The Perfect Startup

People in startups often talk about how much fun it was during the early days, when everyone was on the same page and things moved quickly. Can the speed and simplicity of that early, perfect-startup moment be retained as companies grow?

During those early days, a startup team is usually around a dozen people in size. Most team members are engineers and designers, at work on the first product. There are usually also one or two generalists, taking care of early marketing and operational needs. It’s when startups grow beyond that stage that they often hit one or more of these growing pains:

1. The myth of the flat organization.Teams of about 8 people are most efficient. Roles are clear, tasks are easy to track and communicate, everyone feels in the loop and efficient. With good communication, teams can stretch to 14-16 people and still operate pretty well, though things start to get more frustrating. Tasks fall through the cracks. Everyone spends too much time keeping track of what everyone else is doing. There’s overlap in roles. The breaking point usually comes around 20-30 people. The team starts asking “so are we going to have an org chart at some point?”. Some people want to stay flat and claim that things will suck and not be like a startup anymore if there are managers. Sometimes founders say this, which tends to prolong the misery unnecessarily. First of all, it’s a myth that startups are flat, or non-hierarchical. Someone is in charge – usually founders, a CEO, or a combo thereof. Everyone else is flat – and getting frustrated about it. Failure to get more organized into smaller teams with team leads is an abdication of responsibility on the leaders’ part.
   
   The solution: When you get to 12 or 14 product people, split into two product teams, and continue splitting so that teams always trend towards the ideal size of 8. Invest in good team leadership and add one layer of management that is in charge of all the teams and makes sure they work well together. This makes everyone happy and efficient again and scales until you have 30+ teams when you need to think about the next layer of management. Another key is to avoid building silos and losing transparency when splitting into teams. It’s important to “over-communicate” and keep things very transparent during this phase. Make sure that all communications and decisions are done in the open and documented for everyone to participate and see. Have as few meetings as possible and discuss as much as possible in open channels (Basecamp, Slack, etc). Document all ideas and explain how and why priorities are chosen. Share financials and board slides. Argue over, then agree on KPIs/OKRs and track them openly.
2. The Founder/CEO conundrum.
   The job of the Founder is to be the product visionary. They articulate and constantly evangelize the vision and mission of their company, create and lead the product team, make tech and design decisions, and synthesize user feedback until product market fit is achieved.

   The job of the CEO is to make the business run smoothly. They fundraise, find early customers and partners, set and communicate goals and strategy, track results, run business operations, and coach and grow their leadership team.

   Some entrepreneurs do both of these jobs very successfully during the early phases of a startup. Once a product is launched and the team gets bigger than 20 or so people, it becomes more and more difficult to do it all and the Founder/CEO who tries, starts to exhaust themselves and frustrate their team. This sometimes gets perceived as the “the founder has trouble letting go and trusting other people” moment, though it runs deeper than that and happens in many startups and to most first time founders.

   The solution: Realize that if your business is lucky enough to get to hundreds of people and beyond, every single part of your job will change. Your main role will increasingly be one of finding, coaching, and empowering great people who can take over the various needs of your growing business. This will be your most important contribution and if done well, will serve as a model for the entire organization (see #3).

3. The limitations of “wearing lots of hats”.
   During a startup’s first couple of years, most employees work on product development. The non-product roles are more self-contained and centralized but they need to scale as well and they do so in different ways. These are roles like Systems, Customer Support, Marketing, Sales, and Operations. For each, there is a breaking point where a single, more generalist person can no longer handle the task and it’s time to think about how to scale to multiple people. This is often painful because the generalist has grown into the role wearing lots of hats, loving it, and doesn’t want someone brought in “above them”. This could be a comms person who has grown to do marketing, ads, PR, and community management. Or a business person who does all of partnerships, finance, HR, and legal. It’s really fun to handle that variety, but it gets to be too much at some point. That point is different for different roles. For example, somewhere between 30-50 employees it’s time to have a dedicated HR person. Somewhere around $2-5m in revenues it’s time for a dedicated finance person. And so on.

   The solution: Anticipate these transition points, and manage them in a transparent way, explaining why it’s the right time to bring in specialists who are more senior and experienced at a particular job. The specialists in turn need to recognize that they know less about the culture and inner workings of a particular startup than the early “many hat wearing” employee and that they can learn a lot from each other. As mentioned in #2 above, these transitions are easier when the early founders/leaders in a company have demonstrated how to navigate them for their own roles.

By recognizing the above challenges and managing through them at the right moment, a startup can get to hundreds and even thousands of employees and still retain the best parts of their early culture and the simplicity, transparency, and agility that makes them so fun.