So your startup is doing well and is gaining traction. Congratulations—you’re now ready to scale. But if you think the hardest days are now behind you, you couldn’t be more wrong.
Conventional wisdom in Silicon Valley is that the wheels start falling off your startup somewhere past 100 people. As you scale up, you’ll encounter a host of new challenges, including leadership and organizational fault lines. We could partly attribute this to Dunbar’s number: at less than 100 employees, everyone has working knowledge of who everyone else is, what they do, and how their work fits into the bigger picture.
But somewhere past there, it becomes difficult for the leadership team to operate the whole organization in the same way. The scramble to scale up results in several problems: Feedback loops are weakened, with some teams unable to see how their work directly connects to the company’s goals. Meanwhile, engineering queues become clogged with disparate features from myriad stakeholders, and manual tasks start to accumulate in corners of the organization.
What got you here won’t get you there. And eventually, you’ll need to develop a whole new operating system to continue scaling.
“Early on at Playdom, we were keeping all of our employee information in spreadsheets,” recalls Corel CEO Christa Quarles, who was the CFO of the social gaming company prior to its acquisition by Disney in 2010. “We didn't have an HRIS (Human Resources Information System). We didn't have policies.”
“But as we grew to 175 to 200 people, this process started to become unwieldy. We didn't have salary histories. We started seeing T&E costs grow faster than it should given the employee growth. Incorrect information flowed into payroll. All of these things are symptoms of your system breaking down. It means growth, but also the need for a new approach.”
Sometimes startups are able to “paper over” these fault lines by raising incredible amounts of capital. But more often than not, this only delays the inevitable.
In fact, one could argue that raising huge sums makes the eventual reckoning more acute since, at the startup phase, your organization will have a tight culture that can adapt to big changes. Your team will most likely be composed of folks who are risk-tolerant enough to join an early-stage startup where change is expected. But once you start scaling, you’ll take on people who are more risk-averse and who have had less time to marinate in the organization’s culture. The decreased flexibility means it’ll be more difficult to make big changes.
It’s an oversimplification to believe you can solve your problems by just adding more people. There’s well-documented research on the law of diminishing marginal returns on growing teams—your total combined output might be higher when you take on more people, but it doesn’t grow linearly with more headcount. The solution, then, is to reframe the way work gets done as you scale.
Here are some best practices for scale-ups that can help.
1. Create a Learning Culture by Organizing Around Leading Indicators and Understanding Why They Move
People talk about a “learning culture,” or a “data-driven culture.” The way to operationalize a “learning culture” is to measure them over time, show the team that you’re measuring them, and challenge your team to continuously explain why they’re moving.
First, each person in your company should know their North Star metric. The North Star is something measurable that this person has direct influence over.
When you’re defining metrics, think about identifying Leading Indicators instead of Lagging ones. Lagging Indicators are often easier to measure—a good example would be the number of opportunities won each month. Leading Indicators, on the other hand, often require a little more thinking. Try to break down your big metrics into multiple leading indicators. For example, you might measure your SDR team on the number of Opportunities opened per month, and measure your AE team on the Opportunity Close Rate. These drivers are predictive of future Won Opportunities.
One common mistake I see is that even when teams have a north star metric, they just flash it onscreen in isolation. This won’t help enforce your goals. Instead, plot all metrics over time (weekly or monthly) so you’re constantly measuring if you’re moving in the right direction.
It’s also important to develop counterbalancing metrics to ensure you’re not optimizing for one metric at the expense of another. For example, the north star might be Won Opportunities, but if the team secured their wins by deeply discounting the product, they might be doing more harm than good. You can avoid this by setting a counter-balancing metric such as Average Deal Size or Average Discount.
Finally, for metrics to really drive culture, you have to continuously show the scoreboard with names next to it. This reinforces what we’re optimizing for and creates a feedback loop that allows teams to course-correct. It’s simple to operationalize this, but I see so few companies doing it: Once you have your leading indicators, put names next to each one, and broadcast that in meetings. This fosters tribal belonging by giving employees a shared sense of purpose and the drive to contribute toward the attainment of the company’s goals.
2. Set Cascading KPIs For The Company, Teams, and then Individuals
KPIs (Key Performance Indicators) quantify individual and organizational goals to reflect how well your organization is achieving its goals and objectives. A lot of well-run organizations use models like Objectives and Key Results (OKRs)—a critical component of these frameworks is that KPIs cascade from level to level, linking organizational vision to individual action.
