The Big Transformation Every Scale-Up CEO Needs To Make — But Few Succeed At
Fred Wilson, the renowned VC, says that every startup will replace its core team three times on its way to scale.
Executive coach Khalid Halim’s says that people grow linearly, but companies grow exponentially.
Molly Graham, formerly of Google and Facebook, says that to grow with a startup, you have to give away your job every few months.
They’re all talking about the same challenge: when your startup is growing fast, as the founder/CEO, you’ll need to evolve — and even reinvent yourself — to stay ahead of the challenges that growth brings. Somehow, you’ll have to transform from a product visionary and hands-on founder into a CEO that can build a truly scalable business.
There are three key stages for the CEO’s role. Most founders make it from stage 1 to stage 2 unscathed, but as they approach Stage 3, where the learning curve gets a lot steeper, a lot of them get stuck. This is often bad news for everyone: you feel overwhelmed, your team is hampered by internal friction, and your investors don’t get the results they were hoping for.
These problems are common… but far from inevitable. If you understand how your job as founder/CEO needs to shift as your organization scales, you can take proactive steps to make sure your leadership keeps pace with your company’s growth.
Stage 1) Getting Sh*t Done
In the early stages (pre-seed to Series A), founders are all about getting sh*t done — and that’s as it should be. There are people to hire, prototypes to design, customers to win, and investors to woo. It’s all hands on deck, and everyone does a bit of everything — so even though your title is CEO, you’re as much an individual contributor as you are a manager. Aside from defusing the occasional interpersonal conflict, your organizational worries mainly boil down to deciding who to hire next.
Many founders are great at this stage — otherwise they wouldn’t be founders. Your passion lines up perfectly with what you should be thinking about and doing as CEO, so the work feels natural. The pressure makes it challenging, but you haven’t had to drastically expand your wheelhouse yet.
Anything that’s not mission-critical takes a back seat. That includes thinking about “how we do things” or “what type of organization we want to build.” While some founders set out the values and target culture early on, it’s a rare founder who will take the time at this early stage to really nurture that culture. That’s understandable. You’re busy, and it doesn’t seem all that crucial yet: everyone still fits in one room, and most people pick up the culture by osmosis. But if all goes well, that won’t work for much longer.
Stage 2) Making Sure Sh*t Gets Done
Things start to change around the time your company reaches thirty to forty people. This is usually the time that each function gets a clear leader whose only job is to build and run that function — as opposed to the early days, when everyone is double or triple-hatting. With solid teams focused on each of the core functions, your main job is no longer to get sh*t done — it’s to make sure shit gets done. So, in addition to overseeing a lot of project updates and business performance meetings, you focus heavily on building the systems and processes that help everyone know what they need to do and whether they’re getting it done. That includes things like implementing OKRs, budgets, and other basic management systems.
In short, your role as CEO is less about doing and more about bringing order and organization to the flow of work. This comes pretty easily to most founders, so the transition from Stage 1 isn’t too challenging.
Managing a Stage 2 organization isn’t so hard. You still know pretty much everything that is happening in the company, and have a good understanding of the outcomes that are needed — so if something isn’t getting done, or isn’t being done well enough, you can easily reach out to whoever is in charge of that activity and ‘light a fire under them.’
At this stage you have more people than at Stage 1, so inevitably you have more people problems, most of which still land on your desk. But most people problems are still one-offs, and can be dealt with as they arise, on a case by case basis. Apart from that, your job in terms of building the org is still mainly to hire new people and to encourage everyone to play nice.
Stage 3) Building The Organization That Gets Sh*t Done
When the company reaches 100 to 150 employees, you may notice that people problems are appearing faster than you can solve them. And, to make it worse, many of these problems aren’t simple ‘one-offs’, but rather ongoing tensions that don’t have simple solutions. This can all come as something of a surprise after a few years of dealing with things as they arise.
What’s going on? The answer is Organizational Complexity.
Organizational Complexity grows exponentially with the size of your company. Think about people as nodes in a network: a five-person team has 10 possible one-on-one relationships, but a 150-person company has over 11,000. There’s simply no way to deal with them all individually. And as your headcount grows, so do the numbers of products, projects, offices, time zones, cultures and even languages spoken. Many teams are now big enough that they have their own internal projects and priorities that compete for people’s attention with the big strategic initiatives that you’re focused on. All these factors contribute to an explosion in Org Complexity.
