About one in five businesses fail within their first year, according to the U.S. Bureau of Labor Statistics, and a lot fewer manage to successfully scale to mature companies. What separates winning organizations from the failed ones during this crucial scaling phase? In many cases, it’s not a question of funding or product or even luck – the scale-tipper is the decisions leadership make about their people and how proactive they are in identifying and acting on a need to evolve.
I need your help evolving the way my C-suite executives lead in the organization. We need to operate at an entirely new level that better reflects our scale and aspiration, but I don’t want to lose the magic that gives us our edge—our owner mentality, and our focus on keeping things simple, staying agile and moving fast.Quote from a Client
We work extensively with founder-CEOs as well as professional CEOs leading a scaling phase post start-up. We’ve used both our learnings from this broader work and closer engagement and interviews with seven distinct businesses to outline some approaches we have seen enable success and highlight common human capital pitfalls and opportunities companies face as they grow. These businesses include a founder-led value retailer, a founder-led technology company, a hospitality company as a new CEO scaled post founder, a multi-founder-led gaming company, a founder-led fitness technology company, a scaling beverage company and a founder-led healthcare technology company.
In this article, we outline five human capital strategies leaders can embrace in order to scale their businesses successfully: (1) Evolve the founding culture while preserving the “magic”; (2) Recognize if/how you’re holding back the organization; (3) Diversify the ‘spec’; (4) Write and distribute the organization’s next chapter; and (5) Build your own people capabilities and those of your leadership team.
We expand on each of these below:
1. Evolve the founding culture while preserving the magic
It is very common to cling to a company’s founding culture, even when the firm has outgrown it. The founding culture usually stems from behaviors the founder practiced – and rewarded others for practicing – in the early days, and these are the behaviors that brought the company from inception to wherever it is today. Leaders fear this is the “magic” and worry it will be lost if they mature their systems and processes and increase headcount. Moreover, founders often grieve the loss of their intimate start-up culture as the business scales. Suddenly, they don't know everyone and don’t know everything that's happening, and this can feel very uncomfortable as their control on the day-to-day details of their business lessens.
At the same time, the culture, values and approaches that brought a company to this moment can limit the next stage of growth. Some indicators this is the case include:
- Problem-solving is reactive and oriented to the short term. Executing for the moment takes priority over scalable execution and/or strategy.
Collaboration is focused on issue resolution versus building alignment, shared purpose, and reflection / collective learning.
Leaders are in all the details limiting their own and others’ growth.
Decision making is centralized, and senior leaders are causing bottlenecks.
New hires are selected based on a specific “type” of profile that has historically been successful, but now limits diversity and thinking style at a time when the company needs to attract new and varied perspectives.
Identifying the elements of the company’s culture that retain the original “magic” but continue to serve it as it scales can be crucial to the next stage of growth, while shedding outdated approaches that limit the organization is an equally important determinant of success, and often the more difficult to outgrow. This is especially true because scaling companies often have to hire more people with specific experiences and expertise from larger organizations which can put the culture at risk for dilution.
2. Recognize if/how you’re holding back the organization
Although many CEOs recognize that the ways of working within their organization are not sustainable, they often don’t fully grasp that the organization’s ability to evolve starts with them. Leaders will look around their organizations and see real problems. Yet they frequently overlook opportunities to reflect on and change their own behaviors to drive progress. As one leader of a scaling healthcare company reflects, “A CEO once told me that even though they had been CEO for the same company for 20 years, they had been five different CEOs in that time. Founder CEOs are often relying on their intuition vs. baseline leadership capabilities and skills they have learnt or developed by copying other leaders.” Indicative of this point, when we asked CEOs what their biggest blind spot was in our survey of nearly 1,000 CEOs (half of which were first time CEOs or founders), over 45% confessed it was “not listening.”
To provide a specific example of this obstacle, we worked with a founder who was fixated on a specific individual as his successor. Our assessment revealed that, although this individual excelled as a strong business leader, he lacked people leadership skills. Very few leaders in the company had the courage to communicate this to the founder and those who had done prior felt ignored. The founder was determined to move forward with the succession plan despite the advice of his external advisors and internal team. Compounding the challenge, the CEO did not provide the successor with the coaching support recommended to bridge capability gap. Ultimately, investors and the board overruled the founder, and the successor candidate left the business. This led to a decline in the Board’s confidence in the founder’s decision-making ability.
Our approach to this kind of work begins with dedicated time with the CEO and leaders throughout the organization. The goal is to understand what has historically worked, what is currently working, and what isn’t, and the repercussions this has on crucial opportunities. Our learnings and reflections form the foundation for defining and codifying the behaviors that will help leaders at all levels scale authentically to the organization while enabling growth and evolution.
As an example of a tactical outcome of this kind of reflection, a tech CEO was encouraged by his team to release himself from interviewing in the hiring process for VP level and below after the business scaled past 100 people. The adjustment was made due to difficulties in aligning candidates’ schedules with the CEO’s calendar, which was resulting in loss of talent, but this level of micro-involvement from senior leaders not only creates inefficiency but disempowers direct reports. By removing himself from the interview process, the CEO enabled significant efficiencies in recruitment efforts and empowered the decision making of his talent acquisition team and hiring managers.
