“Revenue grows faster than talent. Discuss.”
In my recent visit to Mumbai, I conducted two workshops on the statement above. This issue is often the hardest single problem founders face as they scale their organizations to match their growth rates. We opened each workshop talking about the typical phases that founders encounter when trying to scale their talent and their organizations:
A time of heroes. As a founder-led company scales in its first phase, the leadership team closes most of the gaps in its organization through heroics. They simply throw the existing team into the gaps and pray that it can handle the new responsibilities. Heroes are born. The 30-year old brought in to help with sales blossoms into the top salesperson, performing at levels rarely expected from someone 20 years more senior. The young computer guy, brought in to set up the company’s Internet systems, somehow morphs into an effective IT manager and helps scale the company’s early finance system. Everyone works 80 hours a week, some marriages suffer, but during this time of heroes, a winning company is born and legendary stories of heroes become the foundation of the culture.
The only problem with this phase is that it is unsustainable. The head of sales burns out and fails miserably to manage a salesforce. The IT manager fails spectacularly at managing the rollout of a big enterprise-management software project. The founders find they can’t keep relying on the original team to step into every breach. They need to recruit professionals; they need to introduce systems.
A time of systems and professionals. And so the founders move from heroes to systems and professionals. They try to scale their organization in four ways, each of which is filled with pitfalls.
1. They try to codify their genius. The founding team tries to create playbooks, filled with decision-making processes, rules of thumb, acceptable procedures, and various other attempts to put the founders’ instincts onto paper for others to follow and emulate. But too often these procedural manuals lead to bureaucracy and result in tier-one talent leaving because the firm is trying to paint by numbers. Worse still, the firm becomes attractive to third-tier talent, happy to work with rule books.
2. They recruit big-company industry experts. The founding team identifies key talent gaps and sets out to recruit the best and brightest from blue-chip firms. The good news is they bring in world-class talent to manage IT, supply-chain talent and so on. The bad news is these new recruits are often big-company players who aren’t used to the founder culture and don’t recognize the need to protect it. Their success rate is mixed, making the founders gun shy about recruiting additional outsiders.
3. They try to harmonize everything. During the time of heroes, every compensation package was a “one-off,” too often agreed to in the hallway with little consideration of precedent or consistency. The company has 50 leaders and 50 different compensation deals. The founders decide to harmonize, working to create clear procedures, standard work levels and pay packages for each level. The 50 leaders experience a lot of pain as they are pulled and twisted into a standard package for their work level. And the issue doesn’t just apply to executive compensation. The same phenomenon happens across supply contracts, customer pricing, service levels and more.
But founders quickly discover that while harmony is wonderful in theory, in practice it produces constant discord. And after the latest group of top talent exits over dissatisfaction with their work-level pay grade or other issues, the founders ask: “Is this all worth it? Can you really solve individual issues with committee-developed packages?”
4. They recruit for rounded edges, not spikes. The founding team is a group of “spiky” individuals: They excel in one or two dimensions but are hopeless at others. Founding teams very often resemble an Island of Misfit Toys—a group of heavily flawed individuals who work brilliantly as a team. But as the company grows, so does the desire to recruit “all-rounders” or “utility players”—individuals who are competent at everything. Maybe this is a result of bad experiences with the big-company experts, or maybe the founders simply forget how spiky their original team was. But each cohort of recruits is much the same: perfectly acceptable, nice, smart people. The founders can’t put their finger on any flaws, but they don’t find themselves inspired the way they were by their original spiky geniuses.
The time of systems and professionals should in theory be a good time, but in practice, it is often a disaster. The company is filled with big-company functional experts who alienate the founding team. New recruits are faced with procedural manuals and processes that feel disconnected from the founders’ speeches they hear. Every new recruit is very nice… but the quirky genius of the company appears to be fading.
A time of balance. It is at this point that the founders realize that the company needs balance. The company needs to grow by balancing the need for professionals and the need to maintain Founders MentalitySM. Examples pop up everywhere:
- Heroes walk the halls again. Where possible, the founders demand that new recruits jump in and fill the breaches once more, challenging them to take on jobs three levels above their pay grade. Some win, some lose, but all rise to the new challenges.
- Systems are put in place—but selectively—and coaching is reaffirmed. Where possible, the company harmonizes pricing and codifies pay grades. But the founders also encourage inspired intervention. The systems are there for 80% of decisions, but people are encouraged to break the rules the other 20% of the time if it will retain a key customer or win a key recruit. The founders realize they need to be coaches, passing on their genius through apprenticeships, not manuals.
- Expert recruits are hired—but more often than not, they were the “black sheep” of the blue-chip companies they came from. Founders still seek to recruit well-trained experts from big companies, but they look for the ones that were the black sheep in their large organizations, the ones desperate to join an insurgent, the ones willing to embrace a bit of chaos rather than impose bureaucracy. And the founders aren’t alone: suddenly everyone is looking again for spiking genius, willing to populate the Island of Misfit Toys with more strange and wonderful tribesmen and tribeswomen.
These phases are real. Too many founders we talk with are in the middle phase, wondering what went wrong. At our workshop, one founder asked in great frustration, “If we know about these three phases, surely we can move from heroes to balance and just skip that whole painful period in the middle?”
Yes, indeed, you can.