You’re a Founder who has created something from nothing. You crafted a vision; you convinced a small, agile, all-mighty team to join you for the ride; you raised capital; you launched a product to the world.
Now, your product has been successful beyond any of your dreams. Things are a little (or a lot) messy, but with healthy growth, it should all be sorted out, right?
Not so fast.
One of the key reasons why start-ups fail is that they are unable to build a team that can scale through early and rapid growth. The complexity of the operations increases and the talent needs shift, often requiring deeper specialization and a significant upgrade in managerial skills. What was working only a few months ago now feels broken.
At Egon Zehnder, we have worked with Founders going through the experience of exponential scale. We have thus identified distinct stages of talent needs that emerge on the way to building an enduring and thriving organization.
We’ve identified three key stages of hiring and their requirements:
- Launch: At this early stage, Founders focus on bringing onboard a small, agile core team. That means defining key responsibilities, but employing bright generalists who can wear multiple hats, can deal with uncertainty and are resilient to continuous change. The focus is on moving fast. This is the stage at which important guardrails such as vision, values and culture are developed. Additionally, it is at this stage that Founders develop key relationships with trusted advisors that function as a sounding board, supplement the team with specific expertise, support fundraising and commercial efforts, and help attract top talent.
Scale: As Founders find Product Market Fit and the startup scales, a new phase of team building begins. Founders must now define parameters for key functional areas. They must bring onboard people with distinct skills and experience that will help set up replicable processes for scale. These recruits are often more senior than the Founders themselves. Founders must also focus on developing managerial capabilities (for themselves as well as for their initial core team,) learn how to appreciate differences and to delegate to scale themselves. Founders must also be more intentional and less casual about issues of culture. This is also the stage at which probably the most difficult talent decisions begin, as roles outgrow people and skillset needs shift. Personal loyalties might have to be broken in the pursuit of the greater good of the business. Finally, while Founders need to continue to focus on fundraising and hiring top talent, it is at this stage that ideally a true HR team is built out to enable a best-in-class process to attract, retain and develop a high performing team. At this stage, the startup is also setting up an initial Board of Directors, made up of early investors and key founders, and starting to learn how to manage board dynamics and investors’ expectations.
Evolve: Now the time has come to create a true, self-sustaining organization. The Founders must focus on operational excellence and further upgrade their managerial capabilities. They must invest in unlocking the performance and potential of the team and especially of star players. And they must work to evolve the culture to meet the new needs of the organization, even as they are no longer involved in every day-to-day decision. Founders must also evolve the Board and bring in independent directors, especially if there are plans of going public.
Beware of the traps
Even when following the playbook above, we see Founders wrestle with the execution of building teams to scale. To that end, we offer fair warnings. Watch out for the following elements that can add to the team building difficulties.
- Loyalty-based tenure. Early on, Founders naturally hire in people they know. They leverage their personal trust to engage the hearts and minds of others who join the adventure of an early-stage venture. These are the early teammates who solve problems, listen and hustle alongside the Founder. Time passes and they remain contributors. They are often elevated in informal power and authority because of the relationship to the Founders, more so than because of the scope of their responsibilities or impact. These folks are hard to displace because the loyalty is so deep. Founders typically avoid the confrontation and difficult conversation, exacerbating the dilemma.
Dynamic Culture. Company cultures are not static. And yet, Founders often feel protective of their precious cultures and some even are disillusioned about how their intended culture is actually manifesting. They want to preserve the culture – and they end up excluding diverse thinkers and profiles because of a lack of perceived “fit.” Often the companies even have reinforcing mechanisms that prevent the culture from evolving in a productive and healthy way. But Founders can adapt and face this change. Cultures will evolve as the leadership evolves. As you bring in leaders from the outside and share the communication guidelines, goal-setting processes, and people management expectations, it’s probable that the culture will shift to reflect new practices, styles and norms. This is healthy and doesn’t imply the company’s foundation is weak. Cultures can adapt, even while staying true to some key principles. Amazon has done this. So has Meta, and they are about to do it again.
Hopscotch Hiring. Too often, Founders will feel the acceleration of their business and set sights on future milestones. They may be at $200M in revenue with 150 percent year-over-year growth and thereby projecting the $1B mark. They then craft the role for a leader who has scaled a company from $1B to $2B. But wait, you’re not even $1B yet. Why would you need a $B+ leader? This is called Hiring Hopscotch: Jumping over the current hiring phase to get to the future phase. That’s not a helpful game and often leads to “flameouts” of talent hired at the wrong time.
Failing to Develop your Own Leadership. Delegation is hard, particularly if you’ve been practicing the “GSD hustle” to build your company. You value rolling up sleeves and probably role model it for the organization. How are you developing yourself and your leaders to build systems of all sorts to enable scalability beyond the individual? You have modeled out growth scenarios on many bases, including headcount ratios. You perhaps have calculated linear ratios of heads to other KPIs. Did you take into account the leverage that strong leadership should provide? Are you developing the leadership of the organization so that you actually empower, delegate and thereby adjust those ratios, such that the headcount ratio lessens?
Careless with Alphabet Soup. Handing out those titles may seem easy at first, but it’s a treacherous business. Think of it this way: titles are cheap in that you can slap them on an org chart and Slack channel with ease and no dollar lost. And yet, titles are precious in that you can’t easily take them away. What if someone you value and want to retain sets expectations, if not demands, for a title that you don’t think they deserve? What if that request creates friction for the harmony of the team? What if you promote too early and signal “the bar” erroneously? What if external hires earn the “C titles” when those loyal to you during the scaling have not? These are all complex decisions. Be careful of creating “Alphabet Soup” where titles are jumbled and inconsistent. Treat them with care.
Everything gets more complicated as an organization scales. Hiring is no exception. But Founders with an open mindset can embrace the change scaling brings and make the hiring and team building decisions that will allow the new and larger company to thrive.