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Once a business has overcome the challenges faced in the startup phase it enters into another difficult period.
This period is earmarked as the stage in which scalability and flexibility become the most critical success factors. Rapid growth is a balancing act. Scaling at a speed beyond your company’s capabilities can be detrimental to the business success. While scaling to slowly and you risk losing momentum and vital opportunities. As the company grows, it needs to take on relatively large number of people, which pose new talent challenges.
As the organisation scales up, the sheer growth can overwhelm organisation leaders. When increasing the size of the organisation, leaders need to focus on developing the right skills for the new positions within the company. Above this, they need to make sure there isn't a vacuum of talent leaving the organisation at this fragile time, while at the same time keeping the company culture that has been nurtured from the beginning.
Challenge one: Finding the right employees
Start ups are only as good as the teams that drive them. Building a team and scaling the people can be one of the biggest challenges a founding team faces as it grows. However, this step is essential to the survival of the company. In fact 75 percent of startups fail to give investor returns. This failure is pegged on the ability of the co-founders to build a team with the right mindset to drive the company forward. When a company is built from the ground up, it takes trust to outsource the responsibility to others. Hiring for culture is important, and cultural match is undoubtedly a factor that cannot be ignored. However, no personality fit can make up for the vacuum an empty position creates when that employee cannot fulfil their roles.
Finding employees who have the same motivation, and the same mindset as the co-founders is a difficult task. Traits that co-founder the must be on the lookout for are people who possess the ability to constantly challenge young business system, and constantly be improving and developing themselves. Having these ‘out-of-the-box’ thinkers benefits the manager and the company, as it provides a diverse mindset that co-founders can lean on when faced with a challenge. The ability to take constructive feedback well and build upon current employee and manager knowledge, nurtures an business environment whereby employees rapidly adapt to new business problems.
Github hires according to their belief that an employee's passion lies in their contribution to society. As Preston-Werner, CEO and co-founder says: “Do they care about improving as a person? Do they believe in products? In supporting users? In making developers' lives better? In making it easier for people to work together? Are they self-motivated? Do they value communication skills? Do they appreciate the freedom to self-direct and make the best possible decision?”
When Github started, they believed that their people didn't need managers to delegate tasks and for anyone to hold employees accountable. They believed that every employee was driven by the inherent belief that they were passionate by what they did. However, recently the company overhauled its business structure to include managers at every level. Reports have been surfacing that indicate some grumblings within the company. Employees, who were happy with the flat structure now face a system where they have to report to a teammate who used to be a colleague.
One employee reportedly said: “The new CEO is trying to keep everyone happy by not making the hard decisions necessary of leaders." He's been described as someone who "hides in conference rooms" and who is being influenced by an inner circle.”
As the company reaches hypergrowth - a business that sees over 65% increase value year on year - it needs a system that supports this type of growth. Bringing on board a hierarchal business approach can be good when the company needs structure, but when employees feel threatened by the impending changes, it may lead to retention issues. During a rapid growth stage, micromanagement drastically reduces the momentum teams have to grow. When the company is small everyone has to have broad range of skills to keep the product up and running. However, when the company gets bigger, it requires bringing in experts and learning to trust them.
Challenge two: Employee Retention
During a rapid growth stage, employee retention can be a challenge, as many employees believe rapid growth can be a threat. A reasonably common failure for startups is to do a great job recruiting the first ten or so employees and then have many of them leave after the first 18 months. Companies build value over long periods of time, and maintaining employees from the start assist the rapid growth of the company. These employees come with the understanding and the ability to portray the purpose and the mission of the company to new employees within the organisation.
Many startups face retention issues, which result from negative attitudes felt by employees. This can include uncertainty about the future of the organization's direction, job security, perceptions of lack of leadership credibility and feelings of confusion due to lack of communication. In essence, employees often lose trust in their organisation and feel betrayed by their leadership when the company lacks a specific direction. During this delicate growth process, it's essential to keep employee turnover low because business continuity is key to realizing the benefits of scaling. There are a number of hurdles a company must overcome when employees jump ship. Financial implications can be dire, especially during the scaling process.
When employees leave, it creates a brain drain of knowledge. Taking the already pressured time from other employees to train the new employees can have long lasting effects on the company in the long run and causes the young start up to trip and stumble. What's more, employee turnover can result in loss customer relationships.
Once seen as a service so fundamental that it simply needed to exist, Twitter has since started to falter. A stream of characters was how people would find the most crucial, critical and thought-provoking stories in the moment. However, recently the company has seen its own growing pains, as employees publicly questioned the direction the ex-CEO, Dick Costolo, would be taking the company. Worryingly the company has recently lost a number of key executives as the pressures of growth and internal company dynamics have created a public crises.
In a desperate attempt to clamp down on its already hemorrhaging retention wound, Twitter has started offering payouts between $50 000 and $200 000 to current employees. These “retention” packages are offered in the form of restricted stock - stock of a company that is not fully transferable until certain conditions have been met - with a clause stipulating the employee remains at the company for at least six months to a year. However, very little appears to have changed in the intervening months. Reviews on the Glassdoor, show that the company is done very little in the way of rectifying its management policies. A number of the employees say that the company is “ not a happy workplace” and one said, “it’s a very political climate”.
