Let’s start with a definition of startups. Startups are not just new companies; they are companies that have an expectation of being a huge company one day. Along that path they have to cross a number of hurdles: can they get enough traction and scale enough to persuade someone to finance their growth? Can they produce a product that a sufficiently large proportion of their target audience will buy? Is the market they are servicing large enough to support their growth? And even if all these boxes are ticked, can they execute well enough to be one of the winning companies in the sector rather than an also-ran?
Related: How to make your business scalable
Looking at the execution hurdle, whether or not you will ever achieve a product-market fit and if your market is big enough are calls you have to make, but many good ideas languish through poor execution. First mover advantage is highly overrated. Take Facebook as an example; it was not the first social network, but often success is about being a few percent better across hundreds of activities rather than the big idea.
How do you know if you are ready to scale? I would say that you have to have proved you have a product to market fit, and shown that you have a replicable sales and marketing process. If the founder has managed to flex his connections and land some clients, this doesn’t tell you that you are ready for rapid growth.
What should you be focusing on to create the platform for growth? Each of the factors I will be highlighting could make the subject of an entire book, so as I can’t cover everything in that detail, I’ll try to pick out a few of the key points.
This is the biggest lever you can operate in your business so you should be putting your weight behind it. It’s especially easy to lose focus the faster you are growing. You have a million and one other things to distract you, your recruitment volumes are increasing, and you have more pressure to ‘fill seats’, not having enough people looks like one of the main barriers to growth.
- Hire for drive and motivations, not just experience. Some people are driven by the need to succeed; these are the people you want. Make sure their motivations are in line with yours.
- Be involved and keep your standards high. Aaron Levie says he like to imagine if he would employ each person if they were going to be one of the first 10 hires.
- Always remember it’s a two-way process. The best people will be being wooed by other companies. Always make sure you sell the benefits of working with you and move fast to secure the best people.
- Don’t just interview. Use motivational tests and practical exercises as much as possible. Interviews and experience have been shown time and time again to be the worst indicator of future success. Go further than checking a CV.
- Hire people that are taking a step up in their career to join you. Question the motives of people taking a sideways move – do they have the drive, and will they be challenged sufficiently to be engaged?
Most people start with incentives and stock options, which are important, but not sufficient. The first thing to get right is the three Rs, responsibility, respect, and recognition. People thrive when they set clear (SMART) objectives, trusted to get on with it and recognised (publically and privately) when they do a good job.
- Keep people challenged, but not so challenged they fall apart through stress. A good rule of thumb is that 25% of their job can be boring admin, 50% they should be able to do standing on their head, and 25% should stretch them.
- Make sure the workplace is supportive (see culture and communication below.)
- Be accepting of mistakes, but not sloppiness. Good mistakes happen when people push themselves beyond their comfort zone, and you don’t develop without making some. Bad mistakes are the small things (not checking their work properly for example.)
- Manage people on outcomes, not processes. Who cares how hard people are working if they don’t get results? Process focus stifles innovation and takes responsibility away from people. A pet peeve of mine is worrying about how much time people spend on social media. If they can do the job, why care how much time they spend on Facebook.
Keeping the top performers and removing underperformers is critical. People in the same team generally know who is doing a good job and who isn’t. Keeping people that are underperforming reflects badly on you and is negative for the people that are working better and harder for the same money.
A good test of how highly you value someone is to imagine how you would feel if they resigned. If it wouldn’t bother you, why are you employing them?
Culture and communication
I don’t think it is possible to over communicate, however, communication needs to flow in both directions. You need to make sure everyone knows the direction you are headed and has a chance to input (positively and negatively) into achieving it.
If you dismiss someone’s feedback or suggestion, it’s highly unlikely they will make another. You don’t have to agree with everything, but you have to listen carefully and explain your decision to them properly.
Don’t assume culture will set itself. You need to work hard at it. You need to hire the right people, and you need to set out how you expect people to behave in your company. This is easy when you are ten people as everyone can take their lead from you. This doesn’t happen automatically at fifty people.
Remaining agile and innovative
If you have hired the right people with clear objectives, proper responsibilities and flexible process, you have created the platform for innovation. But again, this is something you have to work at. You need to tell people that you value innovative solutions, and you should ask people what are they trying that is new. Let them know that there will be some failures along the way; it is your role to encourage the right mistakes. If you never fall over it will take you a long time to learn to ski.
For example, you could have a monthly review of new initiatives and treat failures as valuable lessons learned.
Essential reading on this is Mindset by Carol Dweck. She identifies a growth mindset which means that you understand that personal growth comes not from innate talent but from hard work and practice and that purposeful practice where you push yourself outside your comfort zone and start making mistakes is how you learn the fastest (provided you learn from the errors). This book is a must for anyone hiring and managing people or bringing up children.
Processes and data
Good processes are ones that codify lessons learned and best-practice, bad processes are ones that assume people have no initiative and need to be spoon-fed. The line between them is very thin. Good processes are more like guidelines with clear explanations of why things are done that way. Bad processes are rigid and exist because things have always been done that way.
As you grow, jobs that were once done by one person will then be done by many, and as workflow spreads over several people, make sure the processes work to keep everyone informed. Try not to replicate effort several times and don’t create bottlenecks where one person holds up the workflow from several people. This is why having an operations director is almost always a good idea when you start growing rapidly. This is a critical but administrative job that the founder should not have on their plate.
As the company grows, it becomes more complex. In a smaller company where you are heavily involved in all departments, you can have a good instinctive feel for what is working and what isn’t. You also may not have sufficient data to draw sound conclusions. Entrepreneurs thrive in this gut-feeling environment. In the large company, you need data. This is not just about the KPIs that you use to evaluate company success. This is about properly attributing costs and risks to projects to work out profitability. It’s very easy to think you are doing well because you are winning loads of clients, revenues are shooting up, and you are hiring lots of people. You are also at a stage where you are not expected to make a profit – but you are expected to be building a company that will become profitable.
Acquiring unprofitable clients or running unprofitable projects will not scale you into a successful company. This is the stage in your evolution where a good finance director is going to be essential. Remember Drucker’s saying “you can’t manage what you can’t measure”.
What have I left out?
This is by no means a complete guide to achieving scale. Several of the bullet points I have mentioned are covered in week-long training courses, and I’ve only picked out a few highlights for areas I think are easy to get wrong. But I’ve left out areas that I think tend to have company specific solution (e.g. product management, technical infrastructure, client services, sales and marketing).