Most founder CEOs will tell you that it’s the people who matter most for a start-up’s success—that entrepreneurial band of software engineers, product developers, marketing managers, finance associates, and others who can help bring an idea to life and then to market.
Founder CEOs know that talent is a key building block of organizational success, along with strong leadership, a common purpose, and a performance-oriented culture. But many are less clear about how these building blocks may need to be restacked or shifted as the start-up evolves: How (and how many) people, processes, behaviors, and skill sets need to change as the company expands—particularly in fast-growth start-ups where companies can double themselves year on year?
To find out, we interviewed scores of founder CEOs and top teams at successful technology start-ups, conducted in-depth analysis of public data, and supplemented all those data with discussions with relevant experts and industry veterans (see sidebar “Sizing the situation for scaling start-ups”).
The research revealed important lessons about the talent, leadership, purpose, and culture needed for successful scaling—as well as the role that constant communication plays in all four of these areas. These lessons may be instructive not just for fast-changing tech companies but also for start-ups in a range of industries that are trying to preserve their cultures and ensure profitable growth.
Do we have the talent we need?
Our discussions with founders and leaders of fast-growing start-ups revealed challenges—and opportunities—associated with scaling up the “machine” that recruits, develops, and retains high-end talent. When start-ups are small, founders and leaders tend to be deeply involved in each new hire, relying on their personal networks to recruit top talent. As companies grow, however, talent needs inevitably change, skill gaps become more apparent, and it becomes increasingly difficult for founders and leaders to stay as personally involved in the hiring process.
At this juncture, gut instinct about which people to assign to which roles is no longer good enough. Founder CEOs and teams must be more formal about talent planning and recruiting. As a good first step, they should systematically review their ambitions and plans to scale against the skills, capabilities, and behaviors required to do so. They can then compare those plans against the current overall talent mix and identify any existing or expected gaps.
As they perform this formal assessment, founder CEOs and teams should consider the unique employee value proposition associated with each role they are hiring for as well as the changes that may be required to bring that proposition to life. One data platform company, for instance, weaved its employees’ expressed values into its overarching company value statement, allowing employees to truly live their values at work. Rather than work from the top down, leaders in the start-up observed how the highest-performing employees behaved and then made that the standard.
When start-ups enter a period of more significant hiring, especially when exploring new geographies or markets, founder CEOs and their teams may need to rethink how the HR operating model attracts, hires, and onboards talent at scale. A US start-up that was looking to expand to the European Union had its founder CEO and team identify several new HR capabilities it would require, including experience with managing international compensation and payroll procedures and with launching culturally appropriate professional development programs. The team anticipated an influx of foreign talent and, given how hard it is to attract and retain talent, it wanted to ensure that it could support such expansion.
Hiring for new skills and retraining existing employees can take time. It may be useful, then, for founder CEOs and their teams to emphasize hiring and skill-building efforts in those functional areas that make the most sense strategically. For instance, bringing new talent into sales, legal, and compliance teams may help scaling technology start-ups identify and lock in new accounts more quickly.
Do we have the leaders we need?
The founder CEO is, no question, the driving force behind a start-up—but scaling start-ups also need a team of high-performing senior leaders to achieve their growth goals (see sidebar “A word about CEO succession in start-ups”). A survey of nearly 900 institutional venture capitalists (VCs) shows that the quality of the management team is a bigger factor in their investment decisions than the product or technology in play. The research also shows that these VCs attribute the ultimate success or failure of an investment more to the health and functioning of the management team than to the business.
Of course, the type of leadership required at start-up is different from that required during scale-up phases. To paraphrase British researcher Simon Wardley, the pioneers will become the town builders. Some leaders will need to focus squarely on future needs (growth leaders) and others on current processes (operational leaders), but everyone will need to work together to keep the lights on and the culture healthy.
