THE EVOLUTION OF A START-UP
‘This place isn’t what it used to be’
Start-ups are stimulating places to work.
Despite the continual change, the disorganisation, the ever-evolving policies, the uncertainties and the inevitability of long hours, start-ups are places where, regardless of seniority, every employee can make a real impact.
Start-ups enjoy the buzz of a ‘blank canvas’. They are energetic and exciting.
Longer term however, many evolve into less dynamic and more bureaucratic versions of their former selves. Growth isn’t a linear process. Nor is it predictable, guaranteed or easy.
As a start-up scales from one phase to the next, it undergoes fundamental changes. Grimy garages give way gleaming high-rises, Toyotas are traded in for Tesla’s and entrepreneurial spirit struggles against a tide of corporatisation.
Cries of ‘this place isn’t what it used to be’ are likely familiar to anyone who has lived through the evolution of a start-up through its early phases to something approaching maturity.
Using Larry Greiner’s 1972 Harvard Business Review paper ‘Evolution and Revolution as Organisations Grow’, and Reid Hoffman and Chris Yeh’s ‘Blitzscaling’ (2018), this is a brief examination of that evolution.
The Life Stages of a Start-up
Every growing start-up goes through a series of evolutionary transitions:
For Greiner, the stages of evolution are triggered by inflexion points; periods of development are followed by predictable crisis, whereupon major change is needed to maintain momentum.
Or, as Hoffman and Yeh put it, processes which work for one phase break down at the next phase. Transition through each phase is characterised by new demands on management.
Let’s consider what those demands might be.
Starting a Family: Development Through Creativity
In the first of Greiner’s stages, the start-up is small; growth is fuelled by the enthusiasm and creativity of its founder/s and early employees.
Communication, management procedures and interactions are informal and ad hoc. The start-up is flexible, agile and adaptable; individualistic and creative activities are the norm. Blood, sweat and, yes, often tears, are the glue which keeps the start-up together in its first few years.
But therein lies the problem.
As the start-up scales, as more staff join, and as more capital is injected, the requirement for formal systems and procedures increases. Increased numbers of staff, customers and stakeholders cannot be managed individually and informally.
Nor can marketing, accounts, sales and operational systems be run in an improvisational manner. To ensure consistency and quality, management control is required.
Blood and sweat are no longer enough.
A crisis of leadership looms.
Small teams become large teams and, eventually, evolutionary pressures require the recruitment of team-leaders and functional heads who provide development through direction.
From Family to Tribe: Development Through Direction
The crisis of leadership is addressed through new hires, often into specific team-leadership roles.
Separation of the start-up, and of tasks and roles, into functions (such as engineering and sales) allows for clearer decision-making. Staff are pulled in fewer directions, efficiency and focus improve. The new hires, and the new structures which accompany them, support the next growth spurt.
If you’re lucky, customer numbers, accelerate.
However, making these organisational adjustments requires a change in management style, away from small team informality and towards systems, procedures, consistency and uniformity. Communication becomes more formal and impersonal as a hierarchy of titles and positions builds. Each team needs its own budget and cross-team workflow protocols may need to be adopted.
Eventually, as the number of people and teams grow, there comes a point when, even for the most competent founders, there are just too many people, and too many separate tribes, for any one person to know, do and manage everything and everyone.
Another new layer of leadership is required. Leaders able to cajole, drive, organise and direct the start-up through its next stage of development.
From Tribe to Village: Development Through Delegation
This evolutionary step occurs through appointment of sectional leads and through application of decentralised organisation structures.
Greater responsibility is given to mid-level managers, in theory freeing the newly appointed leaders to focus on process, strategy, long-term growth and underlying organisational ethics.
The popularity of middle-leadership courses, the predominance of distributed leadership and the uptake of coaching shows how important this stage of development is considered — and how impactful it can be in helping to keep a fast-moving company moving fast in the right direction.
Empowering middle management does, however, have disadvantages.
Over time, the company risks becoming fragmented. Where once the start-up was a singular and cohesive unit, it is now a series of smaller components. Each of the constituent parts may be organised, but the whole risks becoming disorganised.