Twitter, which has seen its share price fall more than 50 percent in 2015, has started refocus on its employees. Jack Dorsey, the co-founder and CEO of Twitter, told Vanity Fair, that “developing and retaining top talent is critical to Twitter's business success and to rebuilding shareholder value”.
Recruiting and retaining top talent is only a part of the scaling challenge. Once recruitment and retention strategies are implemented, it’s up to the co-founders to hash out what the company stands for, the values and the beliefs the company wishes to portray. How to communicate these core fundamentals is determined by the culture these authors create.
Challenge three: Maintaining culture
Good startup executives keep their fingers on the pulse of the finances and business mechanics of their companies. They are always seeking growth, developing an exit strategy, and working to increase their market share. While these are critical to a startup’s longevity, equally crucial is internal stability, and a motivated and productive workforce. Rapid growth can yield profit and investment wins, but in the startup world, extremely fast growth can lead to structural problems if the corporate culture fails to grow at the same pace. According to Deloitte , 87 percent of SMBs rated company culture and employee engagement as important or very important, yet 59 percent felt they weren't culturally ready.
Company culture is an emergent quality of the communication style and practices of the people in the organisation. Culture usually stems from the co-founders of the company, and grows out from there. As new people join the company, they embrace this culture that is nurtured from day one. Once a company grows to a level in which people have less time for each other, it becomes more difficult to maintain the core values and beliefs the company was built. For example, if people are brought on specifically for their skills set, it will naturally dilute the culture. It’s typically around the twenty person mark that founders start feeling some concern about their company culture and how to go about maintaining what they love about the culture while the company continues to scale. Setting the mission, vision and core values become a priority, as a company with a lack of culture focus, can end up losing steam during its scaling period.
Startups that establish and cheerlead core values to maintain stability for their teams and maintain focus on the core mission, enjoy long term success. In a recent Bersin study, it found that companies who focused on their culture are 80 percent more likely to have engaged employees. Darius John Mirshahzadeh, President of the Endeavor America Loan Services believes that once employees are hired, they adopt the values of the company immediately. By implementing daily and weekly, “Huddles”, the company ensures its people constantly remain on the same page. In addition to this, the company makes use of incentive and reward software, to make sure everyone is recognised for the work they do. And this level of culture commitment is showing, as the company has over 90 percent overall retention rates, and continues to add employees and offices that are in sync with each other.
It’s important to accept there is no one size fits all culture for startups. If the person in the team doesn't fit, then the co-founders should make the decision about who stays and who goes. Win Cramer, president and Founder of Jlab Audio, says that there is nothing more problematic to the culture of fast growth then a person that just doesn’t fit in.
Recently, Zenefits, has had its fair share of news headlines. The company offers cloud HR management software and makes most of its money selling HR-related benefits. It was this unique business model that sent the company into a rapid cycle of growth. In its first two years of operating, the company reached a $4.5 billion in valuation. However, of late, the company has seen its CEO step down, and the company lay off 250 employees. David Sacks, the new CEO, issued a statement, stating “it’s no secret that zenefits grew too fast, stretching both our culture and our control”
The company, which was labeled as the fastest growing subscription software business in Silicon Valley, had a culture that oozed a frat like ideologies of drinking, smoking and having sex in inappropriate places (such as company stairwells). However, the culture soon came under scrutiny. Zenefits was investigated for allegedly allowing insurance brokers to cut short mandatory requirements to obtain a license, so they could join the Zenefits ecosystem quicker. Following this, Sacks made a statement that said: “Our culture and tone have been inappropriate for a highly regulated company [...] we must have integrity in the way we treat each other and must make zenefits a great place to work for employees, because we’re all in this together.”
When companies grow quickly, it’s a challenge to keep the culture in check. In Zenefits case, the focus was on output, which saw the culture fall behind. In some cases, it's vital that the company culture reflect the industry in which the business operates in. As in this case, insurance is a highly regulated and highly bureaucratic system, and not having certain aspects that reflect these aspects can hurt the company. By realigning the company culture to reflect a highly moderated industry, David Sacks realised that there was a need to reign in some of the detrimental aspects the company culture had on the growth of the business.
Company culture is a hot topic in today's business world, and getting it right is imperative to the long term success of the business. When co-founders understand the true values and beliefs that drive the company, its easier to employ people who have the same beliefs. Today, employees have more bargaining power and are free to jump ship whenever they feel the company does not live up to their expectations.
Solution: Impraise
Rapid Growth comes with a series of challenges a company must face in order to be successful. When a company goes through this stage, it must clearly define and understand what roles they require and the employee they need. A good way to do this is to implement a performance review process, such as the platform Impraise offers, from the beginning to understand the key strengths and weaknesses of each stakeholder in the company.
From here, the co-founders can easily determine which skills to hire for and which employees would be best suited to the culture. Once these employees are successfully integrated into the culture of the organisation, a company can open up the channels of communication to better help employees understand how the business is developing and where each employees can help to get better business results. Manager reviews can give employees direct oversight of how they see their manager performing. Implementing this can gives managers to fully understand how they are developing their skills as leaders and rectify any issues that might occur quickly and continuously.