Founders of high-growth businesses have been forced to rethink their strategy over the past two years. Ever since the dramatic drop in valuations and the drying up of VC funding in 2022, many startups and scaleups have been forced to lay off staff, pull back on growth targets and batten down the hatches.
In the era of cheap capital, it was all about growth at all costs. As soon as growth began to slow, an entrepreneur’s default response was to throw money at the problem: launch new products, expand into new markets, increase marketing spend and hire more people as needed to make all this happen. For a time, this model made sense to both founders and investors alike.
Now that capital is scarce, or, worse still, impossible to access, founders need to learn to scale in a much more cost-effective manner, based on an entirely new model. Here’s six things they should do to scale effectively in 2024.
1/ Recognise that scaling and growing aren’t the same thing
The biggest barrier to effective scaling is that founders don’t understand what it entails. 'Scaling' has become the cool new alternative word for 'growing', but they mean very different things.
Growing means exactly what it sounds like — more revenue, customers, staff etc. Scaling means 'growing something while preserving its essential qualities'.
Think of a photograph. If you enlarge it and it’s now rough and grainy, you’ve grown it. But if it’s as sharp and the resolution is as high as when it was small, you’ve scaled it.
In the case of a scaleup, that means that your organisation should be as nimble, aligned, decisive and collaborative when it’s 250 people as it was when it was 10 or 50. But that’s rarely the case, and it doesn’t happen by default.
2/ Don’t get too comfortable
Founders are often complacent about how their organisation will perform in the future because it worked just fine in the past. As a result, when warned about scaling problems, they tend to think: "That won’t happen to us. We do things differently."
However, founders can easily delude themselves about how well their organisation is functioning. Why? Because leaders at the top feel the frictions in their organisation the least, and they know about them last. Typically arising two or three levels below the founder, by the time they find out about them, they’ve likely been around for a while and already caused the organisation to slow down.
To counter that, founders should spend more time asking how things are working for them at all levels. Are their working relationships functioning well? Are decisions being made in a timely manner? Are they experiencing misalignments or collaboration problems? Founders need to act as company doctors, asking diagnostic-focused questions.
Founders need to act as company doctors, asking diagnostic-focused questions
The uncomfortable truth is that the way a startup works when it has 50 or 100 people is fundamentally different from the way it will need to work when it has 150 or 250.
Why? Because organisational complexity grows exponentially, even as headcount grows linearly. An organisation that was aligned and effective when it had 50 or 100 staff all too soon develops the three Bs of organisational dysfunction — bottlenecks, bureaucracy and bickering — unless founders are focused on prevention and early identification of these problems.
3/ Be disciplined with your new growth initiatives
When growth in the core isn’t fast enough to satisfy investors, founders frequently look to new initiatives to boost growth. This can entail launching a new product or service, expanding into a new territory or tackling a new customer segment.
There’s nothing wrong with these kinds of moves, but they all carry a huge hidden cost that is frequently overlooked — they create a spike in organisational complexity. Why? Because a company with multiple products and geographies will need to operate some form of a matrix structure. What was once working great, no longer works.
In addition to the normal prioritisation metrics, founders should factor in the impact that such moves will have on organisational complexity. Will expanding to a new country or offering a new product or service place a big burden on core functions such as product or marketing? It’s important to plan such moves carefully to ensure that the organisation is able to support the new initiative without getting bogged down.
4/ Stop solving business problems and start solving organisational problems
Founders love solving business problems. In the early days, that’s their job. Later, it should be the job of others in their organisation otherwise the founders rapidly become a bottleneck. But solving business problems is addictive: it makes founders feel they still have their finger on the pulse and they’re still adding value.
Here’s the issue. Many such 'business problems' are actually symptoms of underlying organisational dysfunctions. If CEOs don’t dig into these organisational problems to solve them at their root cause, then no one else will either — and they will persist.
When a business problem reaches a scaleup founder’s desk, they need to ask themselves, "Is this really something I should solve here and now? Or is this indicative of a weakness or dysfunction that I should be solving instead?"
5/ Get your top team truly aligned
When you’re a small company, your top team typically spends a lot of time together, resulting in trust, communication, debate and alignment often all taking place more or less naturally.
But as your company grows, your executives are naturally drawn further and further into a functional orientation, and as a result, spend less and less time with their peers. This often occurs right at the point when your company increasingly needs them to operate across functions, driving key initiatives that almost certainly require a cross-functional purview.
Unfortunately, this tends to result in a lack of alignment that is felt first and foremost by relatively junior people, causing friction and wasted time. Once again, senior execs are the last to know, but that doesn’t make the problem any less impactful. Taking the time to ensure your top executives are truly on the same page is essential.
6/ Shift the way you think about your role
In the early days, every founder focuses on getting stuff done — and that’s as it should be. Later, they learn that they need to delegate tasks and empower their management teams. In this second stage, successful founders redefine their role as 'making sure stuff gets done'. This leads them to focus on systems like budgets, OKRs, product reviews, quarterly business reviews, etc. They find this adjustment relatively easy, as they’re still involved in the major workstreams, just not so much in the ‘doing’ as the overseeing.
This approach works — until it doesn’t.
In larger companies, as tempting and gratifying as it is, CEOs no longer have the luxury of overseeing every workstream and making every key decision. When they persist with this approach, it inevitably makes them a bottleneck, as well as depriving the rest of the organisation of the impetus it needs to step up.
To be a truly effective scaler, founders need to redefine their role in a profound way, moving away from being task and outcome oriented, and redefining their role: away from 'getting stuff done' or 'making sure stuff gets done', and towards 'building the organisation that gets the right stuff done'.
As organisations scale, frictions inevitably set in. Failing to acknowledge or anticipate that scaling obstacles will take hold within your organisation is a sure-fire way of them becoming all-consuming. Unfortunately, most founders aren’t on the lookout for these frictions, nor do they know how to prevent or remediate them when they emerge. Because they have no playbook for how to deal with them, they end up playing ‘whac-a-mole’, solving one organisational problem at a time, only to discover there’s a never-ending stream of people with similar problems at their door.
But this is neither viable, nor inevitable. Founders need to get under the skin of their business. Ultimately, only founders have the breadth of understanding, the objectivity and the moral authority to drive organisational effectiveness. When they don’t take organisational effectiveness seriously, no one else does either.
