How to Scale: 4 Different Phases in a Startup’s Life
Key situations to tackle while scaling a successful company.
Scaling a startup is the ultimate test for founders and management teams. From an organizational perspective, I believe there are distinct phases in a company’s life, with unique challenges. Before I joined HV Holtzbrinck Ventures as a partner in Berlin, I started my own company (Hitmeister), was active as an angel investor and was the COO at Wooga. While in the startup trenches myself, I witnessed critical operational growth points trip some leadership teams. Culture, information sharing and the role of the managers evolve as companies scale (even if the managers don’t always evolve with them).
I believe it helps to manage a startup team’s growth by thinking of it in different phases.
- The Family — under 10 employees
- Teams — 10 to 40 Employees
- Departments — 40 to 100 Employees
- The Wide Unknowns — 100+ Employees
Let’s take a closer look by breaking the early days down into four key stages and examine the potential challenges a startup may face.
The Family — Under 10 Employees
When a startup has under 10 employees these are the happy times! Everyone works in one team. Most hires at this stage work as generalists, that can handle both a bit of strategy and the hands-on execution required to get day to day activities done. For example engineers will do everything from code writing through testing and deployment. Marketers will manage all channels instead of overseeing only PR or only social media. And the CEO will very likely, still do random tasks. At Hitmeister one of my tasks, until the company had ca. 20 people, was to setup our internal network and install computers. And phones. And printers.
In the family stage, communication and information sharing happens almost organically. Tools like a company-wide daily standup are effective. Slack (if you use it) may only have one channel. Employees know what everyone else is doing. As a founder information flow is easy to facilitate. Just add beer. Everyone knows everything, anyway.
In the beginning culture is mostly diffused through osmosis from the founders. Employees watch the patterns through which the founders operate. Culture solidifies during these early interactions. While it may help to define some key values, most likely the company culture is modeled after how the founders act. In the beginning it is still fairly easy to embed key values like transparency, openness, discussion culture, performance orientation, responsiveness etc. I still remember how my cofounder at Hitmeister, Gerald, asked me whether he could buy a €0.89 letter opener, given the increasing amount of mail. That thriftiness served us well later.
Teams — 10 to 40 Employees
At some point once a startup grows over 10 people, employees start to split-up into teams and things start to become more complex. Typically the first to split off are the IT people, with marketing also quickly becoming a function of it’s own.
As a startup continues to hire, it is essential that structures for information sharing are setup at this point. Silos start to happen, not everyone knows everything anymore. Team leads become gate keepers for information. I would suggest thinking of information sharing sessions like Monday Morning all-hands, product roadmap reviews, cross-functional weeklies etc. At Wooga the Monday Morning (MoMos) meetings exist to this day. We even built an auditorium for 400 people to be able to have everyone in one room. The MoMos got ever more polished and rehearsed, but were great for sharing information.
On the HR side, individual contributors now transition to become team leaders, as roles evolve to also include leadership duties. An important question for founders to ask is: do we have the people that can handle this level of responsibility? Temptation will be high to promote your best performance marketeer to lead the marketing team — resist, and do a clear evaluation!
Additionally employees start asking for feedback (and likely raises) at this point, which requires (initially lightweight) processes. Not everyone works directly with the founder anymore, some sort of aggregation/collection needs to be implemented. Typically “good, bad, to be improved” is good enough here as a feedback format.
Another very interesting shift that happens between 10–40 is that the CEO starts working on the company and not only ‘in’ the company. Founders are now having to think about who does what a lot more instead of just working themselves. If founders don’t focus on the key activities that will move the startup forward in a strategic way, progress will happen slower, if at all. During this shift, founders must become clear leaders and visionaries focused on core activities. Teams will also need to have the authority to complete tasks without running everything past the founder first.
Departments — 40 to 100 Employees
Sometime around 40 employees you will start grouping teams into departments. With an ideal number of reports of around seven people, an effective organization isn’t possible otherwise. Typically IT may break down in Frontend, Backend and Operations. Marketing may have separate teams for Performance and Brand etc. Finance and Legal start joining forces.
From a cultural perspective, once staff size has increased to this level, most people will not interact with the founders on a daily basis anymore. As a result leadership teams need to start expressing company culture more strongly. It simply isn’t enough to stamp the logo on merch in the office - culture is a mindset that needs to be fostered by subtle cues. How do you get it across?
