Internal structure at a company is critical to long-term success. Image courtesy of Shutterstock.
Katy Trost is one of The Org's Expert Contributors. She is a leading coach to tech CEOs and Founders, at Series A stage and beyond. She specializes in effective leadership skills, and implementing systems for scaling organizations.
While scaling your company, setting up an internal structure at the right point in time can be critical to the long term success of your venture. In order to avoid chaos and organize complexity, there’s a set of best practices to achieve execution excellence at scale.
Once a business has raised a series A or B, passing the 100+ people mark, CEOs and their executive teams have the chance to build a strong foundation for scale to prevent an internal collapse further down the road. It’s easy to focus on short term goals and ignore long-term objectives as everything speeds up exponentially and time becomes the most valuable asset.
Despite an extended runway and plenty of cash in the bank, fast growth usually means a lot of complexity, pressure, and risk. A focus on leadership development across the company and building a strong culture is essential to scaling the people side of a company. On the operational side, CEOs have to implement formal management structures, frameworks and routines for planning and goals, and standardize pretty much everything. Otherwise, improvisation may amount to confusion and unpredictable performance.
Only 4% of startups ever scale up - and once a business makes it past finding product-market fit and attracts growth capital, many believe a company has made it through the worst. However, when high-growth becomes uncontrollable due to the lack of a scalable infrastructure to handle complexity in communication and decisions, the majority of the fastest-growing companies fail and only 30% of those 4% become established players. Failing to professionalize the organization and bringing in grown ups, it’s difficult to correct course once mistakes are made.
Research indicates that scale-ups who think ahead and formalize their internal structure proactively can attain a higher growth rate than scale-ups who implement their systems reactively.
The HBR article “Start-ups that last” suggests that there are four critical activities for successfully scaling a venture. Firms must hire functional experts to take the enterprise to the next level, add management structures to accommodate increased headcount while maintaining informal ties across the organization, build planning and forecasting capabilities, and spell out and reinforce the cultural values that will sustain the business.”
Why it’s so important to prioritize structure
In the relentless pursuit of growth, companies often ignore the need to prioritize scaling their people and operations properly. Additionally, founders tend to perceive formal structure and processes as a threat to the company’s entrepreneurial spirit and are afraid of bureaucracy.
Yet, people want direction and feedback. The right amount of structure paradoxically gives them more autonomy to make decisions within a framework. Employees love the idea of working in an informal environment, but quickly become overwhelmed by the reality of the startup life. To stay motivated, people need mentoring and feedback to grow. They have to be able to measure their performance and progress objectively. A clear management structure provides guidance and enables faster, decentralized decision making in all departments.
Ignoring the importance of building a structure that supports people to do their best work, rather than people who support a structure, can easily lead to a collapse of entire units when key people leave and their knowledge walks out of the door with them.
What’s important to consider while implementing structure
As a German, I grew up with a very organized mind. Everything has its place and my schedule is a real piece of art. Yet, everything can be pushed to an extreme. Working with high-growth organizations, I learned there is no way to do it all. That’s why coming together as an executive team to think and plan is priceless. Identify the handful of initiatives that have 80% of impact on current issues (80/20 rule!). Between ad hoc and prescriptive organizing, there is a healthy middle ground. Focus on the must-haves rather than trying to implement a long wish-list.
Forcing structure on your employees is an uphill battle, meaning a top-down “because I said so” approach rarely works. Taking people on the journey of identifying reasons and ways of implementing frameworks, makes all the difference. As a CEO, getting proper buy-in from everyone is 90% of your efforts. From there, the execution will take care of itself.
Below, you can find the most important components of setting up a fully structured organization
Note: In his book, The Great CEO within, Matt Mochary gives more practical advice for founders who want to master the role as a first time CEO.
Adding Management Structure
Even though a flat management structure is widely known and adopted, especially by Silicon Valley tech companies that want to enable more innovation and teamwork, some degree of structure is essential to avoid bottlenecks.
Many founders believe avoiding hierarchy is the goal, leaving only few people as the main decision makers, which hinders information flow and slows down execution. Just enough structure (4-9 people in a team) with coaches who enable and develop individuals rather than manage them, gives employees decision making support and someone to turn to.
