Part III: What Got You Here, Won’t Get You There
As a company launches and scales, tech startups go through stages:
- Search for Product/Market fit
- Search for Repeatable and Scalable and Profitable Growth Model
- Scaling the Business
The stages are marked by product launches, market validation, revenue growth, team development, implementing a management operating system, strategic culture development, and financing. Each stage requires different leadership skills and approaches.
What gets your team through the early stages, will not get you through the later stages.
As founders, your skill sets may be better suited to earlier stages. Inevitably, your company will outgrow your startup leadership approach. On the onset, how do you build a learning culture open to continuous growth providing the right leadership, professional development and hiring as the needs evolve?
In the early days, the team is validating product/market fit and business models. Lean and scrappy approaches are required. Limited capital limits the number of team members and choices. As a new entrant, the bar is relatively low to define and establish a beachhead. The prospective clients and partners in the ecosystem are excited about the vision, innovation and promise. Product launches are celebrated and make news. Heady days for sure.
After an institutional financing round, you might find that the scrappy bootstrap mentality that served you well in the early days must give way to a disciplined ROI approach in a funded, target rich environment. Given financial resources, as opportunities increase, prioritization is critical.
Expectations are now based on tangible success measured by users, customers and revenue. Outcome success is measured against the funded plan. Spending decisions are made by expected return on investment. Valuation reality sets in as performance replaces promise as the yardstick.
As the company matures, the business operations must be scaled to deliver compelling and predictable economics. Financing decisions are made on metrics like annual recurring revenue (ARR) growth, gross margin (GM), and lifetime value (LTV) to customer acquisition cost (CAC) ratios.
One of the most difficult challenges for the founding team is how to manage these stage transitions. Different skill sets in leadership and staff and implementation of a management operating system are required to structure and scale the operations of the company to achieve results. These changes must start with you and the leadership team.
And that is not easy to do. In this post, let’s discuss how to identify the changing needs of the business and the corresponding changes needed in the leadership team.
As the company grows, the role of leadership transitions from doing to managing to leading. And at each phase, as the founding team matures and hands off the day to day activities, the company needs to hire talent to take on the doing, then managing, and ultimately executive leadership.
It is not uncommon for founders who excelled at doing and building, may not be the right folks for management or executive leadership. It is difficult but essential that you place the right people in the right seats at the right time. And those seats and roles are changing as the company evolves.
One solution is to not tie thought leadership, influence and career path to executive roles. The traits of a great individual contributor do not always map to strong leadership. If there is a bad fit, the company, team and the individual suffer. Always remember, there is a place for expert individual contributors as senior and executive staff. In some cases, the company is best served when a product or technical founder CEO takes on a Chief of Strategy or CTO role bringing in growth experts like a COO to build a business around the innovative products.
Another challenge is that people that might excel in a dynamic early stage environment with a lot of flexibility and uncertainty might not thrive in a more disciplined structured one. In almost all cases, these transitions are left lingering too long and stunt the growth of the company. If you think proactively about these issues, the company can either commit these awesome early stage people to a defined initial term, or create dynamic roles exploring new opportunities for the company in adjacent markets, use cases or product extensions. The key is to plan for these transitions openly.
The challenges to launch a new company with innovative technology are significantly different than the challenges to scale a funded business. The skill sets needed to build something the first time is different than operationalizing the company and technology for repeatable results. Scaling a business 10x or 100x requires strong growth expertise in leadership, hiring, talent management, culture development, dashboards, playbooks and operations.
There are many examples in the tech community. At Tesla, building the Roadster was a proof of concept. Launching the model S and X, operationalized the production of a practical but expensive battery powered automobile. The launch of Tesla Model 3 required an entirely different scale to source components (gigafactory), manufacturing and logistics.
In this post, we examined examples on leadership where what gets you to the first stage, does not get you to the second stage. The key is to build a learning organization that can proactively recognize the varying needs of these stages, and a desire to grow even if it means making hard changes.
Delta Advisory Group
Relevant Reads:
Aaron Ross: Predictable Revenue
Geoffrey Moore: Crossing the Chasm
5 Mistakes Founders Make When Hiring their First Sales Person
