Scaling 101 – Creating Businesses That Last

Why do startups who look propitious and seem to have all the right things at the right places eventually die out? When experiencing the period of explosive growth, a startup adds a whole new dimension of adaptability to its existence. The model a startup operates from in its nascent stage is not enough and has to be evolved into a more efficacious one to transit into a matured firm.

Venture Capitalist Ben Horowitz compares scaling to a “black art.” This article is an attempt in demystifying the mechanics of effective scaling. While scaling does not mean that ventures should start embracing the large company dogma once they hit explosive numbers. Those who are prepared to evolve their methods of operation and behavior stand a far better chance of making it in the long run. Here are four critical activities for successfully scaling a venture.

Making specialized units

A startup does not have well defined jobs. They don’t make sense. Everyone sort of ends up doing everything. This peculiar approach works fine in the beginning when the adrenaline is high and. the company is small. As the venture catches pace, it is required that the jobs be allocated more formally with the right expectation setting as to what is expected out of it. An exponential growth has an equally exponential decline in the error margin as well.

To tackle the growing complexities of the business, startups seek specialization in functions like sales, HR, marketing. The arrival of new more skilled and more experienced talent creates tension between the already present generalists and these domain experts. The business requires more fuel in terms of intellectual property and this can make the old employees resentful. This results in people leaving and taking with them the culture and the tacit intricacies of the business.

It is important to foster a culture of mutual learning amongst the old employees and the new specialists. The original members of the venture maintain the originality of the business till the time it becomes culturally self sustainable and respecting them is the small price to be paid. 

Creating a robust management structure

Most founders because of their egalitarian souls ignore hierarchy in their ventures. They want to be the bearers of promoting individual achievement without the hierarchical bounds. Running a flat organization would also mean centralized power. Every decision being passed through the founder. Although as the business scales and the number of heads increase the viability of the idealistic one man army scenario ceases. A couple of people at the top cannot possibly monitor the day to day work of every member in the company. Because of lack of feedback and guidance people may get frustrated as their leaders are inaccessible.

Firms need to keep a formal structure with informal mentoring to keep people engaged and motivated. Of course people might take the management structure too far and add multiple layers in the management process. This will slow down decision making and can be interpreted as a lack of trust for the employees by the top management.

Disciplined strategic planning approach

Running a startup involves extensive experimentation with multiple business models till you find the one that works. This involves improvisation. Although as the business scales, the firm needs guidelines and well formulated frameworks to guide them. This would enable the firm to do intelligent experimentation by improvising to the instant changes in the market but keeping an eye towards larger objectives as well.

Overly rigid processes can create battles because of the limited resources present to a startup. But it is possible to have freedom within a framework. A systematic approach towards strategy making, gathering proper information before deploying a plan can bring clarity to the venture. All of these promote efficient and smart decisions especially when the world around you is in a hustle.

Getting the right culture

Culture is what attracts people to leave their big fat paychecks and work for startups- and what keeps them going as well. The sense of belonging to something big is what pushes them to go out of their comfort zones working late nights and on weekends.

Founders realize the importance of culture. They would use their charisma, thrilling stories about the early days of the company to infuse the flavor of their firm’s culture. Although this stops working once the venture enters the fast pace mode. As people get added to the enterprise, it becomes increasingly difficult to maintain the same kind of culture while relying on charisma and stories. There is an attention shift to more urgent matters like sales, marketing, revenues and what not. Slowly, the culture slips away and people loose the connect they one had. They then leave to experience the magic somewhere else.

So how to codify and reinforce culture in an ever growing venture? For a start founders can clearly articulate the cultural values of the company in their mission and the vision statements. This would keep a tab on the cultural drift. It also enables the organization to keep a healthy culture by hiring people who are culturally fit.

It may seem that the above mentioned practices go against everything that got them up and running. In fact many large companies have started realizing the power of spontaneity, speed, openness, freedom and everything that a startup possesses and that’s the reason very often they behave like new ventures. Between the ad hoc way of doing business and intricate organizing, there’s a useful middle ground. Leaders who can operate from there will always have an edge on their rivals. And the edge really matters given how few startups mature into long term players.