The Geometry of (Startup) Growth

I’ve worked at venture funded startups, private equity funded tech firms, and privately held boutique consulting firms that all experienced dramatic growth. Each experience, while different in it’s own right, left me with the distinct impression that most companies/workplaces suck after they grow above 50 people and/or 10 million in revenue. It took me running my own company to really answer why. It boils down to lack of management evolution in the transition from linear growth to geometric growth, often referred to as “scaling.”

As I head into my fifth year as CEO of Modus Create, my co-founder, Jay Garcia, and I did a retrospective on how many times we’ve had to change our team/management structure to account for growth and we found (somewhat scientifically :p) that our growth followed a Fibonacci pattern. This observation raised specific questions on the evolving nature of the management challenges at each phase of our growth.

Growth creates Stress and “Good Stress” is worse than “Bad Stress.”

Unexpectedly, we came to share the belief that “good growth” was consistently more stressful on us and our team that when “bad things” happened. “Bad Stress” is somewhat predictable and uniform. Dealing with a tough client or project issue is easier than dealing with “Good Stress,” which requires us to change and grow while maintaining positive outcomes. Fibonacci headcount numbers, we noticed, each presented a new team dynamic that required a coresponding restructuring.

A few core principles seem to become self evident as we grow:

Replication — teams replicate along functional and geographic patterns to a point of diminishing returns.

Evolution — changes/growth in client/revenue/pricing patterns are required for continued STABLE growth.

Organization — linear “direct oversight” management is required early on, but stifles growth when replications approach the golden ratio. Geometric growth requires systems to replace people and individual tasks to become entire roles and responsibilities.

About now, you might be asking, “This seems obvious, so what?”

Great Question. The answer lies in the Golden Ratio. In nature, the Spiral is the shape that maintains Balance and Strength through periods of Dynamic Expansion. Boom. Mind blown. This is why companies suck as they grow. The lose their balance and sources of strength. Chaos and disarray are the children of unmanaged growth. Growth for the sake of growth results in exhaustion of resources and, very likely, death.

Observations on how this pattern is playing itself out at Modus Create.

For non-nerds, the Fibonacci sequence is a series of numbers derived by adding the last two numbers to determine the next number in the sequence. When drawn as a series of squares, a spiral is formed when connecting the arcs contained within each square formed by the sequence.

0, 1, 2, 3, 5, 8, 13, 21, 34, … and so on, forever.

For us, the first part of the sequence played out as follows:

0 — no company, just a founder with an idea (and no commitment to the idea yet).

1 — founder commits and formalizes entity.

2 — founder + co-founder: validate idea w/ customers (and get first sale).

3 — founders + first hire: validate idea to first employee.

5 — small core team delivery: replicate first employee to create first team

8 — Year 1: replicated team.

13 — replicate 3 delivery teams.

21 — Year 2: first Fortune 100 win, double delivery team size. Hire first overhead senior manager.

34 — Year 3: team size by end of year 3, first geo-replication (small NYC office). Formalize advisory board.

55 — Year 4, international replication (opened Eastern Europe office). Invest in growing executive/senior management team.

Now let’s look at that same growth trajectory from a management style perspective and leave the headcount numbers aside for the moment.

point — self manage, vet idea, see if vision holds with potential customers and key employees.

line — put your plan into action. work all day, manage all night.

plane — see if the economics will sustain growth. delegate day-to-day management, focus on replication, growth, and extension of scope and scale of capabilities.

spiral — hedge downside risk of dynamic growth. managementAdvisory board, financing, delegated authority, define non-negotiable “un-changeables” before growth (core values, mission, vision). personal note on ‘un-changeables’: It was much easier for me to define our core values based on lines I feel we should not have crossed internally and externally after living through the first chaotic year or two of growth.

Some thoughts on the next Fibonacci evolution at Modus.

First, a quick reminder that none of this growth would have been possible without the blood, sweat, and tears of everyone on our team and the trust we’ve been given from our clients and partners.

Personally, I’m focused on extending our senior management team and geographic presence in the US and preparing our company to have the financial management discipline to grow through acquisition (and operationally to integrate with excellence). I believe we are well on our way to compliment our organic growth with an inorganic growth strategy once we complete a few more US office replications.

In Q3 2015 we will embark on the next phase of growth Modus Create by spinning out our product division as a stand alone company. I am very excited about this next step and will have more to share in an upcoming post.

Please share your thoughts or ping me on the Twitters at @sheridap.