I am not a fan of writing key values on the wall in the lobby — this will likely lead to ridicule (at least in Berlin, where employees can be jaded). I rather believe it is key to make sure the whole leadership team, including a few levels down, is 100% aligned on what the company values are. You should also reference these values when working. You could, for example, add them as a criteria in feedback talks. On-boarding is critical too — have the CEO give a (short) talk on values to all new employees.
In the “Departments” stage team leads are becoming (pointy-haired) middle managers (or “Head of” something). You will start hiring (or promoting) people whose only job is managing other leads. This requires a very different skillset. It’s relatively common to see great junior employees that joined in the early days struggle to lead once growth starts to explode. While this can be mitigated in some cases, I strongly believe it is ok to have people leave the company at this point. I have witnessed multiple situations where people were kept (or even promoted) way beyond their capabilities, out of a sense of loyalty. It is however great when people grow. A working student at Hitmeister, Fabian, grew to become the CTO.
Feedback systems need to be overhauled and slightly formalized here too. I have written more about feedback in “Difficult Conversations: Setting up a Feedback and Development Program”, key take-away here is to make sure feedback happens regularly and fairly. People will also move more within the org, making tracking feedback more important. I wouldn’t spend too much time coming up with complicated systems though.
In this phase mechanisms for delegating decision making away from the founders become critical. Systems like Objectives and Key Results (OKRs) help structure priorities and goals across the org.
Caution: this is often a dangerous stage for job titles. In my opinion you should delay giving out titles as long as possible. There are exceptions, people who work externally a lot may need a fancy title to get their job done (e.g. a VP of Partnerships). Otherwise the early indiscriminate use of titles will lead to awkward situations when you change your organization, which you will do a lot of.
The Wide Unknowns — 100+ Employees
As a business continues to scale, things get harder. At 100+ employees people stop knowing everyone — and many stop caring too.
This has even been researched as Dunbar’s Number. Oxford Professor Robert Dunbar estimated that 150 is the maximum number of people humans can comfortably maintain stable social relationships with at the same time. His theory can also be applied to office life.
At this level individuals also stop getting very excited about new hires. When someone joins in the “Family” stage this is likely a significant milestone (and reduces workload for everyone else). But at 100+ people the feeling will be friendly but uninterested (at best). People stop knowing who is who (and may stop caring too).
At this point it makes sense to fundamentally re-evaluate your company org and potentially break things up. Having 100+ people in functional teams rarely works, more likely some split by product line, business unit or geo makes sense. This way you can also get people’s perceived organization around 100 again. At Wooga we split the company into essentially six parts: four studios making games, Publishing (Marketing, Ops etc) and Services (HR, Finance etc). I believe this worked really well.
Besides splitting the company, there are of course tools senior leadership can use to fight the challenges faced. At Wooga we would organize mystery lunches that brought random people together to try and break down any developing silos. Additionally a group of key employees called X-Ops (for cross-functional ops), encompassing ca. 10% of employees, would go out for lunch (or drinks) together to socialize. We would go through this on a scheduled basis, even having senior leadership breaking with team members to really open-up the organization.
Employees also start looking for organizational charts and job titles to help them navigate the scaling company therefore titles become a necessary navigation instrument. If a “Social Media Manager” reaches out to a “Senior Frontend Engineer” both know what direction the conversation is going in, even if they haven’t met yet. Again at Wooga we invested a lot of time into our internal phonebook, people.wooga.com. Besides showing the current team assignment (drawn from BambooHR), employees were able to see where someone sits, which teams they were on in the past etc.
At this size it becomes really hard for the founders to gauge the sentiment in the organization. It is easy to become negative (only bad stuff tends to bubble up) or rely too much on hearsay. Employee survey, or tools like Peakon, can help here.
Finally with the expansion of teams, the company is also probably starting to operate from multiple locations. Multiple locations means more communication will need to be formalized and either written down or recorded. Don’t underestimate the impact of distributed work on the org, especially if you were in one location before. Going from one to two offices is really hard, each additional office after that isn’t as complicated anymore. So it generally doesn’t make sense to have two offices.
Scaling for Success
Finally, as you scale a startup never forget the basics of business growth:
- Always adapt your management system to the situation you are in. Every business is unique, as is every time in the life of a company.
2. Test ideas that are inspired by others. Management is using tools to solve problems or create growth. Learn from (smart) others.
3. Know when to stop doing things. Some tools or processes you test will not work out. Give things an expiry date, stop and look forward.
Keep these principles in place while being aware that your team also changes and develops as you grow.
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