of energy. Learn from one of Google’s key strengths and hire people who have not only the needed technical skills, but the right soft skills, and ensure a culture fit.  

Life is a Journey

The only thing that prepares you to run a company is running a company. The same is true for transforming your business from a nimble micro-business into a medium-sized lightweight. However, there are too many bad examples out there and you would be well advised to engage with your people and develop the business from the inside out. Culture is to a group what personality is to an individual. Develop your own.

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Replies

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21st Oct 2016 12:15

Excellent - so true. There is also nothing wrong, there can be advantages, with preferring to build the business as a micro business (0-9 employees). I agree with everything you say about 'the struggle', growth and scale up. I'm also a devotee of Michael Gerber's 'The E Myth' and the wise words of Seth Godin about the great opprtunity we all have and how you grow by working on not in the business.

However, there are some of us, like myself and my business partners, that just have not enjoyed having too many employees and ''managers'. For people like me, we'd rather enjoy growing through multiple micro enterprises. Maybe we're a bit control freakish too - but heck they're our businesses - might as well enjoy them :-)

Great article thank you and congratulations on your amazing achievements.

Thanks (2)
to tonyrobbo
23rd Oct 2016 20:08

Thanks for responding and I think you nailed it.

It is as referenced by you. A tribe is “a group of people connected to one another, directly connected to a leader and connected to an idea.” As the business grows the initiators lose their direct touch and their time is consumed more and more by their ‘new’ role. Suddenly one needs to balance the strategic, technical and operational roles. The time to follow your dreams is more and more difficult to align with day-to-day business.

I think most people are so automatically driven by growing their business and they don’t know (first time around) or forget how much business itself will change. One loses direct touch and often why one did all this in the first place.

We need to find a working place in the world that suits us. It is much better to be a professional operating in a like-minded network or leading a micro business than in a company with team leaders, departments and perks if you are unhappy.

Tony, stay true to yourself and the rest will follow ;)

Thanks (0)
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09th Nov 2016 11:53

Thanks Rhys - it is so refreshing to see the growing pains are 'normal' and your article helps us all to step back and see through them and how to approach them with the team

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to christinar13
09th Nov 2016 15:31

Dear Christina,

I am happy to see you like the article. As business face challenges, adapt and mature they all go through the same development stages and patterns. Clare Graves dedicated his entire life to understanding how we evolve and the necessary pains in order for us wanting to change. With his research findings he made clear that there are universal levels for all of us.

If you are interested in a 90 sec clip with regard to growth and pains which you can easily apply to individuals as well as organisational units, please go to https://youtu.be/3aDXM5H-Fuw?list=PL0lPCO5YBfGJUs2EczMMRi1S7vbIUNrft

Take care, Rhys

Thanks (0)
01st Jan 2017 13:53

This is a really interesting case study. I've lived through a similar transition, although not as the founder, and have seen first hand how the underlying direction, the agility of the company in its early stages of growth, were undermined. Having a clear 'higher' purpose embedded from the beginning, which every new employee relates to and shares, is one of the most effective ways of dealing with 'the struggle'.

Thanks (0)
to Peter Quintana
23rd Jan 2017 18:48

Hello Peter,

Thanks for your comment (and sorry for the delay in response - I somehow missed your comment).

I fully agree. I interviewed a co-founder today and we agreed: as long as people share the same vision, they will be clear about where they want to go. Nevertheless, there might be differences in opinion on how to get there. If you get to that point you need to have open discussions, review, test and as long as everyone keeps an open mind it is only a question of time before the best way forward presents itself.

Let's all stay true to ourselves and we shall find our best way forward.

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