Failing to Scale: The Crisis among Start-ups

There has been much press declaring the fall of American entrepreneurism.  Cited in a 2015 Wall Street Journal story, the Kauffman Foundation analysis of US Census data determined that start-up momentum in the US had stalled. (WSJ Article)  Additional publicity has blamed sputtering entrepreneurship for our country’s slow economic recovery.  Gallup CEO Jim Clifton stated, “We are behind in starting new firms per capita, and this is our single most serious economic problem.”

Venture capitalist Marc Andreessen tweeted his provocative take on the relationship of entrepreneurship and the economy.

A 2016 study by MIT researchers tells a different story.  Using more granular measures of entrepreneurial quality, the research team concluded, “Starting in 2010, there is a sharp, upward swing in the expected number of successful startups formed and the accumulation of entrepreneurial potential for growth.”

           

While the MIT research showed entrepreneurship on the rise, they highlighted a more vexing issue.  “To the extent that the current state of American entrepreneurship is facing a crisis, it is not the rate of creation of high-growth start-ups or in the initial funding of those firms but instead in the potential of those firms to scale.”   

            The conclusions of this groundbreaking investigation square with my own experience.  In a blog posted last October, I outlined how Founders struggle to pilot their businesses through the turbulent Transition Stage between Start-up and profitable Going Concern.  The MIT research team added, “Even as the number of new ideas and potential for innovation is increasing, there seems to be a reduction in the ability of start-ups to scale in a meaningful and systematic way.” 

            The MIT report does not provide recommendations for how to address the problem.  I see this gap as well in my work with start-up leaders.  There is no consensus or common approach to deal with this perplexing phase of a company’s life cycle.  

While well suited for launching a start-up, Founders are less experienced in the organizational and cultural nuances needed to scale their business.  Collapse during the Transition Stage can be driven as often by internal meltdowns as missteps in strategy or product design.  

Why is this?  In my view, C-level leaders are focused so heavily on “What we Do”, they neglect the appropriate balance of “How we Operate.” 

Young firms tend to rely on a few brilliant minds at the top to outsmart the market.  Today’s complex and competitive business arena requires a broad array of perspectives.  Adopting the axiom ‘Nobody is smarter than Everybody’, companies tapping the collective wisdom of the entire team are best positioned to seize market opportunities.

Unfortunately, organizational friction can stymie team member input.  As headcount soars so do functional structures, hierarchies and other vestiges of bureaucracy.  Turf battles, silos, political maneuvering, and lack of authenticity inhibit collaboration.  Trust breaks down.  Staff engagement drops and innovation stagnates.

            So how do Founders/CEOs minimize organizational friction while keeping their firms nimble and quick?  What aspects of “How we Operate” enable start-ups to scale?

Two key areas to consider: Core Values and Collaborative dynamics. 

Clearly articulated Core Values and explicit cultural norms are an excellent first step to sustain growth.  Most young firms have defined their Mission, Vision and Values.  Some design snazzy posters to plaster around the office.  Noticing a set of eloquent Core Values artistically rendered on the conference room wall, I asked a CEO how well his team was living out these standards.  He looked at me quizzically.  Shaking his head, he realized his team had not considered how to measure this basic of company progress.

In one start-up where I served, employees could name the company values but were confused over what they meant or how to apply them.  Our Values were vague words to them, too open to individual interpretation.  To rectify the situation, we identified a series of attributes to define each Core Value.  Adding explanatory prose helps.  

We augmented a section of our annual reviews to rate how well employees exemplify these virtues.  This evaluation reinforced the meaning of our Core Values while assessing if our organization was operating accordingly.

Culture is another nebulous concept.  While all firms champion a company culture, their personnel may struggle to pinpoint the specifics.  Culture is regularly expressed in terms of dress code, vacation policy, office décor or team building exercises.  This cursory view misses the critical inner workings defining "How we Operate."  Too often, the firms's implicit cultural norms are left unspoken, creating ambiguity and confusion, particularly among new employees.

