ln(t): The startup growth problem

Here's an article that I found in my backlog, and realised I never got round to publishing. When I wrote it I was thinking predominately about startups, but on reflection there's a lot of relevance to organisations of any size; particularly ones that are going through a lot of change, but I think this is relevant to anyone trying to form a team.

There's something I've noticed affects a lot of new companies, which I call the Startup Growth Problem. It pertains to that odd stage where your idea starts to bring in real, worthwhile income but culturally you're still tiny and trying to operate on a shoestring.

It's not wholly dissimilar to the stories you read about lottery winners either spending themselves into bankruptcy within a year or sealing the money in their account never to be touched. "I've got all this money, but I don't know how to spend it (wisely)."

Usually, the desire is there to expand. The problem is that when you subsist on a couple of adaptable programmers and a few people who take on 2-3 back office and sales jobs at a time, the path ahead isn't clear. You need to start specialising, but risk alienating your existing staff by carving away their roles from jacks of all trades to masters of none.

There are a few common mistakes start-ups make at this point:

  • Hiring high-profile "strategic" positions.
  • Hiring aimlessly, spread evenly across departments.
  • Spreading a limited budget too thin.

I'll start from the top. At the small-but-profitable stage, you have neither the money nor the environment to hire the best strategic thinkers. Even if you did, what are they going to do? All you'll get are bold strategic ideas that you don't have the resources to implement.

Generally as a small company you have a good idea of where your immediate, achievable opportunities are. You don't need someone to add a bunch of pipe dreams to your wish list, you need someone to crack on with getting those wishes to reality.

This brings me to the second mistake. Based on a wish list, it's usually pretty obvious what you need. Tech companies might need more engineers. Retail companies might need some salespeople or someone with the commercial nous to negotiate better deals. And yet... companies fail to see what's staring them in the face. "We're a little developer-heavy, we need to bolster sales," says the software firm that can't even deliver the opportunities it's got now, let alone new ones. It's often exacerbated by a startup having gone through several drastic pivots before finding success, making departments that were once the core of the business mere appendices. Managers who fear waning influence clamour for hires that the business doesn't really need; empire-building, in other words.

As a small company you don't have the money to support empire building. You don't really have the money to do much of anything at all - and that's where the third mistake comes in. What feels like a large amount of cashflow to an organisation that's been subsisting or loss-making for a long time still doesn't go far in a jobs market where good people are expensive. You'll often be struggling to afford a couple of decent software developers. Trying to stretch that same budget to maintain a 1:1 ratio of hires between departments to satisfy the empire builders, or attract a visionary strategic director is fantasy. You end up with also-rans and blaggers, and over time this can do severe harm to the company's ability to grow and innovate.

This may sound like doom-mongering but it's a very real danger. A lot of initially successful startups find themselves stuck on a logarithmic revenue curve because they accumulate a staff who obstruct further growth. (This is particularly the case with 'political' hires who are there only to maintain the balance of power between departments). You need to be building and innovating, not administrating.

So how to get around this problem?

Firstly, have a little bit of humility. You're not launching bold strategic initiatives with long payoffs in the early growth phase, you're keeping the lights on and maybe getting them to burn a little brighter. Ideas first, strategy later. Early hires should be mostly tactical:

  1. Figure out what you want to do next that you can't currently achieve.
  2. Hire someone good to do it. (That's do, not manage, spearhead, inspire or any of the other weasel words for non-doers.)
  3. Measure that it gets done.

Good is critical here. It's way better to hire one person at the top of their game for a high price than two cheap, mediocre people. And you need to make sure they're doing that job. Too many startups muddle along with sub-par staff in key roles because they either don't notice failure or tolerate it. If there's one thing the blaggers and charlatans hate it's being held to their promises; whereas the best people relish a target as something to over-achieve against. And if you don't know what success looks like for a role, why are you hiring it?

Be prepared to admit when things don't work out too; I've seen startups throw ever more people at a failing structure in the hope it will somehow improve, only to end up with the same problems but bigger and more expensive. The same goes for continually reassigning people who don't measure up. If someone's no good at their core competency, how good do you expect them to be at secondary or tertiary skills?

Like many things in business it comes down to humility and common sense. Hire sensibly, grow cautiously, measure results and you've a better than average chance of avoiding the horrible ln(t) revenue curve that turns promising startups into stable but static small businesses.

Image by Chris 73 CC-SA 3.0