How to professionalize a startup without stifling it


How to professionalize a startup without stifling it

This is an edited crosspost from Harvard Business Review.

Insurgent companies are full of foundational stories and most of them involve heroics.

They recall the times when the original team of hard-charging entrepreneurs did the impossible to deliver on the company’s founding mission. They celebrate the all-hands-on-deck moments when the factory shut down or a key order got lost in shipment.

This is remembered as a “time of heroes” — a period of incredible energy and growth, when job descriptions mattered less than who had the best idea.

But it is also unsustainable. As insurgent companies grow in scale and scope, they inevitably discover that future success will require skills and capabilities the “heroes” don’t have. And that’s often when the trouble starts.

Our research into how companies can sustain profitable growth as they scale shows that every growing company faces a number of common forces that can drive it off course.

When growth is a risk

One of the most powerful is when revenue grows faster than talent. When we talk to founder-led companies, few complain that they have a growth problem but many say they have a sustainable growth problem. What they mean is that they can’t keep the organization growing and scaling at a pace to keep up with revenue growth.

Relying on heroics eventually becomes too chaotic and unpredictable. Even the best people become stretched too thin, leaving the company vulnerable to mistakes and missed opportunities.

Leadership recognizes that it needs professional systems and the professional managers to run them. But this presents a major challenge: How can the company “professionalize” without creating the kind of soul-deadening complexity and bureaucracy that can choke off the insurgent mission that has fueled the company’s early growth?

In our experience, leadership teams too often overreact as they add new talent and professionalize the organization. In their eagerness to ease their reliance on heroics, leaders often usher in a period of flawed systems. Many drifting incumbents can trace their loss of momentum to choices made at this critical inflection point.

We’ve observed that leadership teams make a number of common mistakes.

  • They try to codify their genius. Very often the founding team decides that the best way to capture the company’s unique formula is to write it down. They attempt to take all their instinct and gut feel and put it in a playbook that spells out the decision-making processes, rules of thumb and procedures that others can emulate to sustain the company’s earlier success.

    The problem is that procedural manuals encourage the company to paint by numbers, which appeals to a certain breed of plain-vanilla manager. Soon the ranks are full of people who would prefer to manage by manual - the more procedure the better.
  • They start recruiting like incumbents. Once systems are in place and the company stabilizes, many companies begin to highlight this in recruiting. Somehow it has become a good thing that they are big and bureaucratic, and rely on complex systems to operate. In essence, they are saying, “Come work with us. We are a winner. We’re already safe.”

    And figuring that big-company experience is appropriate for big-company problems, they look for recruits who have led divisions of large incumbent companies, assuming they will bring the right professional pedigree with them. More often, what they bring is an incumbent mindset. They’ve been administrators of large systems but they haven’t actually built those systems. While you need someone who can build a new supply chain from scratch, you’ve hired someone who expects a staff of 45 to administer an existing supply chain.

    Gone is the old insurgent pitch: “This is going to be a wild ride, it may be chaotic, but you will be able to make your mark.” This, too, attracts the kind of cautious, rule-bound manager who abounds in an incumbent bureaucracy. And it alienates your Tier 1 talent—those go-getters operating at the edge who share an insurgent’s disdain for procedure and inaction.
  • They want to harmonize everything. During the time of heroes, every compensation package was a “one-off”, too often agreed to in the hallway with little consideration for precedent or consistency. Now the company has 50 leaders and 50 different compensation deals. The founders decide to harmonize, working to create clear procedures, standard work levels and pay packages for each level. The 50 leaders experience a lot of pain as the new systems twist them into standard packages for their work level.

    And the issue doesn’t just apply to executive compensation. The same phenomenon happens across supply contracts, customer pricing, service levels and more. As complaints build and top talent starts defecting, it begs the question: Can you really solve individual issues with committee-developed packages?
Are you stifling the birds of paradise in your startup? (Image via Harvard Business Review)

These mistakes don’t sap the company’s sense of insurgency overnight. Like most cultural shifts, the period of flawed systems builds gradually and is subtle.

As a litmus test we often ask company founders, “Today, would you join the company you’ve created?” The pause that frequently ensues is telling. Given the chance to think about what inspired them to build the company in the first place, many recognize that the original mission has been buried beneath layers of systems and systems administrators.

In the name of professionalism, the organization has ground down and smoothed out the edginess that has always been the company’s strength.

Go back to the future

One way to help restore the insurgent mission at a company—even, or especially, at large incumbents—is to unwind some of the flawed systems and harness professionalization efforts to the company’s core strategy.

The most effective leadership teams follow a few important principles.

  • Translate strategy into a professionalization agenda. If professionalism takes on a life of its own, it will eventually hobble any company.

    The best defense is to ensure that every decision to build systems and hire professionals is linked to the company’s core strategy and enhances the organization’s ability to deliver it. This means defining the company’s most valuable initiatives and matching them precisely to the mission-critical experience you are seeking—what does each person need to do and, therefore, what real experience are you looking for? Without such a rigorous agenda, efforts to professionalize inevitably balloon.
  • Let heroes walk the halls again. Where possible, turn some of those mission-critical assignments into development challenges for potential heroes. Let your best people prove themselves by asking them to take on jobs well above their pay grade or experience level. Some win, some lose, but the challenge inspires all of them to stretch in the name of the insurgent mission.

    Put systems in place selectively and reaffirm coaching. It is, of course, important to harmonize pricing and codify pay grades. But leaders also need to encourage inspired intervention. The systems are there for 80 percent of decisions, but people are encouraged to break the rules the other 20 percent of the time if it will retain a key customer or win a key recruit.

    Leaders also realize they need to be coaches, passing on their genius through apprenticeships, not manuals.
  • Recruit the “black sheep.” Adding those essential mission-critical capabilities will inevitably require recruiting well-trained experts from big, incumbent companies. But that doesn’t mean you have to settle for those people with an incumbent mindset.

    There are plenty of black sheep in large organizations—those who are desperate to join an insurgent and embrace a bit of chaos rather than settle comfortably into a bureaucracy. Companies that recruit like insurgents and not incumbents will attract those who prefer the turbulent, ever-changing nature of sustained insurgency.

Professionalization will always be a challenge for growing companies, and there’s no faster way to arrest a company’s momentum than to do it badly. But it is possible to strike a balance between heroes and systems.

Sustaining growth means carefully defining where new systems are necessary while insisting on the primacy of the company’s insurgent mission. The effort to professionalize should always be a means to an end—not an end in itself.

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