As founders begin their entrepreneurial journeys, most know that they are signing up for a leadership role. Many also assume that leadership is a suit that can be put on or taken off when needed. In reality, it’s more like a second skin you grow into. And this growth is anything but quick or easy.
Through many years of working with the startup ecosystem, I’ve observed something that may not be apparent to entrepreneurs who are in the weeds and the trenches, fighting for survival and growth. Only a small percentage of founders grow into good leaders.
Why does this matter? As far as I’ve seen, most founders run a business and show all the trappings of success…until a certain point is reached. When founders reach product-market fit and their companies begin to scale — from one product to many, from one location to multiple offices — they begin to realise that the level of complexity in planning for and maintaining growth has risen exponentially. Then they arrive at the necessity of designing a people-centric organisation. But because they are still operating from a founder mindset, the business begins to strain at the seams. At this point, their transformation into a leader becomes vital to the success of the business.
As this realisation hits, many founders scramble to build a people-centric culture overnight. But this last-minute tactic is almost certainly destined to fail. While they were doing a great job of running a business as a founder, they’ve put off building a great organisation as a leader along the way. Culture is built from Day One.
This is the beginning of my ‘First Principles’ series. I’m writing for every founder who is managing a small team, building a product they believe in and is working towards product-market fit. I want to explain why the time to prepare for scale and leadership is now, not later. Why culture begins with who you choose to work with and how. And why it is important to prioritise your own growth as you grow a business.
Starting Up: The Early Years
Launching a startup has a lot to offer to those who are creative, resourceful and have ideas they strongly believe in. Many professionals, after leading teams and building products for businesses for years, choose to chart their own path as entrepreneurs. They are earnest, optimistic and full of possibilities. At first, they may manage a small team of 2–3 people. The future is uncertain, but the environment is upbeat. There is a sense of collective bonhomie. Informal conversations between the founder and the team happen organically and frequently. Even with modest salaries, the team is highly motivated to work with the founder to solve a problem.
Over the next two years, the founder may raise a seed round and a Series A round. The number of people on the team increases, but they are still working on a key product or two, out of a maximum of 2–3 office locations. Challenges until this point have been new, but linear.
Founder priorities at this stage, in order, are:
The focus is on building a robust product and finding product-market fit, and rightly so. Until now, the founder has been grappling with product problems and trying to assess market needs in an effort to best meet them.
Scaling Up: The Rise of Complexity
Reaching product-market fit is a watershed moment for founders. It is, in large part, a validation of their hard work until this point. They’ve got the fundamentals of the product right, the market wants what they’re building and everyone’s happy. Finally, they are doing what successful businesses do: begin to scale.
But here’s where we see a blindspot in our startup culture. After product-market fit, things begin to get much more complex. And we don’t stress enough the necessity for founders to grow into leaders who can build an organisation vs. only building a business, to handle this complexity.
In my observation, these founders are now on the cusp of a journey where they meet drastic changes in three areas:
The founder goes from building and managing one product from a single location, to multiple products in many locations. Product complexity shoots up in a very short space of time. Additionally, if there are multiple founders, there is also confusion, disagreements and conflicts between them on the nature of the product and the market.
Key change: One product, one location → Many products, many locations
As the business begins to scale, valuations get larger. From a < $5Mn funding to raising funding of $50Mn and beyond, growth has now become exponential. And investors expect more than linear returns. There is more at stake at every round of funding and the founder is answerable to investors and board members for decisions made.
Key change: Funding increase → Higher expectations for returns
Because the paths to take have diversified and product complexity has increased, the founder begins to hire product managers. Quickly, they move on to set up business functions like Product, Technology, Finance and HR. They start putting hierarchies in place, and formalising communication. Because the problems the founder is facing has now morphed into complex, multi-dimensional challenges, there is a need for them to hire people more experienced and more senior than themselves. They start to hire smart CXOs who can help them manage that complexity.
Key change: Early hiring → Product managers → Business functions → Hierarchies → CXOs
These changes are universal for most SaaS and consumer businesses in India. Next, let’s delve into more detail about the stages of growth when these changes begin to manifest themselves as different challenges.
