Why Scaling Up Might Not be the Right Playbook for Your Startup

A reaction to all those articles about the right time for Startups to take investment, and whether it’s ever the right time.

I was reading an article the other day about when is the best time to bring on a management team at your startup. At first it kind of made sense.

There are four stages of growth according to this article:

  1. Startup Stage: sole focus is on developing the product
  2. Initial Growth Stage: shift focus to driving sales
  3. Rapid Growth Stage: shift focus to leading the market
  4. Continuous Growth Stage: shift focus to dominating the industry

“As you scale,” the article suggests, “the general consensus is that you need to bring on a management team or you risk having things devolve into chaos.”

These days some companies grow so fast that it’s hard for people to grow fast enough.

But that’s okay, cycle em out, the business’ needs come first. We are here to grow, to create value, and swapping people out for a better fit is a cost of doing business.

That’s become the received wisdom. The playbook.

It really annoys me.

Under this play, it’s more important that the business gets to grow through the four stages as fast as possible than it is that the people who created the value in the first place get to grow at a rate that’s appropriate to them.

That idea seems wrong to me. Yet it’s the way we do things now. That’s the playbook. There’s an industry of financiers, consultants and professional CEOs, VP’s and managers that get rich on the backs of expendable others.

Here’s an example of how it goes wrong

We’ve been working with a tech startup. They got some investment, it took a lot of hard work and angst to get it, and while they were all excited to get the money and the opportunity it created, it cost them something along the way.

It used to be all about the product and the people. Create the right conditions for people to build the best product possible and they will come. And they did. They literally made more money than they knew how to spend. Goals? Targets? They didn’t need them.

Then came the idea that they could get really successful, make a difference for many more people, it just needed money. And they got it (and the founders got rich and everyone else got options).

So far so good.

Only now they need to count stuff, set goals, meet KPI’s, grow fast to satisfy the investor’s expectations.

Things changed, it became a different place. A harder place to be if you’d been there at the start. The founders began to struggle and move out of the business. The early employees had to stay on though to get their options. Senior folk got hired in above them, they lost their voice. Their identity was undermined, who they were became less clear. It was tough seeing this precious thing turn into something new. The purpose got subverted.

The business is doing great. Well on the way to achieving the multiples for the investors, no doubt there will be an exit and the company will enter the next stage of growth and a lot of them will make a bunch of money.

But the founders’ own development got arrested, they were overshadowed and blocked by the new hires, their value diminished. And yes they got paid, but it cost them in other ways.

It’s not even that it’s a horror story. It’s a really good place to work. Maybe not as good as it was for some of them, but generally yeah it is.

It’s not that I’m saying this playbook is all bad. Nothing is that simple. It’s just that it’s expensive and brutal and unforgiving of people along the way.

One of the managers said to me, “we’ve done this new values piece, and it’s great that we’ve done it. They’re different values from the old ones, which is okay, but with the old set of values, we never really talked about them or set them down, we all just understood them. I don’t mind these new values being different, what I mind is that they’re aspirational — we talk about them, but we don’t actually do them.”

Like so many places, that dissonance is a tax you have to pay.

And it’s so lacking in IMAGINATION. So desperately conventional and thoughtless.

And it doesn’t need to be. Those founders could have had it another way, it’s just they didn’t know any better.

Here’s another version of this story

We have another client, also a tech startup — they’ve gone about things in a totally different way.

The Leadership Team of this startup decided to take everyone for an away day recently to “talk about why we’re here and what we’re hoping to get out of the business.”

Their point was that the business should be serving the people that created it. They made the value, they should be benefitting. It’s not about the money. Money is fuel for other stuff and there’s more to life.

So how do we make sure the business does more than pay us? What do we need? Fulfilment, connection, self-worth? Yes, all that.

These leaders made an offer to the team: how do we design this to make our lives better? If you want to see the world: move to another country and set up an office there. If you want time for side projects: take a four-day week. School runs? Children’s plays? Work flexible. Learn new skills, we can make the business give us whatever we need.

This leadership team is post-conventional. They don’t think like other people. They decided they didn’t need to take finance, instead they’ve grown organically. They’ve kept things small. The team is at the heart of it.

This startup is growing fast, it’s very profitable. Mortgages are going to get paid off (everyone’s an owner), maybe they’ll even get rich, but as that’s unlikely to make them happy it’s not the ultimate goal. There are other measures of success than a valuation here.

This is flipping amazing. I love it.

Things aren’t simple though, it’s never black and white.

It turns out only a small number of the team really appreciated the away day. The rest couldn’t understand why they were having the conversation.

The CEO was perplexed by this, were they wasting their time he wondered?

“No, you’re not wasting your time,” I said, “they’d just never been made an offer like this before.” They are being asked to think, to take ownership. Maybe for the first time ever. They’re not used to thinking about this stuff. A couple of people do think the same way and they really appreciated it. And the things getting put in place are good for everybody, so they should happen anyway. Give them time to wake up to what’s happening here.

Rather than making the assumption that they must grow, and they must take investment, and they must follow the four stages of business growth, and then at some point they’ll have to get rid of everybody and bring in new managers with track records, instead they are growing their business at the pace of the people in it. They are designing something that suits the shape of them, their lives. The people are at the heart of it, not the corporation.

All it takes is a little imagination, a willingness to question the conventional. To take a risk in valuing the people above the value they create.


Originally published at www.thensomehow.com on January 15, 2019.