For founder CEOs, a crucial success factor will be to give some of the reins to others on the leadership team. “Every executive I hired made me better,” one founder CEO told us, noting the importance of bringing in senior leaders who could complement his strengths with their own.
Indeed, McKinsey’s CEO Excellence research notes that the most successful founder CEOs have been able to “stop feeling like they need to know everything and everyone.” They are willing to relinquish tasks that aren’t related to strategic decision making or vision setting. Where they once might have participated in every candidate interview, they now invite other C-suite executives to assist in that process. They continue to stay informed by hosting one-on-one check-ins and roundtable discussions with members of the leadership team. And they are rigorous about communicating frequently with employees about company goals and achievements. In this way, they can promote unity and transparency—and the sense that they are still just around the corner or down the hall.
Many founder CEOs also told us that a focus on capability building and developing the next generation of leaders was critical for enhancing and strengthening corporate culture and retaining top talent—now and in the future. One online food-delivery platform in India created a leadership development program targeted at the top 140 members of the organization. A team built customized leadership journeys for each person, including 360-degree feedback and one-on-one coaching to sharpen individuals’ business acumen and their long-term strategic thinking. This program allowed the company to get agreement among managers at various levels on priorities for growth, and participants reported significant personal development.
A fast-growing medtech company launched a similar program, tapping 70 middle managers and emerging leaders to join a leadership development program designed to enhance their essential leadership skills, instill new values, and fundamentally improve their leadership behaviors. After the training, this cohort of trainees served as effective role models for the company’s new processes and working norms. Through this role modeling, the company was able to work more efficiently and maintain its entrepreneurial edge.
Is our purpose clear?
Every start-up aims to change something in the world. A sense of purpose is usually at the core of these organizations, inspiring employees and attracting customers. Early on, that sense of purpose may be readily apparent, and it’s easy for a relatively small group of leaders and employees to understand why they came together in the first place. Google, for instance, was founded because two computer engineers saw an opportunity to address gaps in finding relevant content online. The “why” of the enterprise was clear, and employees at all levels bought into the vision and values established by the founders.
McKinsey research on organizational health points to significant benefits when purpose is made clear: organizations that emphasize common purpose are 2.4 times more likely than those that do not emphasize this practice to effectively set a clear direction, and they are 4.1 times more likely to be healthy.
But things can get complicated when talk of growth—whether through the pursuit of new products, expansion into new geographies, or through M&A and integration—gains steam. Through all the change and integration, the start-up’s management team expands, the business terrain becomes more complex, and the purpose can get lost in the execution of growth. And, by extension, so can productivity and performance. Old-guard employees may feel less invested in the start-up’s success and disengage or, even worse, actively try to preserve the status quo, even if the old behaviors, rituals, and routines are no longer fit for growth.
As a company grows, founder CEOs must find repeatable ways to highlight the “why”—embedding the purpose inside their employee value propositions, onboarding processes, and communications practices. Indeed, all the founder CEOs we spoke with said they integrate elements of the “why” into all their conversations with employees as a part of regular performance reviews, and emphasize the importance of strategy, values, and culture in all facets of corporate life.
The head of one travel platform made a point of emphasizing the company’s purpose as the world rebounded from the COVID-19 pandemic. About 80 percent of the platform’s business had been wiped out in the early days of the pandemic, as demand for travel services dried up. In the face of significant financial losses, the founder CEO kept the organization focused on the company’s purpose—“to ease the travel experience for customers and providers.” The travel platform simplified its cancellation and refund processes for customers affected by the pandemic and accepted loans from investors to assist its network of providers. In the long run, these moves allowed the travel platform to strengthen relationships with key stakeholders and identify new partnership opportunities with providers in certain cities and communities.
Do we have the culture we need?
Culture is the foundational set of practices, beliefs, and attitudes that define how people think and act in an organization. It can be a source of competitive advantage; it can also mitigate the risk of unwanted behavior, no matter a company’s maturity. Netflix, for example, likens its culture to that of a professional sports team, in which teamwork and support for the collective goal are paramount. If someone is not performing to those standards, they need to leave the team.
