Warning signs for high-growth startups

Recognising when change is needed can be the difference between success and failure when it comes to small companies undergoing rapid growth and expansion

Startup culture is all about being agile, fast moving and disruptive. At the outset, there is little room for processes or structure. To succeed and establish a competitor brand, high-growth startups must constantly break rules, reinvent themselves and travel where the market takes them.

This is easier to achieve when a company consists of co-founders and a couple of first-round hires. But as startups begin to scale and take on more employees, the very culture that helped them to succeed can become a hindrance.

Instead of focusing on disruption, chief executives can become bogged down in management processes, reporting lines and business structure, causing the expansion of a high-growth startup to stagnate and employee dynamics to change. So how can growing startups avoid this problem?

Evolutionary psychologist and Oxford University professor Robin Dunbar posited the idea that humans can only maintain relationships with up to 150 people at one time. Looking at the evolution of primates, he found that the size of our brains generally correlates to the size of our social circle, which is naturally capped at around 150 people. Coincidentally, this is the average size of most villages in the Domesday Book back in 1086. Go above this magic number and you lose the trust, shared history and mutual obligation needed to make relationships thrive; all traits key to helping businesses grow.

The low employee count at the beginning of a startup’s growth strategy means “you can manage the system by peer pressure, whereas above 150 you need some form of top-down, discipline-based management system”, according to Professor Dunbar.

While some organisations have taken this philosophy to heart – outdoor clothing manufacturer Gore-Tex famously creates a new office each time a department reaches 150 people to avoid Dunbar’s number – not all startups will need to reach that magic number of employees before feeling the pressure.

Startup growth strategies

“First base for a startup founder is always going to be proving the demand for the product or service, that the target market can be reached and the business model is scalable,” says Anthony Byrne, chief executive and founder of Dublin-based sales development agency Product2Market.

“The very moment this is even partially proven, I feel a founder’s focus needs to be on building a team and operation that can scale the opportunity,” he adds.

Making that transition from initial proof of product to rapid scaling can be disorientating, says Mandeep Singh, chief executive and co-founder of online marketplace Trouva, which has grown to 68 employees since its launch in 2015. He believes communication is key to startup growth strategy.

“At Trouva, we moved very quickly from being a small group of people in a room where communication was easy to needing more formal structures in place to ensure the whole team was aligned,” says Mr Singh.

“My management style has become less informal and I’ve learnt the importance of over-communicating, again and again, to make sure everyone is aligned behind a set of core objectives. I believe structures should be built up step by step to avoid too much bureaucracy, too early,” he says.

Trouva opened its first office outside London in 2017. Building the company’s Lisbon office forced the high-growth startup to create processes for effective communication across time zones, as well as maintaining its culture and values, regardless of where its employees were based.

To do so, Trouva’s leadership team turned to technology. The tech startup uses instant messaging platform Slack to manage day-to-day communication across teams and Google Hangouts for meetings.

“Leveraging technology to bring our people together has been crucial in maintaining a unified culture,” says Mr Singh.

Management transitions

While it can be tempting for high-growth startups to believe the good times will never end, preparing for problems and looking for long-term issues is a vital part of ensuring the business continues to succeed.

“In a rapidly growing company, you need to constantly adapt the structures and capabilities of your team. That’s not just about the here and now; that’s about looking six, twelve and twenty-four months into the future,” says Gemma Bloemen, chief operating officer of Elder, an app that matches professional carers with families of elderly people.

Since arriving at the business in early-2018, Ms Bloemen has seen Elder change the structure of the operational team three times. Despite the upheaval, she believes each change made the team more efficient, refining the leadership’s team focus on immediate priorities and providing clarity for its employees on how they could help the startup grow.

For her, avoiding startup stagnation comes through this continual planning and structuring. “It is so important that the right processes enable innovation. Processes should allow people to focus on their jobs, drive innovation and grow the company,” she says.

“Every startup will face adversity along the way. The key is to make sure you have a team that believes in the mission of the company, as when things get tough they know what the company is trying to do and what it’s long-term goals are.”

Doing so has required Elder’s leadership team to focus less on development and more on recruitment and creating culture, a transition that can be hard for leaders used to doing everything themselves, says Ms Bloemen.

“Building a business is hard. You need to accept you will never have all the answers and that you will be constantly trying, failing and learning. Create this culture within your company by celebrating your people when they come back from mistakes or turn around processes that aren’t working,” she concludes.