Organizations Matter!

Nurturing the internal ecosystem of your startup

Money, Money, Money

Talking to small and growing businesses (SGBs) in India and East Africa through the course of my work, limited access to capital scores as the number one bottleneck perceived to hinder scale. As a result of this demand, an increasing number of actors are aiming to fill this financing gap, ranging from philanthropists to impact investors and venture capitalists. While research has well documented the need for different kinds of capital to help early stage ventures on their journey to growth and has called for the need to strengthen industries around entrepreneurs[1], most of the research has focused on scaling challenges for startups that are outside of the organization and in the larger ecosystem.

However, many scaling challenges lie within the organization.

While the external ecosystem of capital, knowledge and as well as networks are key to growing enterprises, there is more to explain enterprise growth — and this has to do with looking within the organizations. While much has been written about the role of leadership and talent[2], little attention has been given to the foundation of the startup’s existence, the organization and the organizational health of the enterprises on their journey to growth. Yet internal aspects such as the ability to execute, learn, adapt and renew are critical for every startup and SGB — especially because agility and pivoting is crucial in the early years of a business.

While there is a lot of talk around “talent”, little attention is given to help enterprises with building an an effective and high impact organization.

A recent research by Shell Foundation and Village Capital has brought human capital, talent and the role to build world class teams in the limelight. The research documents human resource challenges, highlighting the need of better recruitment, talent management processes as well as the need for a thought-through HR strategy.[3] While the report rightly re-iterates what business leaders have been stating over the years that “people make the company”, little focus has been given on understanding what makes a company successful as an organization and understanding the “glue” that determines how effective teams are. With an increased body of knowledge around the importance of talent and teams, there is a need to dig deeper and understand aspects around the “internal ecosystem” and aspects of organizational design that enable collaboration and team work or increase efficiency and performance.

1+1 is more than 2: A great organization is 20% people and 80% what happens between them

As it is widely accepted in organizational theory today, an organization is more than the sum of its parts. Hence, a conversation around human resources, talent, recruitment and HR management only explains part of an organization’s performance. However, as much as organizational success can be explained by the simplified formula “1+1 equals more than 2”, the quality of talent of an individual is only part of the explanation. As research documents only 15–20% of organizational performance challenges can be addressed through developing new skills and knowledge. Instead, 80% of organizational performance is determined by aspects such as role clarity and clear performance specifications as well as resources and mechanisms to enforce these, decision-making and communication structures, feedback mechanisms and incentives.[4]

Aspects of organizational health are critical to build a long-term competitive advantage

While for many in the business world, including investors and founders themselves, “organizational health” and “organizational development” is seen as “banal”, “a matter of common sense”, and part of an esoteric jargon, the topic has recently gained attention through Patrick Lencioni’s book “The Advantage”, in which he highlights the need to look within in order to improve the competitive advantage of an enterprise, instead of focusing on external factors of enterprise success. Through working with enterprises over more than a decade, I have seen that constraining forces of enterprise growth are often organizational: Inefficient organizational structures can lead to a slowdown in process, high cost, and productivity losses; a negative organizational culture can hugely affect creativity and innovation. Similarly, a mismatch of talent and roles has huge performance implications.

Yet, organizational development is not a priority for most SGBs

The reality in startup ecosystems, however, looks different: With 90% of organizations surveyed during the Shell and Village Capital research classifying HR as an administrative function, I would argue that organizational development is an even lesser priority in the minds of founders and CEOs. Hence startups are constantly working on great ideas, but rarely ask what organization is needed to support the ideas. However, where “Organizational Design” is misunderstood or interpreted as “the org structure”, people, innovation power and finally the business will suffer.

Pioneering SGBs are starting to take organizational health serious

With an increasing number of enterprises struggling or failing not because they face a shortage of capital, but due to the lack of an effective, agile and healthy organization that can perform to achieve the set-out objectives, the conversation may change. A number of pioneers have recognized that organizations matter: East Africa-based social enterprise Mobisol, for example, has established an internal consultancy wing Blueprint that continuously develops operational and organizational structures in response to changing conditions within new and existing markets. This shift often occurs as enterprises expand and scale: With this institutional growth, topics like communication, organizational culture, institutional learning and knowledge management become relevant. Similarly, aspects such as team motivation, leadership and team management become more relevant (or visible) with a growing and mature organization.

SGBs need support in building an effective internal ecosystem.

A startup’s organizational structure and systems, its culture and organizational health are critical to make an enterprise succeed or fail. With an increasing number of anecdotal evidence, there is a need to analyze the challenges and perceptions enterprises face regarding organizational development and growth, organizational structures and systems as well as organizational culture that enable growth. While the ecosystem is evolved for high quality capital raising support, there is a need for the ecosystem to respond and to help building high impact organizations.

If you are are interested to discuss more about this agenda, exchange experiences and document insights through research, I would be happy to hear from you! Stefanie.Bauer@intellecap.com

[1]From Blueprint to Scale: The Role of Philanthropy in Impact Investing, 2012, Monitor Group; Beyond the Pioneer: Getting Inclusive Industries to Scale, 2014, Monitor Group

[2] Understanding the Human Capital Challenge, 2012, Intellecap

[3] Show me what you can do. Diagnosing the Human Capital Challenge for Social Entrepreneurs and Exploring Emerging Solutions, Shell Foundation and Village Capital, 2015

[4] Mary Broad: Beyond Transfer of Training