Founder CEOs and teams must intentionally nurture and grow their cultures rather than assume that they will automatically scale up as their organizations do. Many of the founder CEOs understand this point—although only a select few can explain precisely how their culture informs their performance and therefore how it should evolve.
For more clarity, they should define the behaviors and values the organization needs to do the things only it can do. Founder CEOs and their teams should be role models for those behaviors and values, and the organization should build formal reinforcing mechanisms—for instance, by offering workshops, celebrations, monthly MVP awards, and other incentives. For example, at the data platform company mentioned earlier, employees are encouraged and rewarded for speaking up when people don’t uphold the corporate culture and values.
Particularly in fast-growth start-ups, agility, independence, ownership, and focus must be central characteristics of the culture. In these environments, data are king. Data can help the founder CEO and the leadership team assess organizational health and find areas for cultural improvement, and they can empower teams and individuals to make decisions quickly. One founder CEO told us he had intentionally dismantled data silos in the organization, emphasizing the necessity for transparent information flow. Another technology provider told us his company offers company-wide data to all employees through a centralized server and highlights those metrics that are most critical to specific functions or domains. In this way, employees clearly understand how their actions can move the needle on important performance metrics, and they are empowered to make the necessary adjustments promptly.
Other start-up leaders told us they rely on pulse surveys, digital dashboards, and other tools to measure and monitor collaboration, productivity, and employee satisfaction scores. Based on these data, they can introduce new initiatives—for instance, flexible work schedules or training programs—that can enhance the scaling start-up’s culture and better meet the needs of today’s entrepreneurial workers (see sidebar “Is your culture healthy?”).
Levels of communication required for successful scaling
Even in the best scale-up situations, employees’ and teams’ opinions and perspectives on priorities and how to tackle various growth objectives may diverge. To ensure that everyone is on the same page, founder CEOs and teams must define the North Star—that is, they must regularly communicate to all key stakeholders the company’s strategic vision, goals, and priorities.
This communication must be ongoing rather than a one-time occurrence, and the modes must become more formal as the company expands. Small group lunches, narrowcast emails, and information passed through the grapevine will no longer suffice. Founder CEOs and teams should establish a strong communication loop through town halls, internal newsletters, one-on-one meetings, and board meeting invitations. As one leader shared, “People who’ve been with a start-up from the beginning sometimes feel like they no longer have enough time with the CEO as the company scales.” Regular meetings can remedy that feeling of disconnection among employees.
For the founder CEO, it may also help to appoint a chief of staff to assist with setting, organizing, and communicating individual and organizational priorities. Indeed, the chief of staff can serve as the eyes and ears of the founder CEO. This may be useful when communicating with one set of stakeholders in particular: the board of directors. Most of the founder CEOs we spoke with noted how deliberate they were in determining how the board could best help them during scale-up—board composition, level of collaboration, expertise required, and so on—and in how frequently they engage with board directors.
Every start-up must launch with four critical building blocks of organizational success: talent, leadership, purpose, and culture. But those foundational blocks will need to be shifted or slightly realigned as the organization grows and its strategy, operations, and talent decisions become more complex. As they pursue opportunities in new markets or geographies, founder CEOs and their teams will need to regularly and systematically reconsider their approaches to hiring and retaining talent, developing next-generation leaders, reinforcing the company’s purpose, and shaping the organization’s culture.
What’s more, they will need to ensure they are communicating frequently and consistently at all levels or the organization, and, if they aren’t already, they will need to use more data to make better and quicker decisions as the company grows.
By adapting their structures, behaviors, and processes accordingly, founder CEOs can overcome any scaling challenges, preserve their organizations’ entrepreneurial edge, and keep their people—the heart of any successful start-up—engaged and aligned for long-term success.
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