Engaging in reflective exercises like these is critical in helping founding leaders understand the role they play both in enabling and in blocking progress. CEOs have a dual role of being a sponsor and participant in the process. If they are troubled by the behaviors, they see below them leaders should start by reflecting on their own behaviors; if they are not prepared to understand their impact in either supporting or hindering growth, an organization-wide exercise will be suboptimal.
3. Diversify the ‘spec’
The CEO and their C-Suite must be ready to wrestle with new ideas about their company, themselves, and their people – all while being motivated to entertain these challenges to their beliefs. An appreciation for styles and capabilities different from the CEO’s is key in this journey. Some people will have a style and capabilities that support the needs of the desired future culture, but that do not “fit” the historic/current culture.
Another example here: we worked with a company where misogynistic undertones existed in the culture and the founders didn’t fully realize. Leadership’s low level of awareness wrecked the company’s reputation, affecting their ability to hire and retain top talent. Initially dismissing those who left as ‘not a culture fit,’ the founders eventually worked with us to intentionally assess and select executives and CEO talent with the capacity and experience to craft a culture with inclusion at the core. This shift enabled them to hire and respect a broader range of styles and capabilities, which in turn improved both retention and business performance.
To ensure the breadth of thinking and approaches required to stay competitive, the founding team must be open to ‘adapting the spec’ to ensure it includes leaders with competencies and styles that serve where the business needs to go rather than purely fitting in with the culture’s existing norms. These may end up being very different, but complementary vs. what exists today.
4. Write and distribute the organization’s next chapter
When the CEO and their team have digested an “eyes open” view of the organization and their role in evolving it, they can become “authors” of the shift. This is a powerful moment when leaders can use narrative, language, and people systems to create impact and lead change.
A critical part of this is what we term the “leadership narrative.” The leadership narrative does the following:
- Articulates the purpose of the organization. Answers the question: Why do we exist?
Acknowledges all stakeholders, including employees, customers, owners, and others.
Provides a broad vision of the future. Answers the question: Where are we going?
Bridges the past and future by naming the behaviors that were essential to their founding and growth to date that must be preserved as the organization grows and change, but also articulates what being a leader of the future means
This narrative becomes a contract that the CEO and their team sign and make visible to the rest of the organization. It can be symbolic of both how far an organization has come and a vision for the future.
- A retail organization was on a mission to scale to 500 stores. They had a powerful founding culture that enabled them to quickly grow to 200 stores. However, it was clear that the things that had made the company successful needed to evolve to sustain the next phase of growth. Our task was to help them articulate “the magic” of the organization and to codify behavioral expectations for leaders that would help them get to the next level while staying true to the organization’s founding principles.
Initially, we spent time with about 30 leaders at different levels of the organization understanding their roles, their view of the business challenges and opportunities, what made leaders either successful or not at the organization, and what leaders would need to do differently based on the challenges and opportunities they described.
We analyzed this information and organized it into four categories: 1. What is the magic of the company that could be amplified? 2. What is going to become even more important? 3. What is less evident that the company needs to build? 4. What should the company let go of to scale?
Through this comprehensive work, we translated 11 behaviors into seven leadership expectations. We defined how to grow in each of these seven leadership expectations or ‘competencies’.
The Founder/CEO used this analysis to develop his leadership narrative, which all of his direct reports signed to symbolize their commitment to both business as well as personal growth.
The work has also been used to assess and develop all members of the leadership team and is being integrated into their talent management processes – from hiring to succession planning to development and coaching plans. It was important to “start at the top” to create buy-in, momentum, and a mindset shift around development for the leadership team to be able to set the tone for their departments.
5. Build your own people capabilities, and those of your leadership team
Organizational growth requires an increasingly sophisticated and scalable approach to assessment, performance management, talent calibration, feedback & development, and promotion decisions. This means the demand on the organization’s people systems increases. It also means the CEO and leadership team must be able to scale with it by both focusing on their own development, building structures that can be replicated across the organization, and taking an active role themselves in providing feedback, calibrating and developing talent.
Another common pitfall we see with scaling businesses is that they over-promote, offering more senior titles and people leadership roles to functional experts who lack leadership skills. This can cause issues further down the organization, a lack of consistency and quality across banding levels, and negatively impact succession planning efforts. A related pitfall is the tendency to over-hire, as a CEO of a scaling beverage company highlighted. “It is important to be clear about why you are making an investment to avoid pulling standards down based on pressure to move quickly,” the CEO said. Ultimately, when it comes to people decisions, it’s fundamental to maintain trust and transparency and establish clear systems and tools to guide people decisions.
Developing a capable HR team that is prepared to handle change and growth is key as well as role modeling this as a leader by rewarding this approach across your C-suite team. There may be skills and knowledge building required to accompany this, as well as broader coaching. Employees want to progress and grow, and prioritizing these capabilities will ensure that companies are actively developing future talent and improving employee satisfaction, as well as addressing performance issues.
Scaling is never easy. Often, even as an organization achieves and surpasses growth targets, there’s a risk of it jeopardizing its own success by failing to engage with the necessary evolutions that need to take place. The five strategies we presented are intended to help CEOs and their leadership teams as they scale the businesses by taking decisions around people and culture that enable growth—with fewer growing pains.