Rules and handbooks do not define company culture.  Passions and purpose do.  Culture is the expectations between us as well as interactions among us.  Our approach to prioritization, decision-making, conflict management, meeting protocol and the role of leadership are the life-blood of the organization.  Communicating openly about our cultural underpinnings connects team members more deeply with one another while enabling the company to thrive.

A second key aspect of “How we Operate” is Collaborative dynamics.  In a number of posts, I have dug into the foundations of Autonomous Cross-functional teams, Distributed Authority, Transparency, Peer Accountability and an emphasis on leaders as Catalysts and Coaches rather than commanders.  None of these collaborative cornerstones are revolutionary.  In fact, many firms have tested these concepts on special project teams or key initiatives.  The intentional integration of these five dynamics enables organizations to operate more fluidly.  Staff members have a stronger sense of ownership.  Teamwork flourishes.  The steady flow of creativity inspires the innovation driving further growth.

With ample capital flowing into the venture space, start-ups will continue to sprout.  To meet the return expectations of investors, the most progressive leaders are experimenting with fresh organizational paradigms to scale their start-up and create a profitable business.

Next Generation Organizations: Peer Accountability - Part Deux

           

High growth leaders are always seeking ways to spark innovation from their staff.  Experimenting with progressive organizational paradigms is an emerging strategy. 

Thriving collaboration and employee engagement result from well-conceived approaches to  “How we Operate”.   Core Values are clearly defined and measured.  Explicitly communicated cultural norms and expectations enable teams to work together more fluidly and generate the market breakthroughs needed to sustain growth. 

Autonomous, Cross-functional Teams, Distributed Authority, Transparency and Peer Accountability are part of the next generation of organizational design.  

In the last post, we explored the power of Peer Accountability to create ownership within the ranks.  Relationships with colleagues are important in today’s workplace.  Tapping these bonds can create greater accountability than traditional superior/subordinate systems.  Peers hold one another responsible for deadlines and deliverables as well as inspire teammates to perform at their best and break new ground.  Side by side every day, co-workers have the richest insight on how teams are operating and steps to improve.

While a powerful source of productivity, Peer Accountability is not without downsides.  There have been several well-publicized accounts of this new approach gone wrong.  So how do we create the ideal situation for success?

Peer Accountability is most effective when companies promote organizational trustworthiness, authenticity and healthy conflict.

           

Trust is fundamental to collaboration.  Young firms understand this dynamic and many operate more like a family than an institution.  In a trustworthy environment, employees see the best in each other rather than the worst.  They celebrate one another’s strengths instead of carping on their flaws.  They grant the benefit of the doubt, an aura of grace and mercy where forgiveness reigns over bitterness and resentment.  When individuals look to help their team members grow, serving each other is as important as serving the customer.

Strong connections among colleagues as well as management engender a setting for effective Peer Accountability.  Authenticity and candor are cornerstones.  People are real with one another; open, direct and honest.  There are no masks or curated reputations.  They respect each other enough to speak the truth.  And they are unafraid of being transparent about who they are and what they stand for.  Staffers feel safe enough to be vulnerable, admitting fears or concerns, disclosing mistakes or willingly facing the inevitable failures that come with innovation.

Peer Accountability is natural when trust and authenticity are norms.  Individuals are open to input, valuing the constructive feedback of their co-workers to further their professional development and improve team dynamics.   
For many, Peer Accountability seems like a formula for conflict.  Truth is, conflict is unavoidable in a robust, growing organization.  Bright, passionate people will have differing opinions.  Sadly, too many companies wrestle with unruly, rancorous conflict or worse, conflict avoidance.

We have all experienced interactions on the conflict continuum, some constructive and others damaging.  Neither extreme is ideal, either.  Healthy conflict is a balance point where parties share relevant information, feel heard and respected while having optimism in each other.  Debate is open and unfiltered.  There is a willingness to disagree yet a commitment to support the resolution regardless of the outcome.  

