The Human Side of Scale

A quick preface: This is the first of a series of posts exploring “the human side of scale” by Jess Goldfin and K.C. Young.

“It’s amazing how success and failure in companies always boils down to people, whether directly or indirectly.”

Before we get started, we just want to get something out in the open: We unapologetically believe that companies are as much about people as they are about products. We think that, for all the conversations about growth, there is a critical gap. We’re calling it ‘the human side of scale’.

Phew. Now we can get started.

When we say the word “startup,” what comes to mind? Startups are the apps on our phones, they are the 20-somethings sitting in coffee shops with laptops dreaming of being the next Zuck, and the fodder of thousands of Twitter conversations. They are the employers of tens of thousands of people from San Francisco to Bangalore and a cultural phenomenon deserving of HBO series and dozens of movies. But startups are also very real businesses.

In 2015 alone, 235 VC firms raised $28.2B in funds (it’s up 59% in Q1 of 2016, by the way), and deployed $58.8B of capital. Since its inception, YCombinator alone has funded >900 startups that have raised $7B, with a combined total value of $65B. Startups are serious business, with serious money behind them.

And yet, there’s a dichotomy. Venture capital isn’t exactly a predictable way to make money — it’s a hits business. Returns are highly volatile, and the experience on the other side of the table is just as bad: At least 90% of startups fail (we’ll talk more later about why). Even the most successful startups are notoriously taxing places to work. Hours are long, stress is rampant, and pay is well below market.

So, then… why do startups hold such an allure?

For many founders and employees, it’s about solving a problem they’re passionate about. For others, it’s about building something innovative, or changing the world at a scale that has never before been possible. And for another group — probably the largest — it’s simply about a new way of viewing work. The Baby Boomer generation experienced the hierarchy and bureaucracy of large corporations. But big companies offered positive tradeoffs, too, like defined-benefit pensions.

For the next generation, the appeal was lessened, if not lost. Startups offer independence, autonomy, and a seemingly clearer cause-effect relationship between hustle and economic returns (in the form of equity, if not salary). The idea of company culture and its many benefits, old-fashioned now in the Fortune 1000, is alive and well in startups. For those with a sufficiently high risk tolerance, startups can offer the best of all worlds.

Just imagine (or reflect, if this is your real life): The organization is flat, so you don’t have a boss constantly breathing down your next or taking credit for your work. Your co-workers are all friends working toward the same huge goal. There’s free beer and snacks! You’re constantly learning, constantly iterating and improving your product, and ostensibly just one pivot away from becoming the next Facebook, Google, Uber, or Airbnb…

Let’s pause here for a second.

What does it mean to be Facebook, Google, Uber, or Airbnb? The first two are publicly traded companies with market caps of $322B and $532B, respectively. They started more than a decade ago, and together employ more than 70,000 people worldwide. Uber and Airbnb are privately held, but together have raised over $15B in funding in the last seven years. They’re thought to be valued at $85B+. In short, under no definition of the word are these companies “startups”. Former startups, for sure. Unicorns, most definitely.

It’s obvious to everyone that Facebook, Google, Uber, and Airbnb aren’t small companies — but we need to get clear on our semantics here. How do we define a startup? The best definition of a startup we’ve heard is this:

What makes a startup different from a small business is that its goal is to grow very, very large — to become one of the aforementioned companies. To use another word, the goal is to “scale.”

Paul Graham (of course) has a fabulous, more detailed piece on this topic.

But there remains a problem with our definition:

1. “Scaling” is a term that’s used constantly in the startup community, but not consistently. So if you believe startups are worth exploring, you need to understand what we collectively mean when we use the word.
2. People are joining startups to have an impact, to innovate, and to escape from the bureaucracy of large companies. Startups are built with the express purpose to become large companies. So how do we reconcile these?

This isn’t a new conversation, and we’ve been reading everything we can get our hands on. Dozens of very intelligent people have talked about some of these same issues — specifically, advice on how startups should manage growth and what pitfalls they are likely to encounter.

A few months ago, we were having a conversation with a friend who had just founded a company. He was talking to other founders and reading like crazy, but something just wasn’t clicking. His team wasn’t gelling, his Director of Sales was misaligned on the mission, and he never felt like he had the time or support to integrate feedback from his investors. In short, the theory was a lot harder to translate into practice.

But before we get into all that… let’s back up a little bit.

Who are we, and why do care about this topic?

We’re Jess and K.C. We have experience at startups and non-profits and research institutions and consulting firms and large corporations. These organizations have had varying levels of dysfunction, and varying approaches to management. Subsequently, we left these organizations with three things: Great experience, a lot of questions, and a belief that it’s important to understand how people and organizations work (in practice, not in theory).

In the process of taking a class on “human capital” with Paul McKinnon at HBS, we heard from dozens of organizations that operate at scale — and were amazed. We learned about the processes and structures that mature companies use to create effective workplaces. But we found ourselves wondering: how do new companies, specifically startups, view these processes?

So, we decided to ask people involved in the startup community what they thought. We started off talking to anyone we could find (and we’re still talking — reach out to us if this is something that interests you!). We interviewed founders, employees, professional CEOs, board members, investors, operating partners, and advisors. Here’s how we introduced ourselves:

We are working this semester with one of our professors at HBS to research organizational structure in startups, early indicators of dysfunction within startup life cycles, and how (and when) the individuals involved with the early stages of a venture attempt to navigate change.

We were blown away by how much people want to talk about these issues and feel they’re broadly under-represented in the conversations about startups. As a result, we’ve become increasingly convinced that this is a conversation worth having — with all members of the startup ecosystem.

With that in mind, here is what you can expect from us:

• Just as a reminder: we think startups are as much about people as they are about products, and we want to encourage more conversations about ‘the human side of scale’.
• We are ourselves in startup mode — we are iterating on our perspectives and improving them as we get more data. In the words of Reid Hoffman, “If you’re not embarrassed by the first version of your product, you’ve launched too late.” These posts are our equivalent of a minimum viable product (MVP).
• We’re not looking for everyone to agree with us about solutions. One of our strongest conclusions has been that there is no single right answer for every company — even for seemingly similar groups of companies. Rather, our ambition is to improve the quality and quantity of conversations so that the startup community feels equipped to make the most informed set of decisions for their specific context.
• If this is a topic that interests you, we’d love for you to get in touch — we’re listening.