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As a business professor, I have studied organizations that range in size from startups with just a few employees to huge multinationals that employ tens of thousands of people. In the course of my research, I have seen an irony play out time after time: small companies almost always yearn to be more “grown up” and professional, while mature companies wish they could be more youthful and freewheeling again.
Management consultants have benefited mightily from this, as they help small companies scale up by professionalizing them, and as they suggest ways for lumbering behemoths to become more agile. But if such an outcome is inevitable, why can’t more organizations prepare for it and find a happy medium between the two extremes as they grow?
In my previous article I noted that most founders of fast-growing startups are unwilling to introduce the systems and processes they need to sustain their businesses. As I pointed out in a Harvard Business Review article I co-wrote called “Startups That Last,” founders “often develop strategies opportunistically, lacking a frame of reference because they are starting from scratch, and they take a similar ad hoc approach to building their organizations….When they eschew order and discipline, however, they pay a steep price: chaotic operations and unpredictable performance.”
As I explained in the article, founders must introduce four main elements if they are to avoid descending into chaos, and improve their chances of long-term success:
1. Hire specialists. An “all-hands-on-deck” approach may work in the very beginning, but as an organization expands, functional experts in areas such as sales, HR and marketing are necessary.
2. Install management structures. Without more delegation of management, decisions end up in a bottleneck at the very top.
3. Add planning and forecasting capabilities. Improvisational decision-making can work well at first, but analyzing data and setting performance goals is key as a company matures.
4. Reinforce cultural values. As an organization becomes more complex and far-flung, founders must make a concerted effort to ensure that all employees are aware of its unifying purpose.
Initially, when I spelled out these requirements, I thought I had done my job. But then I started hearing from founders who had introduced these structures. “You’re not telling the whole story, Ranjay,” they said. Yes, they had done all the things I outlined in the article and yes, they had been necessary, they told me. “But we killed something in the process, and now we want it back,” they lamented.
And I always asked them: “What is it?”
They would say things like: “We miss the old days,” “We used to be like a family,” and “We used to have so much fun.” I knew the issue went deeper than this, though, and I sensed that further investigation would reveal something important. So I spent nine months conducting more than 200 interviews at more than a dozen small, fast-growth companies that had succeeded in introducing systems, structures and processes.
Presenting my findings in a 2019 Harvard Business Review article, I wrote: “There’s an essential intangible something in start-ups – an energy, a soul… It inspires people to contribute their talent, money and enthusiasm and fosters a sense of deep connection and mutual purpose. As long as this spirit persists, engagement is high and startups remain agile and innovative, spurring growth, But when it vanishes, ventures can falter, and everyone perceives the loss.”
In my article, titled “The Soul of a Startup,” I explained that companies needed to focus on three crucial factors in order to recapture their original entrepreneurial spirit.
1. Customer connection. I found that businesses were more likely to thrive if “founders and employees intimately understood the perspectives and needs of the people to whom their products and services were targeted, and felt personally connected in a way that unleashed their energy and creativity.”
2. Employee experience. Employees who felt that they had both “voice” and “choice” were most likely to help a company retain its original startup essence. In other words, employees could tell that their opinions mattered, and that they had a certain amount of discretion to make their own decisions.
3. Business intent. The most successful companies stayed true to their original reason for being. “Many ventures define their mission or business core, but the intent I uncovered went further, taking on an almost existential significance,” I wrote.
I described how companies including Warby Parker, Netflix, BlackRock and Starbucks managed to keep their entrepreneurial spirit alive – or help restore it when it was waning – while still building and adhering to the internal structures that needed to be developed as they matured.
As I wrote: “So often entrepreneurs, consultants and scholars like myself emphasize the need to implement structure and systems as a business grows, missing the importance of preserving its spirit. We can and should focus on both. With effort and determination, leaders can nurture and protect what’s right and true in their organizations.”
Who’s the first to notice?
So, who’s the first to notice when your company is starting to loose it’s spark? That would be your customers. In some cases, customers feel your loosing your spark because a new kid on the block makes them feel more appreciated and are offering more bells and whistles. We’re here to help you keep a pulse on the customer’s perspective of your business and your competition. Give us a call, we’d be happy to chat.
BY RANJAY GULATI, PAUL R. LAWRENCE PROFESSOR, HARVARD BUSINESS SCHOOL; HOST, “DEEP PURPOSE” PODCAST@RANJAYGULATI AND CARL PHILLIPS