A proper functional org chart provides clarity on where key people sit and how employees can progress their career within the organization. When Zappos announced that it was eliminating titles and managers, 14% of its people quit, wishing for more direction and feedback. Just the right amount of middle management serves a company well. Too little and there will be confusion and chaos. Too much and it will slow information flow and not give individuals enough autonomy.
I also suggest hiring a few of project managers who float around and drive accountability for cross-functional projects.
Defining roles and bringing in functional experts
The founders and core team that’s been with a company from the early days usually find themselves succeeding by doing a bit of everything. Roles are not clearly defined which is important to make fast moves. A startup is served well by having lots of generalists that can help out in different departments when needed. The founding team is also the core of a company's mission, vision, and values. As it’s secret sauce, it should always keep a special place and play an important role in strategic decisions even when the business is way past the startup stage.
Just as founders must evolve their role, the company itself must grow up as well and bring in functional experts. Around the 50 people mark, C-level execs from within or from outside the company should be introduced. At 100 people the executive team is usually fully built out and manages the VP level.
Areas of responsibilities with critical numbers (KPIs) for each department are the first step to organizing the business internally. Next, clearly defined roles and responsibilities with measurable outcomes for each employee, make it easy for people to see how they’re contributing to the overall progress. Build job scorecards for each individual and eliminate blurred lines between roles. Sometimes this means department heads wear multiple hats until a role is filled.
Strategic thinking and execution planning
Improvisation and testing is crucial to getting a venture off the ground. Up to 50 employees, companies can simply define their long-term vision and update priorities to get there on a rolling basis. As a scaling company that has raised significant funding and wants to attract high-caliber talent, stepping back and planning becomes increasingly important. Not only do investors and employees want to know what’s happening, but CEOs should be proactive in their approach to company building to avoid firefighting and unpleasant surprises.
Quarterly off-sites become essential to keeping the business and all departments aligned so everyone pulls in the same direction. Creating a strategic plan helps to achieve clarity and get everyone on the same page. Identifying important long-term objectives and implementing quarterly OKRs makes it easy to tackle significant issues and opportunities.
Establishing Meeting Rhythms
Once strategy and execution has been planned, a solid meeting rhythm helps make the vision a reality. Functional and cross-functional project planning, information flow, issue resolution, decision-making and transparency on progress are the result of effective team meetings. Managers drive accountability and provide feedback on performance and behavior in 1-2-1s while coaching people to fulfill their potential and progress in their career. Even though many companies are trying to eliminate their meetings, having a recurring and consistent (no cancellation tolerance) rhythm in place, removes up to 90 min of ad-hoc communication a day. Nobody should spend more than 1.5 days /week on calls.
Tracking Key Metrics and OKRs
Data and metrics become even more important once mid management is added. Reviewing scoreboards with critical numbers (KPIs) and progress on important priorities (OKRs) should be a routine during team meetings. Software like the Scaling Up Scoreboard or Monday.com make it easy for people to identify their weekly actions and hold them accountable for following through.
Keeping an eye on cash flow as a company goes into hyper-growth is an absolute must. Just because customers and revenue are growing, doesn’t mean profit and cashflow stay in the green. Calculating your SFG (self-financing growth) rate and making management decisions accordingly, can save a business from growing broke.
Standardizing and documenting processes and solutions
Even in a fast-paced environment, it's important to set aside time to share best practices and optimize and standardize processes. Document cross functional and functional core processes (how things normally go) and a wiki/knowledge base with solutions to usual problems and exceptions (when you say it twice, write it down).
Gathering and sharing information across the company speeds up decision making and efficiency. Building playbooks, video libraries, and leaving a footprint of best practices learned is key to scale effectively.
You can simply use Notion or Google Docs for this.
Implement systems and software
When people are supported by the right systems and software, they can dedicate their efforts to what's most important. Software helps standardise, handle complexity, give real time updates, increase transparency and train employees. They help decentralize information while centralizing control. Each department, depending on its core processes, can implement software that organizes people and operations. Again, don’t overdo this one. Implementing too many applications that are supposed to enable processes, policy compliance, etc. can be overwhelming and ultimately scatter information.