With healthy conflict, teammates are not worried about questioning the ideas of others regardless of where they sit on the Org chart.  The best idea does not have to be one’s own and deliberations among one another are simply part of reaching the optimal solution.

With a foundation of trustworthiness, authenticity and healthy conflict, the power of Peer Accountability can be fully leveraged to help businesses thrive and scale.

In our next post, we will more examine how Transparency augments Autonomous Teams, Distributed Authority and Peer Accountability as well as laying the groundwork for leaders to serve as Catalysts and Coaches. 

A Leaders Path to Self-Discovery

An executive contemplates whether to continue his entrepreneurial pursuits or go back to a successful Wall Street career.  A founding CEO realizes she must rely on untested relational skills to scale her growing technology firm.  An accomplished leader finds his chosen profession less and less engaging.

“Now What?!”

This question comes at us from many different angles.  The timing is never good.  And the question refuses to go away unanswered.

Solving for “Now What?!?” requires Self-Discovery.  We must be willing to dig into the depths of who we are and where we stand.  Introspection is scary stuff.  Examining the truth about our nature and character is risky.  We may not like what we see.  We may have to open old wounds.  The prospect of exposing our vulnerabilities or uncovering the roots of fears and insecurities can be daunting.

So why bother?

As our leadership challenges intensify, we have to summon more from within.  Additionally, market demands are changing.  The best young talent expects a deeper connection with their leaders. Authenticity and true transparency are necessary to head today’s more collaborative workplaces.  Before opening to others, we need to know our self.   

There are many means of self-examination.  An approach I recommend touches four key areas; your Inspiration, your Perspiration, Peace and Pursuit. From there, you can hone in on the big question: Who am I? 

Here are a series of questions in each segment to help you in the introspection process.

What inspires you? What ignites your passion most?  What are your primary drivers? If everything in life went according to your plan, where would you be in 10 years?  What would your life look like?

What are your biggest fears in life? What’s the root of those fears? What are your greatest insecurities? Uncertainties? Anxieties? What causes the most stress? Why? What vulnerability are you least comfortable exposing? To whom? Why?

What does ‘being at peace’ mean to you? How much do you want that? How does peace differ from happiness? What brings joy to you? What do you appreciate most in your life?  Which of your strengths or gifts are you most grateful?  What will make you truly content?

What are your greatest longings? Your highest ambitions? What achievements remain most alluring to you? Why? What will these deliver? What sacrifices must you make to get there? Why is that worth the pursuit?

We can examine "Who am I?" from multiple perspectives; Identification and Validation (see this blog).

For Identity - How do you define yourself? By career accomplishments? Professional expertise or title? Do you identify yourself as a Leader? Good spouse or parent? Community Activist? Is who you are today the legacy you aspire to? If not, who do you wish to become?

For Validation - Where do you stand? Have you made it? Do you count? Are you worthy? More importantly, who is measuring, what are the standards and how will you know when you've gotten there?

Self-Discovery requires rigorous thought.  These questions are not easy to answer. They need to be explored from multiple perspectives. The process can’t be rushed.

So what’s the best approach?  Block out some time alone.  Find a secluded place. Turn off your phone and emails.  Quiet all the voices in your head.  Let you mind be still.  Disengage. Then walk through the questions slowly and deliberately.  Write down your viewpoints no matter how outlandish or embarrassing.  The answers are for you.

When finished, a clearer picture emerges.  Our outlook will be refreshed.  A new sense of hope will arise.  With a broader perspective, some anxieties and fears will seem trivial.  Other dreams and desires will be vitally important.  We will chase fulfillment over achievement.  We will realize satisfaction is more rewarding than success.  We won’t settle for happiness when joy is possible.

With a deep understanding of who we are, we will lead with greater confidence and conviction.  We will see ourselves as catalysts not simply commanders.  We will inspire and enable.  We will appreciate the wisdom of investing in others rather than serving ourselves.

Most importantly, when we complete the journey of Self-Discovery, we will have clarity and focus on what matters most.

