Most founders fail to scale their companies — and that is not because of competition (only 19% of cases) or cash (29%). Rather, they fail to realize that growth is not linear and companies must change between stages. This roadmap can help you understand the evolution of your organisation from its Conception as well as giving you an idea of what it takes to lead through the transitions.
According to a study by N. Wasserman, 50% of founders get replaced as CEOs within the first three years of a company’s existence; less than 25% make it to an IPO. Retaining control of the board, however, can be self-limiting too, as keeping the majority of the shares but getting less investment typically makes for a less valuable company.
The key to avoiding being caught off guard resides in understanding what is most likely to come next. We define three initial stages any organisation goes through — Conception, Formation, and Delegation; as well as a six-step transition process to help you on this journey.
The first stage is Conception: a company enters a market and starts developing an offer and operations. The way you and your team approach sales, production/delivery, sourcing, hiring, etc. must be invented and reinvented as the product-market fit is still being explored. If everything goes well at this early stage, the company will make a few sales and start learning what works and what doesn’t. Hitting a few milestones should encourage you to slowly grow the team.
However, as the complexity of the business increases and the team grows to 8–15 employees, you suddenly find it difficult to coordinate and process tasks without involving several people on every decision. As a result, the operation will often turn chaotic and you will feel frustrated with simple tasks not being executed smoothly. This new challenge marks the end of your Conception stage.
We all know that the start is chaos. It’s also energy. But, when you begin to grow, things get complicated. How do you avoid a crisis? And not turn neurotic in the meantime?
To move forward, the ad-hoc practices that allowed to kick-start the business need to be turned into clear processes. This means answering questions like “what are the steps to complete a sale?”, “how do we evaluate new suppliers?”, “what is our process for onboarding?”, and even more important, “when do we say no?”. As the team organises to channel their creative energy, the roles will become more defined and operations will get smoother, signalling a successful transition from the Conception stage to the next one, Formation.
In the Formation stage, a company is still small enough for you to be aware of every process. With luck and tenacity, the relevance of the offer and the effectiveness of operations will improve and, as the company develops, a sense of product-market fit is achieved.
Now, it is time to scale the organization. Recruitment goes into overdrive. Employees multiply, individual roles grow into teams, and there is a rapid surge in communication. You will have too many messages to respond to, and your involvement will be expected in way more decisions than you can handle. Suddenly, all your processes need to be redesigned to handle larger volumes.
In a case we worked with recently, employees regularly came to see the Founder CEO with questions ranging from a choice of Christmas gift wrapping to the brand of soap for the office’s toilet.
At this stage, the lack of skilled employees can be an issue but rarely the main barrier for growth. Rather, the tension originates from the lack of a structure to coordinate people and tasks at scale. Newly-formed teams don’t yet know how to work together and collaboration between teams leaves a lot to be desired. Under these conditions, you can easily spend more time firefighting than working on the company’s future. Your options seem to be either giving away all control and risk damaging the quality of offer (and hence losing customers), or being involved in every single decision, giving up on sleep, and alienating the team. Naturally, neither option is desirable nor sustainable.
Many founders, exhausted by the pressure to balance cash flow between growth and operations, don’t realize the problem is escalating. I had the sad occasion to witness such crisis in a well-funded startup. As the organisation grew, disengaged employees multiplied, and backstabbing replaced the camaraderie of the early days. The number of people and processes had grown beyond what the leadership could manage directly, while a new leadership arrived too late to save the business.
Adapt your leadership style, learning to “let go” of the feeling of ownership. Instead, make sure the team as a whole can create a vision, culture, and organisation that supports the different parts of the company. Easier said than done, but it is essential for a smooth transition into the next stage, Delegation.
The Delegation stage requires an organisation design that limits bureaucracy and maintains customer focus, streamlines operations and reinforces alignment, creates a safe space for innovation and constant learning, and allows the leadership to consider mergers and acquisitions and other high-value items. Moreover, the new organisation design should define communication channels and rhythms to avoid information overload. Developing all these capabilities requires a major overhaul.
The same logic applies to the different departments within one company. They will start with ad-hoc practices, gradually develop processes, and, as they continue to grow, require a new organisational design to coordinate at scale.
For a company or department to make a transition, avoid imposing a new way of working from the outside or from the top-down, as is often the case with the traditional consultancies. Such approaches look good on paper but are problematic to implement. Instead of stopping micromanagement, they reinforce it; employees feel disengaged and resist change. A new structure has to be a collaborative design, involving all parts of the organisation.
I have developed a six-step process that I know will enable the organisation to transition.
First, it is necessary is to get everyone on the same page to speed up decision making, make delegation easier, and ensure you grow the right culture. We work together with our clients on this objective by clarifying and codifying the identity, the vision, and the strategy of the organisation.
Second, we need to know what is missing to make collaboration smoother and stop firefighting. I help my clients map their processes into a structure that visualizes all the essential functions that a system needs to perform. It gives everyone in the team a shared understanding of what needs doing and allows them to navigate the organization as a network.
Third, we look at communication. There are many software tools that can be helpful, but I often find that improving the quality of meetings and managing their frequency has the biggest impact. It allows leaders to feel comfortable delegating and the team to design all the new processes.
Fourth, we need the different parts of the organisation to keep learning and improving how they operate. After all, we live in an era of constant change, and further growth will require the structure and processes to be constantly redesigned. I have experimented with different methodologies to achieve this, and find that fast iteration and Design Thinking are must-haves.
Fifth, we seek to create a funnel to bring in new ideas. Cross-pollinating with other industries will harness the momentum from the previous steps and spark innovation.
And finally, at the sixth step, we can shift our attention to designing platforms that will encourage communities of practice and advocacy, thus growing brand awareness, loyalty, and collaboration beyond the walls of the organisation.
Founders can anticipate transitions, leading their companies through Conception, Formation, and Delegation. First, transforming ad-hoc practices into processes, and then developing a structure to coordinate at scale. Such a process is best carried involving all parts of the organisation.