One of the hallmarks of every startup is that they are nimble and have the ability to “turn on a dime” as they say. Having experienced this stage multiple times, I can say that it’s one of the most attractive things for many co-founders and early company employees. The ability to jump on new ideas and run with them and to be free of any red-tape or constraints that often exist in more corporate settings. At the same time startups are constantly focused on the idea of how to grow the business. That’s the whole point after all, to start a business and see it grow rapidly. So why is it that many founders find it difficult to move their company from startup to a high growth stage with longevity and profitability?
I’ve met many founders over the years and my firm belief is that many of us (yes, me included) start our first business with an overwhelming belief that the company is going to work. Why else would we leave our other responsibilities and often relatively low-risk lives to venture into the unknown? That belief is partly in the product or solution, and partly in ourselves. We believe we have what it takes to figure it out along the way. While that is true to a degree and we’re not so foolish to believe we can do everything ourselves, it’s also true that a high growth business quickly becomes a complex beast of a project. Multiple employees, multiple demanding clients, multiple business alliances, multiple investors, multiple everything. The reality is that without a formal way to orchestrate these moving parts it would be like an orchestra without a conductor. Somehow unimaginable because every symphony you’ve ever heard had a conductor. What would happen if you removed that conductor and expected it to sound the same?
We must rely instead on protocol for doing things. Approval for certain things like significant expenses, coordination so that tasks get done and rework is eliminated. Processes that ensure that quality is maintained regardless of who is delivering the service in that moment. The activity related to such topics is what I call “operational organisation”, and it is the cornerstone of an efficient and effective organisation.
Imagine a startup with founders that came up with a brilliant idea to move the needle in the industry. Often the process of starting up is a tidal wave of information, coding, meetings and such like. The thought of planning more than six months out is the last thing on the agenda. Just getting to first base is the order of the day. But what happens if you start to scale faster than you expected? If your brilliant ideas actually work remarkably well and all of a sudden you have more than you can cope with. That will be a good problem to have, I hear you say!
This scenario plays out more often that some would think and there is an absolute need to be prepared. I’ve met many startups that are suffering as a result with a flood of orders resulting in a flurry of knock on activity. More often however is that the business suffers greatly as a result because of the apparent lack of coordination. It chokes from its own success.
We can learn a lot from big companies in this respect. Granted that many startups get going to shun the corporate world, but wise founders appreciate that their goal is to create a highly competitive business. Corporates are very familiar with the art of streamlining and operational reengineering because their need is generally to take cost out of the business and become more profitable.
The way corporates and the consultancies that work for them approach this is usually to develop something called a ‘target operating model’. This is something startups can learn from industry. The art of designing the business starting with the strategic objectives in mind. It may sound long-winded for a startup but my money would be on the startups that become excellent at doing this time and time again.
As mentioned before, corporates have to ‘re-engineer’ their businesses because they become mis-aligned after years of layering and changes. Startups on the other hand should follow the same basic practices but need to focus much more on designing the business operating model. This includes concepts of lean, agile, total quality management and quality systems such as ISO9001. Managed effectively, the startup would benefit in a number of ways not least because implementation of the vision will become a systematic process of designing the business followed by execution.
Organisations that have not yet proven their business model and created a minimum viable product have the most to gain by starting to consider how to approach their future. Without question, achieveing MVP is the goal for a super-early stage company but the operating model should become a parrallel activity because there is no point having an all-singing all-dancing MVP if the operating model is unclear.
On the other hand if you’re already growing and need to implement structure and processes, developing a clear path to a well-designed operating model should be high on the agenda of the management team. Often hgihly tech-focused founders fail to appreciate the intricacies of a well-designed operating model and the way to develop and detail the design so that it becomes an asset that adapts with you as opposed to being something that quickly becomes outdated.
Start by re-evaluating the strategies you are working towards and establish whether your current operating model has been designed with those strategies in mind. This can be done fairly quickly depending on the size of the team and the assumptions you have made. If there are too many unknowns then more assuptions need to be built into the model. Once a ‘right-sized’ operating model has emerged then various scenarios can be developed and costed out for how this model may change. Ultimately a startup does not have the luxury of trial and error for too long before it needs to keep delivering if it wants to compete with the incumbent products and services as it scales.
As always, feedback is very welcome. I’m keen to learn what others have experienced and whether the ideas outlined here resonate. Also if you need help with defining any of these elements then get started with our free guide “7 rules for raising capital” available here.
CMS360 is a set of management practices and solutions designed for today’s high growth companies. Our frameworks guide teams to be successful in launching and scaling businesses and the online program consists of courses, coaching and community. www.cms360.org