“Why do startups fail?”

Oh yes. Kicking off 2023 with the heavy questions. If you’re not familiar with Greiner’s Growth Model, it’s an oldie, but a goodie. It helps recenter and zoom out when things start getting heated. Bottom line: The solutions that you come up within one phase of growth are problems in the next. Success is dependent on your ability to nimbly get to the next phase. This is often painful. Most fail. Winners are often the ones that anticipate the change needed, listen to their teams, and flex into the new and uncomfortable solutions.

Example:

1. Creativity: A company starts off in Phase 1 with a few years of high creativity, exploration, and informal comms with a small founder team. This leads to a strong understanding of the customer and great product-market fit. That success breeds growth and a situation where the creativity of a few people become less important than the need for stronger leadership.
2. Direction: The leadership team anticipates the need and focus on setting up structured functions, focused management roles, clear direction. Product, operations, and marketing all get dedicated professional managers. The board considers bringing in a new CEO, but is bought into the founder’s history of success in this market. Communication is formalized. The Phase 2 of Direction is great, until it’s not. An autonomy crisis forms when specialists and mid-level managers feel like they know more about the customers and the market but are unempowered to make decisions. Time to delegate.
3. Delegation: The company sets up the profit centers, site leadership, and tenets needed to effectively distribute authority. It decentralizes. There’s less formal communication from the top. The team is faster and more motivated, at all levels. After a couple of years, it feels inefficient. There’s little resource sharing and siloed teams focusing on similar problems. This is a crisis in which control is needed. So the revolution starts again and top leadership reigns in the organization. Many companies do this by mistakenly going back to the directive/centralized practices of phase 2. But not this company. It’s time to coordinate.
4. Coordination: The company sets up processes/structures that enable top leadership to take responsibility and coordination to occur across the enterprise. HQ becomes bigger. Time for a central project and product management organization, formal capex reviews, and prioritization. Finance is happy. Resource allocation is A LOT more efficient. Managers are more conscious of cross-organizational goals. Things start to get culturally messy when the HQ system start getting heavy and feelings of “us and them” come up. “Corporate vs. site.” “Uninformed managers vs. individual contributors.” “Corporate is clueless about the realities on the ground. How am I supposed to do my job and provide a great customer experience with these guardrails?” It’s a full out “red-tape crisis.”
5. Collaboration: Most companies fail at this point (or way before), but not this one. It figures out a way to put conflict management and interpersonal relationships over formal controls and processes. HQ reduces headcount and teams focus more on problem solving with less concern for the “right way” of doing things. Managers across sites meet up to solve specific problems and invest time in developing their team and communication skills. Things are great, until…. :-).

Source: https://getlucidity.com/strategy-resources/guide-to-greiners-growth-model/