Consider this scenario: You’re a founder and you’ve just closed your Series A funding. What is the first thing on your agenda?
Triple growth in the next 12 months? Sure. Expand to 10 more countries next year? Yeah, OK. Hire a load more people?
There it is. Honestly, if I had a penny for every time I heard a cash-flush founder commit to a massive hiring spree in the wake of a funding windfall, well, I would be a rich woman.
When startups want to scale, there are products to build, features to ship, customers to serve, things to be done. And to do all that you need more people, right?
Wrong. Growing headcount too fast is a major growth trap. It can trigger what Larry E. Greiner, the seminal American economist, referred to as a crisis point (a.k.a. inflection point): where organisational growth starts to stagnate and doing more of what you used to do will not get you to the next stage of growth.
Without significant step change of how you do things to transition into the next phase of growth, businesses will eventually fail to keep up with the competition and fall behind. Or even shut down altogether.
How do you know when to make that step change?
Be aware when an inflection point could occur.
Mark Logan, former COO of Skyscanner, uses the Catastrophe Theory to predict that the first inflection point comes when a startup reaches 50 employees, the second comes at 100, then 200, 400 and so on. Of course, it is important to note that inflection points vary according to the industry and company.
But won’t having more people help us grow?
When you hit an inflection point, what used to work very well suddenly starts working against you.
You may find features are slower to ship, user growth stagnates, bug fixing takes longer, collaboration suffers, misunderstanding increases, employees leave. Progress starts to slow and we don’t see the growth that we hoped to see with the increase in hiring.
“Because the increase in the number of people increases complexity.”
The more complex an organisation, the more you need to enable alignment and coordination towards a shared common goal. If you don’t, the price is a general confusion.
Here are some things you might start to hear:
- Sales: “We have no visibility of when X feature or Y product will be ready from the product team.”
- Product: “Sales are selling products we have not built and aren't even on the roadmap!”
- Engineering: “Product keeps changing the priorities of the build. The backlog is impossible.”
- CS: “We kept getting told at the last minute when we need to onboard new customers.”
- Finance: “We have not invoiced the clients because no one informed us.”
- Employees: “We are busy doing so much but we’re not sure what we’ve achieved!”
What step change do I have to take?
When I work with founders facing these pivotal inflection points, I conduct an assessment of six key areas:
1. People and organisational strategy
4. Processes and systems
These elements are the fundamental building blocks of an organisation, and I refer to them as the "6Fs" or "Six Foundations" framework. This framework serves as a simple tool for evaluating a startup's readiness to transition into its next phase of growth.
Through this structured assessment, I can determine whether the startup has what it needs to operate effectively on a larger scale. If not, it helps me identify which areas to focus on to help the startup make a successful transition to its next growth stage.
Here’s a checklist to kick-start your thinking:
- What's the business strategy and growth plan for the next 12-24 months?
- What do you consciously choose to do and not do?
- At which stage of Greiner's Curve are you currently, and when do you expect inflection points?
- How will you organise people to support short and long-term strategies?
- Does the team structure enable or hinder your chosen operating model?
- Do all understand and see value in the organisational structure?
- What management roles will be unlocked in 12-24 months?
- What capabilities (beliefs, experience, skills and traits) are required for all roles in 12-24 months? And what are the non-negotiable capabilities?
- Are you developing learning agility for a dynamic startup environment?
Processes and systems:
- Do you have a clear, documented sequence for product/service delivery?
- Are processes continuously evaluated for efficiency, including automation?
- Will systems meet future organisational needs?
- Which metrics provide insight into performance?
- How do you ensure data accuracy and capture?
- Who integrates data insights into decision-making?
- Do your principles foster alignment in executing your strategy?
- Do your principles empower decision-making and challenge assumptions for better outcomes?
- Could not upholding these principles derail your strategy?
As you can see from the framework above, hiring is one of the foundations (that’s assuming you are hiring for the right capabilities). To establish a sustainable, high-performing organisation, each facet of the Six Foundations must contribute to the organisation's progression towards its next phase of growth.