Cloud Strategy

Startup Scaling | Overcoming 5 Key Operational Challenges

startup scalingScaling a startup from zero to $100M is 10% strategy and 90% execution. You’d never know that from reading the Web, because the advice you’ll find online is 90% related to strategy and 10% related to execution. This is the second post in a series that explores the challenges of scaling a startup through rapid growth and presents some tips and tricks I’ve learned over the years to smooth out what is an inherently bumpy ride. The first post in this series entitled Startup Business Growing Pains | Staying Focused examined the challenge of maintaining strategic focus amongst the chaos of scaling a startup. This second post leaves the 10% of strategy behind to explore five key startup scaling challenges commonly encountered in the softer, messier 90% of execution.

Startup Scaling Challenge #1: Passing the Hat

A while back, I published this article entitled Startup Musing | One Hat is Not Enough where I make the case that startup executives need to be prepared to wear more than one functional hat to be successful. As you scale your startup, however, you must carefully oversee the process of passing those hats to new executives and managers that join the team. This looks easy on paper (just draw up the new org chart), but it can prove extremely challenging in practice. While it is easy to pass the hat in form, it may not be easy to pass the hat in substance when the on-boarding of the new hat owner is arduous, i.e., big learning curve, lot’s of important internal relationships, and so forth.

As long as the old hat-owner offers greater knowledge and effectiveness in the relevant functional area, everyone in the organization will gravitate to her for decisions and support, regardless of what the new org chart says. The problem can be further exacerbated if the old hat owner isn’t all that willing to pass the hat in the first place or if the old hat owner is too willing and runs away from the responsibility faster than the new executive can get up to speed. Poor hat passing can result in confusion, frustration, conflict, executive turnover and ultimately poor business performance.

Hat passing is tricky business that requires the buy-in all of all those affected, a solid foundation of respect between the two hat-passers, and a thoughtful approach to managing the transition. Without these fundamentals in place as you are scaling your startup, you may find that you are dropping more hats than you are passing.

Startup Scaling Challenge #2: The Solution of an Unknown Function

A corollary to the challenge of passing the hat is the introduction of a new business function whose role is unknown to those who must work with it. For example, most B2B SaaS startups begin with a CEO and a bunch of engineers, then they add sales and marketing to take the product to market, then technical support and accounting as they gain customers and need to react to their needs, then product management, customer success and QA to develop a more proactive approach to steering the business. Depending on the business model, there may be other functions along the way like business development, partner marketing, channel management, etc. It all sounds very logical and straightforward to the seasoned startup executive. However, it can come as quite a surprise to less experienced staff who have never seen, heard or worked with this new function.

If you’re a junior engineer who has never worked with a product manager before and you’re used to taking instruction directly from the CTO, you will have all kinds of questions and concerns about this new species of coworker. It can even be quite confusing to the new product manager as the product management role at this startup differs from past experience. I’ve scaled multiple sales, marketing, support, and product development organizations and I can say for a fact that they were all the same in some respects, and they were all very different in others. In every case, the specific organizational roles and processes had to be tailored to the unique business strategy and environment of the startup at hand.

When you introduce a new function, don’t assume everyone understands what you are doing and why. Don’t even assume that everyone knows what it is. Some may think they know from past experience, but they still may not know what it is at your startup. Every new function should come with clearly defined roles and responsibilities and these should be broadly and consistently communicated to everyone in the new function and everyone who must work with it to make the transition a success.

Startup Scaling Challenge #3: Moving from People to Process

Passing of hats and the introduction of new business functions are natural consequences of growth and the increasing division of labor required to manage a larger organization. The result is that work that used to be done by individuals and small teams must now be done by cross-functional groups. In my experience, this is one of the most subtle and treacherous startup scaling challenges. Subtle because it sneaks up on you. Treacherous because the problem and it’s potentially damaging results are always underestimated. You design your org chart, hire your new people, get the new team together and quickly discover that they have no clue how to work together effectively.

startup scaling

Take the simple process of creating a single Web page that describes your product. Whereas before a multiple-hat-wearing marketing director might write the content, create the design and even mock up the HTML before sending it over to your only Web engineer for implementation, your scaled up startup now has a product manager internally communicating the value of features and functions, a product marketer producing content for external consumption, a designer creating Web graphics, a Web team manager receiving these requirements, and a team of Web engineers from which to chose to assign the task, all of which are new and don’t fully know the code base yet. Just for fun, let’s say this transformation occurs over a one month period. See the point?