Have fun!!

A Sample of Self-Discovery: My Story

“Is this all there is?!”

Sitting in my swank office overlooking the Statue of Liberty, I was nagged by this question. 

All my effort and sacrifice had paid off with a recent promotion. I had arrived.  Yet before the new office smell had worn off, I was wondering what was next.  And I could not shake the profound sense of emptiness.

It was early in my career, yet I exceeded many of my goals.  I successfully climbed the ladder of a top financial services company.  My new post as General Manager with a sizable staff had the eye of senior management.  This was the type of position I dreamed of while sweating through B-school exams, late nights in the office, endless flights in a cramped seat and tedious events sucking up to clients. This was my “in your face” to all those who never thought I’d make it.

“What’s the point?”

Ahhhh!!  I was supposed to be happy.  I was supposed to be satisfied.  

Van Gogh

Instead, I was more anxious than ever.  I stressed about staying ahead of the pack.  The fear of being exposed as incompetent never left.  My work performance still fed my sense of self-worth.  No promotion or title or glad-handing from executives quenched my thirst for affirmation and approval.

My grand plan for schooling and career did not deliver!  How was that possible? I followed the script and achieved success.  I was a "good guy" who worked hard and kept my nose clean. I even flossed regularly.

"Where did I go wrong?"

I was flustered and at a loss. Everything seemed so meaningless and hollow.  So did I.  Looking in the mirror, I saw a puppet, not a person. I had become a two-dimensional cardboard cut-out saying the right things and acting according to convention.  I could articulate the reputation I was creating but not the foundation of which I stood.  I could tell you who I wanted to be like, but not who I really was.

"Who am I?" 

Almost overnight, the void inside me became a vortex.  My zest for achievement wore off.  My passion faded.  Then doubt crept in.  My confidence was shaken.  On the outside, I acted cool.  On the inside, an emotional cancer spread.  No business school classes or executive training had prepared me for this inner turmoil.

Seeking help was out of the question.  Therapy was for defects, spirituality for wimps.  I had to handle this on my own.  Internalize the angst.  Bottle up the emotions or just ignore them entirely. 

Gormley Man

Isolation came naturally.  Feelings and fears are not discussion topics on the golf course, across the poker table or around the barbecue.  No chance I was going to appear weak or pathetic.  So, I chose to suffer in solitude.  Fact was, I didn’t have a single friend I trusted with my true emotions.

Staring into the abyss, I felt completely alone.

“Now What!?!”

Sound familiar? My situation is not so unique. In fact, it’s more common than one thinks.  I wasn’t sure where to turn or what to do next.

Fortunately, I met some folks who had walked the Self-discovery path before me.  Their lives were not perfect but they had something I desperately wanted - a sense of peace.

And so, I embarked on some introspection.  It was not a journey I wanted to do, rather one I had to do.  Self-discovery begins with a commitment to explore who we truly are - all our gifts and advantages as well as our foibles and failures. What do we stand for?  What are we unwilling to compromise? What is the point of our work? What is the legacy we are trying to build?

Though change doesn’t happen overnight, the transformation I experienced was dramatic.  I am still competitive and passionate, but my perspectives are different.  I consider advancing others before myself.  Priorities and choices are better aligned with who I am and what I do well. 

Grounded by clear core values and a belief in God’s sovereignty, I am confident in where I stand.  I don’t feel compelled to prove myself or seek the validation and affirming of others.  

Self-Discovery doesn’t make us invincible, just more confident.  Sure I still have stress and worries, but they don’t keep me up at night.  Grounded in strong principles and a clear purpose, I generate more meaning from my work.

And I am not going it alone.  I am now comfortable enough in my own skin to be vulnerable with others.  More openness and authenticity creates better relationships in all aspects of my work, home and community life. 

I still have much to strive for, many goals unattained.  Though the pursuit is rigorous, I feel truly content.  And it all started with a little self-reflection.

So if you are struggling with “Now What?!?”, give Self-discovery a go.