Early in a startup’s life the founders are everywhere. They build the business model, they design every feature of the product, they pitch to every sales prospect, they create all the sales and marketing materials, they raise money, they run every customer implementation, they interview and hire every new person, they review every invoice. They set the pace for everything and control every detail.
That’s how it should be.
Turning a good idea into a revenue-generating product is a long windy road with many dangerous turns along the way. Everything is constantly in flux. The vision, the product and the business model are invariably changing to accommodate the realities of paying customers. Every step of the way requires swift decision-making inline with the company vision.
This is undeniably the founders’ job. It cannot be delegated. This is the time when the DNA of the company is defined and it is done every day, one detail at a time. The founders need to be there every single time.
Eventually, though, this model reaches its limits.
At some point a startup proves its business model and needs to grow very rapidly, without spinning out of control, in order to capitalize on the opportunity that lies ahead. It needs to turn into a company that can build, sell, deliver and support in repeatable and scalable ways, while staying innovative and hungry. It also needs to keep its finances under control at all times, while spending loads of cash to fund the growth.
This is the time when a startup can no longer be run just by the founders and needs a management team. To put it bluntly:
Startups are run by founders. Mature companies are run by management teams.
The transition from one to the other needs to take place at the right time and in the right way. Easier said than done. There are 3 main reasons why it is really hard.
The right people are needed to staff the management team.
Ideally, existing employees should step up to the challenge. They are a known quantity. They have been there from the start, they have embraced the company vision and culture, they know the business model and the product and they have earned the trust of the founders. Unfortunately, though, promoting existing employees is not as obvious of a choice as it sounds.
In a small startup team no one is a more experienced manager than the founders. In addition, existing employees often cannot make the leap from “one of the guys” to managers who can convincingly exercise authority upwards and downwards.
On the other hand, bringing in outsiders at a senior level and at such a critical transformation stage for the company carries significant risk. They may possess the right experience and managerial skills on paper, but they remain a completely unknown quantity.
In addition, the odds are against them. They are up against extremely high, if not unrealistic, expectations set by the mere fact that they are hired as “saviors”. They have to establish their authority even before they have the chance to learn in depth what the company does. They need to gain the trust of those above and below them, which is definitely not easy to do in tightly knit startup teams. They need to embrace, but at the same time change some aspects of the startup culture. Naturally, even very good people fail at this.
Ultimately, a senior management hire that doesn’t work out is a 6 to 12 month setback, a very long time for a startup trying to grow in leaps and bounds.
The newly established management team will be called to manage an organizational structure that is far from being the right one.
Early startup teams don’t really worry about responsibilities and accountabilities, they just do whatever it takes to get the job done. When the time comes to establish a proper company structure with clear delineation of roles and responsibilities, no one really knows what scheme will work best and will enable the company to scale. The first version of the organizational (and management) structure is really an experiment. Several iterations, i.e. major re-organizations and re-shuffling of the management team, are often required to reach a stable, well-performing and well-managed organization (we went through at least 3 major iterations at Upstream within a year and a half before we got it right).
This is a really painful trial-and-error process that requires unmitigated self-awareness and brutally decisive action every step of the way. It also invariably hurts a lot of feelings.
The founders and the management team must grapple with the elusive task of aligning responsibility with authority.
On the one hand, managers needs to have the right level of authority to carry out their responsibilities, make the decisions they see fit and live or die by the outcome of these decisions. On the other hand, the founders cannot just hand over the keys to someone else and risk losing control of the company.
Finding the right balance is a big challenge. Too much authority means that parts of the company may become black boxes and spin out of control. Too little authority means that the chances of the management team succeeding are undermined.
Finding the right balance requires conscious effort and significant adjustments by all involved.
The managers need to build a case for themselves and earn over time the right to exercise authority, based on actual results not job descriptions. They also need to know when to ask for permission and when to ask for forgiveness.
The founders need to avoid micromanaging. They need to let others try and often fail, resisting their natural instinct to step in (up to the point that they need to step in to avoid disaster). At the same time, they must develop a management style that ensures that no part of the company becomes a total black box for them, that the right mechanisms are in place for them to make those decisions that shouldn’t be made without them and that early warning signs of danger can be easily spotted.
Ultimately, establishing a successful management team is a trial-and-error process but with very low tolerance for errors, because they cost a lot more than they would in a stable mature company. With every setback, founders tend to lose their resolve in making it work. Instead they step in, take full control of the situation and take swift remedial action. It subsequently takes a long time to restore faith and trust in the system and the people. But the end goal justifies trying again and again until it just works.