What happens to startups when they grow up?

You’re not going to like the answer.

Truth is, most startups die.
– 9 out of 10 startups fail (according to Genome Project)
– 1 out of 200 become a scaleup (according to THNK & Deloitte Fast Ventures)
It’s the elephant in the room.

Everybody talks about startups, and celebrates entrepreneurship, and so we should.

But “getting our ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs.”

“UK boasts a host of successful businesses and starts more companies per capita than the US. Yet, the main stumbling block to growing a global tech empire is the country’s current inability to “scale-up” these startups into larger companies”
(Sherry Coutu, ScaleUp Report)

 

This is the reason why I find most advice given to entrepreneurs useless:
– they are obvious (e.g. don’t hire bad developers. Thank you, I was planning to do that on purpose)
– they are contradictory and subjective (qualifiers as good/bad, slow/fast are only determined as such in retrospect)
– they form aspirational quotes that everybody repeats without truly understanding what they mean (move fast and break things, anyone?)

More importantly, they failed to address what successful scaling looks like,
and what it takes to grow in size and complexity in a sustainable way.

Scaling comes with predictable challenges:
Yes! Pretty predictable.
As companies of various sizes and industries grow, they face similar crisis at each stage of their evolution. Scaling successfully requires to recognise the early signs of each phase and proactively design the following one.

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a. the leadership crisis: “You’re gonna need a bigger boat”
Designing a product or a service and building a business require different skills.
– the creative, organic and informal ways of working are not effective anymore.
– the attention moves from people to processes, from product to customers.
– Founders are forced to pass the hat, create new functions to divide the tasks for greater efficiency.
– Culture is diluted as new people join the company. Early joiners find it difficult to articulate and institutionalise the “tribal knowledge”

b. the autonomy crisis: “Why so serious?”

As a functional organisation is put in place with clear and separate roles and responsibilities, hierarchy of titles and position builds, work standards and incentives are adopted.
Yet Founders and managers are disconnected from the coal-face while teams feel torn between following procedures and taking initiatives on their own.

c.the control crisis: “Ground control to major Tom”
As greater autonomy is given through a decentralised structure proves useful to gain expansion (e.g. market territories), a serious problem appears. The top executives are losing control over a highly diversified field operation. It becomes difficult to coordinate plans, money, technology.

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d.the red tape crisis: “Brazil”
As formal systems are put in place to achieve greater coordination (planning, reporting, procedures for allocation investments across groups), the proliferation of systems begins to exceed its utility.
Coordination is useful to achieve growth through a more efficient allocation of the company’s limited resources, but procedures take precedent over problem solving and innovation is dampened.

In order to scale successfully:

  • know where you are in the development cycle:
    you need to be aware of these stages and recognise when the time for change has come
  • be prepared to dismantle your current organisation
  • plan your next stage, and consciously design your new structure, it will not form automatically.
  • realise that each solution breeds new problems. predict future problems and coping strategies

My recommendation to scale up founders and executives, as they dismantle and design a better version of their business:

  • favour social control and self-discipline through cross-functional task groups and teams.
  • align individual and collective efforts around simple, unified and multi-purpose metrics and systems
  • invest in real-time information platforms and integrate them into daily decision-making
  • reward team performance rather than individual achievement
  • experiment and reward new practices
  • invest in education and training to develop the appropriate behavioural skills in your company

The only way to do that is to articulate and solidify the core components of your company: your purpose, your culture, your decision-making process and communications flow,
– and to define the appropriate people skills and processes to deliver the capabilities you need to win…. with built-in flexibility.

It’s hard to do it alone.
Have the courage to ask for help.

sources: Greiner highlighted these stages back in 1994 in his paper “Evolution and Revolution as organisations grow”. Oldie but goodie.
I have worked in companies of various sizes, across various industries, and am finding his analysis still very contemporary and relevant almost 20 years after.
Photo Credit: John Atherton – Kindergarten graduates, San Francisco, California 1945
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