Recently, Hunter Walk tweeted out an interesting question. In my typical way, I responded with something snarky about underwear choices. When I thought about the question more deeply though, it was a rather clever way of highlighting the challenges of rapid growth and scaling startups for long-term success.
You can ask CEO of 100-person startup one yes or no question in order to gauge probability long-term success. What question do you ask?
There were plenty of excellent responses. Some people went to the CEO’s background (ostensibly to unlock some hidden trait or trigger of entrepreneurial drive. Some asked about metrics or market conditions. Some mentioned the tie between product and market and employees. All provide certain insight, but we only get slivers of time or small pieces of a much bigger puzzle.
So what question would I ask to gauge the long term success of a startup? I would ask the CEO: Does everyone understand and believe in the vision of the business? Assuming that the CEO is being completely transparent in his or her answer, then this could be the most illuminating and insightful question one could ask.
There are various points along the startup journey where founders have to “level up” the business. By that I mean the founders have to put the operational pieces in place to grow the business. This includes hiring, implementing systems, capturing metrics, establishing processes, and policies. Most people assume that this occurs at various funding stages or at a certain amount of users, number of paying customers, or revenue objectives. However, what I have seen is that the real barometer of startup growth and determinant of sustainable growth businesses is headcount.
Just as number of customers gives a good indicator of the maturity of a sales organization, headcount provides a good analog for assessing organizational maturity. At certain thresholds, there are expectations of how that startup should operate. The four-person startup is not the same at the ten-person startup is not the same as the fifty-person startup. Those thresholds happen at certain levels of headcount.
Think about it, is it not the people you hired that are most responsible for driving growth? In the early stages when it is just a handful of people, it all falls on the shoulders of the founders. They own the strategy, the execution, and the results. As the company grows, the execution part becomes more removed for the founders who rely upon those they hired to carry the load. That is not to say founders are not executing, just that the nature of their roles change as the company starts to grow. They transition from founder operators to organizational leaders.
As leaders, it is incumbent on the founders to steer the organization towards the vision. In companies that operate poorly, I often find people are motivated for the wrong reasons and have little true understanding of the vision. People start doing their own things, silos and cliques develop, and the quality of hires goes down. The result is that the company starts to falter, at first with small things, and then quickly spirals out of control when the company hits a stumbling block. That is when the Board panics, the CEO gets fired, and the once promising startup begins a precipitous downfall.
The startup death spiral is something that is almost impossible to reverse. The one thread founders have to keep everyone on the same page and motivated has been severed and beyond repair. But how do they keep everyone aligned to that vision? It starts with maintaining the culture, having a clear set of values, and being transparent. Another way to think of the CEO is as the keeper of the culture. You could even say that they are the Chief Culture Officer of the growing business. It is up to the CEO to maintain hiring standards, to ensure the executive team is aligned, to communicate the vision and goals of the company on a regular basis, and to “walk the talk”. In many regards, that is the key role of the CEO as the company grows. The CEO obviously has board and investor responsibilities. The CEO will certainly be involved in key sales and partner relationships. The most important role however is being a leader and leading the company towards the vision.
At the point of 100 employees, the startup has just broken through the early stages and could be considered growth stage. They know the business model cold, they have a repeatable sales process, revenues are stable and growing, and the hiring funnel is healthy. This is also where many of the cracking points will happen, because even if the product/service is successful, that does not mean the company itself has matured to the point of supporting and building upon that success. In other words, you stumbled into a potential runaway success, but you are not able to capitalize it much like how most child stars seem to run into difficulties later in life in continuing on their careers.
A startup where everyone is aligned to the vision, culture, and values of the CEO speaks volumes to the long-term success of the startup. The CEO and executive team have exhibited strong leadership. The company has strong processes and hiring standards. There is a sense of order and direction, even at the hectic pace of startups in growth mode. Instead of the CEO trying to be the hero when the company falters, everyone pitches in during those rough periods without becoming disenchanted. There is belief.
A CEO that cannot answer the question of employee alignment to vision with a definitive yes is a CEO that is running a dying company. The startup may not be dead yet, but it is certainly on a dangerous trajectory.