Unlike in Stages 1 and 2, when you need to get something done, it’s no longer a simple matter of asking someone to do it. Back then, you knew exactly where things stood, what the obstacles to progress were, and who could fix them. Now you don’t — every blockage entails multiple people and teams — and while you’re trying to unblock progress, you keep encountering the same organizational frictions that slowed work down in the first place.
Driving progress is a very different one in Stage 3: it’s not about doing it yourself, or telling someone to get it done. It requires you to become an organizational doctor, diagnosing and remedying the frictions in a systematic rather than ad hoc way.
So while it’s no surprise that communication and collaboration start to break down when organizations reach Stage 3… most founders are still caught off-guard. That’s because the organization’s needs that were once obvious are now harder to detect, and harder to resolve. You’re much further removed from the front lines where the work gets done, so you’ll hear about problems late, second-hand, or not at all. Plus, the issues have gone from simple (hire another developer) to systemic and interdependent (figure out how engineering will support three different product lines). The pain these problems cause and the responsibility for solving them are diffuse, so no one raises a red flag.
Even when you understand the problems, solving them is much harder than it used to be. Changing the structure, focus or behaviors of a 200-person org takes time, planning, and a whole lot of effective communication.
In short, at Stage 3 your job as CEO is fundamentally different than it was in the past. Your job not to do sh*t, or to make sure sh*t gets done, but to build the organization that can reliably and sustainably get sh*t done, even as it scales.
This requires that you develop entirely new competencies, like building high-trust teams, surfacing and resolving tensions and conflicts, and facilitating effective cross-functional collaboration. These leadership skills aren’t a natural extension of what you did in Stages 1 and 2. They represent a fundamental shift in what you focus on: from maximizing output, to maximizing organizational effectiveness.
It’s a completely different mindset.
Four things you should do to become a Stage 3 CEO
To make a successful transition from Stage 2 to Stage 3, here are the four things you should do:
1) Give up your old job.
It’s time for someone else to make sure sh*t gets done. This is often a COO, but it could be a number of senior execs whose job collectively is to keep the day-to-day business running smoothly. Your job is to focus on what you can’t delegate: the vision, the strategy, and, especially, the development of your organization. No one but you can do this.
2) Build a culture of collaboration, starting at the top
Your senior managers need to be the most skillful and visible adopters of the collaborative culture you’ll need throughout the organization. As the company grows, new hires inevitably identify more with their department and its leader than with the company as a whole. If they don’t see their leader building effective collaboration processes with other leaders, they won’t collaborate well across functional lines either. As Patrick Lencioni says, they’ll be left fighting “bloody and unwinnable battles” with other departments over what’s important, who’s responsible, and how it gets done. On the other hand, if the top execs work as a cohesive, multidisciplinary team, they’ll lay the foundations for healthy cross-functional collaboration throughout the organization.
3) Become an organization doctor
Organizational Complexity is a lot like arthritis: it makes you stiff and slows you down. Your job as CEO is to minimize this complexity.
One key to this is ruthless prioritization. Having coached over a hundred CEOs, I’ve noticed that the very best are laser-focused on a remarkably small number of priorities, and they never waiver. They understand that every additional priority adds complexity, and that complexity slows you down.
But even if you do that, things will bog down. You’ll need to diagnose the spots where ownership is unclear, information isn’t flowing, processes aren’t streamlined, or people aren’t working well together. Then, like a therapist working with an arthritic patient, your job is to find a way to work with the people to bring agility and smooth flow back to the organization in these areas.
4) Master systems thinking
When the organization was smaller, you made changes one at a time. Now, you need to learn to operate at a larger scale. Instead of coaching one manager who isn’t leading his team effectively, you need to build a playbook for how to create high-performing teams. Instead of deciding how much to pay a new marketing expert, you need to build a compensation system that attracts great talent and pays fairly across the company. The same goes for all other ‘people’ issues such as how you deal with under-performers, deciding who to promote, etc.
The way your org gets work done is evolving from simple, linear processes to complex, interdependent ones, and your thinking — and leadership — need to evolve with it. One way to hone this skill is to work with an executive coach who is a strong systems thinker and has experience of managing Complex Organizations. They can help you master the skills of thinking systemically and planning organizational changes strategically and coherently.