So while a VP of Marketing’s KPI might be revenue, her demand gen team’s KPI might be cost per Qualified Opportunity, and her marketing ops team’s KPI might be Lead to Qualified Opportunity conversion rate. Going further, the KPI for the individual on the demand gen team who owns LinkedIn might be the cost per Qualified Opportunity for spend on LInkedIn.
Building SMART KPIs
A good framework for effective KPIs is SMART:
Specific: What’s being measured by a KPI is clear, properly defined, and its importance known by the team.
Measurable: The KPI could be measured to a defined, objective standard.
Achievable: You or your team must be able to deliver on the KPI.
Relevant: The KPI must measure something that matters to the organization such as efficiency, revenue, or customer satisfaction.
Time-bound: The KPI should be achievable within a specific, agreed-upon time frame.
Use Cohorted KPIs to Increase the Speed of Compounding Learning
There’s one critical thing this framework glosses over that’s a complete game-changer: cohorted KPIs. You want to choose KPIs that are leading indicators.
You might be familiar with cohort analysis—essentially, the idea is that you track a batch of leads throughout its journey. Let’s say we got 100 leads last week. If we look at the cost per QO right now, it might be $100. But if we give last week’s lead-cohort another 8 weeks to work their way through the evaluation and decision-making process, the cost per QO comes down to $20.
Now, how do I know if a campaign, channel, or tactic we implemented last week is working? I don’t want to wait 8 weeks to find out. This is where we create cohorted KPIs: For example, a “Day 14 Cost per QO.” If we know that our Day 14 Cost per QO is $100, then any initiative that brings in a Cost per QO of less than $100 by Day 14 is a net improvement, and we can double down.
This allows us to shorten the feedback loop and learn faster. As these learnings compound with the cost per QO improvements , our growth can dramatically outpace the competition. This approach requires a ton of discipline and focus from several technologies and teams, but it’s the secret sauce that separates the good growth teams from the great ones.
3. Create The Right Environment For Teams to Thrive
A lot of startup folks focus almost exclusively on “getting the right people on the bus” without focusing on creating the right environment for them to thrive once they’re on the team.
Don’t just get people on the bus—make sure they’re also in the right seats. Play to your team’s strengths and give them ample opportunities to do what they do best. It starts on their very first day: Make it part of the onboarding process to introduce your new hires to the people they should do one-on-ones with, and give them a list of topics they have to cover with each person. Don’t leave all the onboarding responsibilities to the manager.
And when you realize that a particular person isn’t a good fit for your company, get them off the bus as soon as possible. While big companies can offer opportunities for internal transfers, startups and scale-ups can’t afford that luxury. Every day is crucial, and every seat on the bus is precious. It’s better to cut your losses fast instead of trying to fix the unfixable.
Check out this earlier blog for more people management tips.
In Team of Teams, General Stanley McChrystal talks about the idea of fiefdoms and the “us vs. them” mentalities that emerged between different groups in the intelligence community. To counteract that, McChrystal focused on creating “connective tissue” between teams through ambassador and embedding programs.
I’ve seen the same fiefdom mentality at scale-ups—they’re often between marketing and sales, or marketing and product. One solution for building empathy with sales is by doing ride-alongs. For marketing and product, I’ve become deeply passionate about adopting a pod structure, which drastically improves cross-functional collaboration without hampering the speed of growth.
4. Do a Quarterly Business Review with each Sub-Department
I’ve seen a lot of startups that still hold weekly department meetings way into their scale-up phase, continuing with their existing functional organization model even when it’s no longer optimal. For example, the marketing team will have a weekly update meeting attended by some of the leadership team, where each functional area, such as email marketing, would have perhaps five minutes per week to share their updates.
This system isn’t sustainable as you scale because five minutes isn’t nearly enough time to go into the weeds and have the sort of detailed discourse that offers deeper understanding and insight.
To create space for this greater level of detail, scale-ups should instead introduce Quarterly Business Reviews for each sub-department. This gives mid-level team leaders exposure to the leadership team. Let them focus on just one or two initiatives so they can go deeper and leave lots of time for discussion.
Conclusion
Scaling a business isn’t easy. However, there are ways to make the growing pains less stressful and accelerate the scale-up process.
Scaling requires breaking goals and teams down into smaller, measurable groups, crafting reporting so that it drives a learning culture, and having the wherewithal to create shorter data feedback loops.
Above all, be deliberate: this is a shot at amplifying your impact and legacy. Do it right, go forth, and conquer.