This erodes consistency. It dilutes purpose. Joined-up thinking becomes more difficult. Decision making slows. Middle-leaders defend their turf and bemoan their narrowing roles. The rate of internal growth and complexity starts to weigh on sales growth.
The start-up is facing a crisis of (too little) control.
From Village to City: Development Through Coordination and Monitoring
The crisis of control is usually arrested through increased centralisation, increased use of standard operating procedures, and the appointment of leaders with experience of more complex start-ups.
This is achieved through the appointment of Executives. Adult supervision.
Formal procedures for achieving greater coordination will be introduced, bringing together disparate units, exerting control and direction over policy and practice. New financial systems may be introduced to monitor and manage expenditure. While teams may still retain significant authority, they learn to justify their actions within more rigid frameworks.
Often, the original founders and employees have neither the ability nor the desire to undertake the changes necessary for ‘city’ level leadership. Some may long for the idealised casualness of the ‘good old days’, the days of grand thoughts and solving hard problems not the mundanity of day-to-day management.
As generalists give way to specialists, at this stage the founders themselves may give way, taking an exit, an advisory role or perhaps just more time at the beach.
However, even under new leadership, in time, the proliferation of systems and processes has the potential to exceed its utility.
Department heads, for example, increasingly resent direction and control from executives who are not familiar with local conditions. Senior managers, on the other hand, complain about uncooperative and uninformed middle-managers; both groups criticise the bureaucratic, officious and often cumbersome organisation that has evolved. Procedures take precedence over problem solving, and innovation is stifled.
In short, the organisation has become too large and complex to be managed through formal and rigid systems — it faces a crisis of red tape.
From City to Nation (and back again): Growth Through Collaboration
Paradoxically, breaking through the bureaucratic red tape requires, in part, a return to the earlier days of flexibility. Back to the systems, structures and feel of a Tribe — albeit likely with more people and more rules this time around.
Larger start-ups are often broken up into distinct units, with sectional leaders given almost complete autonomy (perhaps under the guidance of Product Managers or similar).
Systems are streamlined, cross-functional project teams introduced, and flexible management structures used to recapture the collaborative nature of a start-up.
The following table attempts to codify and signpost these stages:
This place isn’t what it used to be
In some senses these stages, changes and actions are obvious and unremarkable (and they are also very generalised).
Creativity gives way to direction and to the introduction of management structures, which gives way to delegation only to be later replaced by control and coordination, and eventually a return to agility.
Organisations get more complex as they grow, duh.
But, both models demonstrate a basic truism: management problems are rooted in time — today’s solutions are tomorrow’s problems.
The key point is that management must be prepared to dismantle current structures before each evolutionary stage becomes too turbulent. Founders (and/or executives) shouldn’t wait until the growing pains become unbearable.
Although the specifics and extent of evolutionary turbulence will be unique to context, in broad terms the stages are relatively predictable. Awareness of Greiner’s model has the potential then to facilitate longer-term decision-making. Founders can make decisions cognisant of future organisational possibilities.
A modest hope: the table above might also provide a framework against which founders can reflect on their own skills and proclivities. A founder suited to the creative freedoms of an early phase start-up may be ill-suited to a more systems-driven scale-up; and vice versa the leader who prefers certainty and structure.
Knowledge of the stages may also free founders to focus on what drove them to start up in the first place. Rather than rail against the pains of growth, an understanding of organisational life-cycle constructs allows the informed founder to make better sense of their environment, perhaps enabling them to swim with the evolutionary tide, rather than against it.
This place may not be what it used to be, but it isn’t supposed to be.
Failure to evolve leads to obsolescence, irrelevance and extinction — shut-down rather than start-up.
At the very least, founders can take solace from recognition that the dismantling of structures which may have been only recently introduced is not failure, it’s evolution.
So, if people are telling you ‘this place isn’t what it used to be’, smile, nod and thank them. You are doing what start-ups do: growing, changing…evolving.