Moving from many individual contributors to cross-functional teams is an essential aspect of scaling a startup. Teams produce more for less when they are working to a well-defined, well-understood process. You can’t just throw a bunch of new people in a room and hope that they will figure it out, no matter how talented they may be. And, you can’t define new processes and make them stick overnight. Define maybe, make them stick no way. This is an essential difference between good startup managers and managers in more stable businesses. It is one skill to oversee the efficient operation of an existing team or process. It is quite another skill to consistently create new teams and processes out of nothing.

Here is my cheat sheet of how to quickly go from people to process…

  • Communicate strategic goals
  • Establish process owners
  • Define roles, responsibilities and workflows
  • Make a schedule
  • Focus on group deliverables over individual tasks
  • Control the hand-offs
  • Educate, educate, educate

What startup scaling rules of thumb have helped you go from people to process?

Startup Scaling Challenge #4: Tribal Knowledge

Underscoring all the startup scaling challenges above is the problem of tribal knowledge: those things that are sitting inside the heads of earlier employees that must be communicated to new employees in order for them to do their jobs. Tribal knowledge is traditionally communicated verbally through stories. Unfortunately, this method of communication is notoriously unreliable leading to misinterpretation, reality distortion, and group memory loss. At some point, effective startup scaling means writing stuff down where everyone can find it and making sure new people are trained on the essential accumulated knowledge of your business.

Personally, I like to take a minimalist approach to documentation. At most startups, folks are too busy to write anything down for future consumption and training, let alone read it. However, it’s essential if you want to avoid the frustration of watching your newest employees waste time reinventing things that you thought your business was good at already. I won’t attempt to define what you should document, as it tends to vary widely based on each startup’s specific strategic goals, stage of evolution, and operational challenges. I’m just going to say that no matter how Silicon Valley cool you are, no matter how agile you want your culture to remain, sooner or later you will reach the limit of tribal communication and you’re going to have to start writing things down to scale your business from startup to firm.

Startup Scaling Challenge #5: To Every Thing There is a Season

You can’t do it all at once, so you must choose very carefully what you will do today. In my opinion, this is by far the most difficult startup scaling challenge of all. As you scale your startup, you will find that you have a cornucopia of organization models, job roles, programs, processes, policies, best practices, templates, and so forth to chose from. The question is always: “Which one, right now?”

The flip side of this principle is that just because you are not doing something now, not following that “standard industry best practice” does not mean you are doing something wrong or that you have a problem. It may just not be the season. It’s a common startup scaling practice to hire experienced executives who have been there, done that at bigger companies to help you scale to the next level. And, it’s a common startup failure scenario when an experienced large company executive with little or no startup experience assumes that her job is to remake your startup in the image of her former company overnight. The proverbial hammer looking for nails. It requires both talent and discipline to scale a startup. Talent to choose the right thing to do next. Discipline to get it done and not get distracted by the thousands of other things whose seasons have not yet come.

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  • Great article. Laughed when I saw ” most B2B SaaS startups begin with a CEO and a bunch of engineers” – which is completely true in our case!

    Key takeaway – growing organically is fine, but to grow organically with structure and a little administrative elbow grease (which means in some cases, yes writing processes down) will help in the long run and will speed things up when it gets to scaling fast. There will come a point when a start up will hopefully have an “Oprah Moment” as I call it – (ie when Oprah Winfrey talks about it – the world listens and it goes viral overnight) and if you’ve put processes in place such as those described above, the scaling rollercoaster will be a lot more smooth (and fast which is always fun!)

  • Very good advice – as you mentioned scaling a small/medium business requires shuffling jobs around. When introducing cloud computing I think its important to make sure everyone in the organization understands the greater good of it as well as the opportunities created. After-all its about decreasing IT load and allowing us to focus on what’s important – the business itself.

  • Joel:

    Love it. Lived it through 6 startups. Living it again. Had some challenges thoughout the years as we moved from people to process and I think the biggest thing I’ve learned is that just being aware of what we’d face is key. That being said, watching the needs develop and responding with education or different people has been imperative. Thanks for presenting key advice in a down to earth manner. You’ve got a gift.

  • Excellent advice, as always, Joel. Thanks for sharing what appears to be your own “up close and personal” experience with start-ups.

    In regard to your suggestions about moving from people to process, I’ve found this can be particularly difficult in SaaS companies. The separation between different organizations that you see in traditional companies often goes away. For example, customer support actually has a sales role, as they take on responsibility for customer retention and up-sells. The neat “boxes & lines” of a traditional organization chart get scrunched together.

    In some cases, it’s easier for people to understand and follow processes when they are asked to achieve broad business objectives as opposed to particular organizational tasks. These objectives – grow the customer base, reduce customer acquisition costs, improve retention, etc. – require effort across the organization.

    Establish metrics and rewards that are related to these broad corporate objectives. With these in place, people in different functional areas are usually motivated to figure out how to work together.

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