5 Reasons Startup Dont Scale

A startup generating some revenue and closing their B round would seem to be on their way. But many
founders struggle to turn their startup into a high-flying growth company. After the demanding work of
getting the company off the ground, a string of hard-won successes gives way to almost constant
frustration.

Founders start the firm to validate that a problem or need exists and that people will respond to a
proposed solution. Once you build the offering, test market it and responded to market feedback then a
startup should have the validation to seek growth capital. That validation can come in the form of
revenue, users, network effect or whatever other growth-driver fits the business. The next fundraising
round is focused on growth and scale.

At this stage, talks centers on the size of the market of the scalability of the solution. But, there is
surprisingly little talk about the scalability of the organization. The argument to investors is that capital
put into the business will be converted into growth. Switching from startup to growth company is a
major company milestone that should be reflected in all company operations. Surprisingly, founders are
often the worst at changing their behaviors and continue trying to grow a company like it is still a
startup.

Five examples of this are

Product development as a sales strategy

Implying a culture
Confusing evangelism with alignment
Hero-worship as performance management
Focus on management instead of managers

Using product development as a sales strategy

A lot of founders are product visionaries who were motivated to launch the company because they saw
a problem to solve or a need to fill. Founders fill a lot of shoes. Product-obsessed founders love to spend
time on product and technology.

If the firm has proved out a market and their argument for scale is valid then lots of potential customers
are out there. So, the growth company needs to go close them. Without great marketing, the company
doesnt reach the right prospects. Without great sales, the firm doesnt convey the benefit and close the
deal. In this case, the product-focused founder falls back on what they know and love, product
development.

Founders at this stage use customization and feature creep to close deals and that cycle never ends. The
weak sales talent that founders like this attract can credibly blame the product to avoid accountability.
He keeps pushing the sale team to deliver more but lacks the deep, understanding of sales program
development and KPIs to understand what is really happening.

Implying a culture not driving it

Great cultures support performance and execution. They help people to do their best. Great cultures are
substantive not superficial and cannot emanate from a single person. Culture is not kegerators and open
floor plans. If the companys culture is just a reflection of the charisma and energy of the founder then it
is personality not culture.

Culture is the sum of the organizations values, beliefs and behaviors. Culture represents targets that
should be expressly defined. Leaders need to actively manage to it and measure it. Culture must drive
who is hired and how people lead not the other way around. Do not let the culture be implied or it will
be misinterpreted and incorrectly applied. In the case of Uber, we see the consequence of a culture that
was implied from the behaviors of deeply flawed leaders.

Evangelism instead of alignment

The founder is also typically the evangelist-in-chief for the firm. They founder conveys goals, status,
enthusiasm and well-deserved recognition. In a small group, this can provide the alignment and
execution to get by but that wont scale. Effective strategy alignment means more than understanding
the firms mission and goals. It requires each person to understand their role in fulfilling the mission and
accomplishing the goals. The companys official strategy may be written in Power Point but the
organizations actual strategy (or emergent strategy) is the cumulative effect of the decisions made
every day by everyone in the firm. Strategy needs to drive planning, initiatives and projects. Managing
those requires goals, measures and metrics. These should be managed in regular business rhythms with
feedback and accountability.

Hero-worship as performance management

Startups are romantic endeavors. We idealize the creative geniuses and workhorses. But a sustained
culture of heroics is a sure sign of dysfunction. Ask startup founders who their best employees are. Then
ask the founder how they know it. Too often the founder can only site examples of the person saving
the day from calamity or pulling through a win at the last moment. Companies get more of what they
celebrate and reward.

A client of mine had a tech lead who was critical to the company. The founders said this person was
indispensable because a critical piece of software infrastructure he designed failed periodically and the
star swooped in to fix it every time. The technology was deemed too complicated and too advanced for
others to touch and its working were treated like a state secret. After apocalyptic warnings, I swapped
the role of the critical techie with a humble developer who quietly sat in the corner hitting every goal
with little fanfare. In two days, the quiet developer made changes to the product and the company
never had a single bug again from that piece of software. The developer even went back to taking on his
old work too and did both jobs very well.

You get what you incentivize. Success and recognition in a firm should come from superior performance
against target that are strategically aligned and objectively measured. Whenever you hear a story about
a developer, sales person or small team burning the midnight oil to pull victory from the jaws of defeat
ask yourself how you got there and if you are rewarding the right behaviors.

Focusing on management instead of managers

As a company grows the relative impact of the founder decreases. One person doesnt make a company,
so the founder and other leaders must make it a priority to make sure the organization scales
effectively. Building a leadership structure is a critical element of this. Developing responsive individual-
contributors into leads and effective mangers is not easy. Some mix of internal promotions and outside
hiring will be necessary. The first job of a leader is to get the best out of the team. To build an effective
organization the company must attract, train, develop and incentivize leaders and provide them
recognition and feedback.

The transition to from startup to growth company requires more than just capital and new staff. It
requires founders to leaders the way by adopting new behaviors and implementing systems to scale the
organization. Done the right way, the startup can get scale and achieve the founders dream.