The Necessity for Growth into Leadership
Startup growth usually follows an arc in India:
In each stage, there is a degree of growth required from the founder — a slow, phased-out transformation into a leader.
In the early phases of Formation, founders struggle to run and manage the business, conflicts emerge on new products and markets, there is a lack of decisive direction. Until this point, growth is driven by creativity, storytelling and a vision that informs direction. The crises founders go through are rooted in leadership and autonomy.
In the Validation phase (100–1000 employees) founders are less able to oversee all operations, and managers feel tied down despite their greater knowledge of markets and products. But there is relative prosperity, until executives start to feel a loss of control. Managers begin acting more independently, running their own parochial campaigns. Management then attempts to regain control and fails due to the scope of operations and markets.
This is exactly the time when many founders start becoming more controlling. They believe they know it all when it comes to their product and business, and start to see employees as commodities. Red tapism creeps in as executives and managers start to get protective of their roles and functions.
For founders at this stage, their priorities need to flip to:
To manage people and direct organisational growth avoiding these pitfalls, they need to grow into leaders who can co-ordinate, rather than remaining founders who resort to control. Leaders who can delegate and trust, who look at themselves and ask ‘How can I bring in people with more patience, and bring them together to build a great organisation?’
In the last phases of Growth (1000+ employees), founders continue to delegate through recommencing growth. As a result, resource use becomes more efficient, local management looks beyond local needs, product managers have learnt to account for their decisions and are rewarded on results. But a watchdog mentality at this stage will demotivate middle management so that rules and procedures become the goal, not the means. In the final stage, the only way to grow is through collaboration with other organisations.
Org design. While founders talk a lot about org structure, they also have to consider org design. We know that what engages knowledge workers is information. Org design allows knowledge workers to be aware of their purpose within an organisation though the information flow in the company. This leads to more engaged workers and better outcomes.
But when growing 150–200% QoQ, leaders often do not have the time to think and communicate, and resort to enforcing control. Therefore, every 6–8 months, I believe that leaders should ask themselves, ‘Are my employees getting the information they need to perform well?’
Assessing the capabilities of leaders. When you add layers of management and your business is running at 100 mph, your environment is geared for execution, tenacity and endurance, not learning. Someone hired in the early stages becomes redundant at Series B. Someone hired at Series B will become redundant at Series E. Every year, leaders must ask themselves, ‘For my org design, do I have leaders with the right capability to translate information to their respective teams?’ Because managers and leaders who are redundant or fail to perform, become protective of information, rather than facilitating its flow across the organisation.
Managing human emotions. A great analogy here is the management of a joint family. Like large families, a collective buy-in is required within healthy organisations to make important decisions. And human emotions across generations need to be acknowledged and managed. A leader does this by listening to and empowering their employees. They don’t see employees as commodities, but as a family who needs to work things out together. This attitude is essential in opening up the best potential in teams and organisations. This also promotes an organisational belief in making sure success is recognised and simulated.
Starting Your Leadership Journey
So are you one of the few early-stage founders who will grow into a successful leader? How can you tell?
Working closely with founders at Accel, I found that advice about the self is, first, not openly sought out by the majority, and second, discounted when it comes from an external source. Last year, a program called ‘New Meaning’ was created to help founders understand their own potential, through various tools and interventions. It is a way for them to assess their own strengths, weaknesses and gaps that they may not be fully aware of. The aim is to help a cohort of founders begin the slow process of introspection and self realisation, while also making entrepreneurial coaches available to them.
The program is continuing with a modified strategy for these times of self isolation and social distancing. While there is a continued use of tools and interventions, there is now also an added dimension of studying the dysfunctions of a team independently. To this end, I shared a book — ‘The Five Dysfunctions of a Team’ byPatrick Lencioni — with founders in the program. I highly recommend it for anyone who wants to explore building a people-centric organisation in more detail.
Coming back to our question, the answer is yes. It is possible to see the signs of when a founder, whatever stage of growth they are in, has begun to take their first steps towards leadership. It’s when I hear two recurring themes crop up in their conversations about building an organisation: ‘I am willing to learn’ and ‘I’m seeking help’. That’s where it all begins. The rest is learnable, with a little bit of help.