What startup founders and company leaders often overlook
This is a guest post from the Kenan-Flagler Entrepreneurship Center (Eship Center) at the University of North Carolina. The Center creates a better world by inspiring, motivating, and developing entrepreneurial leaders from diverse backgrounds who can recognize opportunities and solve complex problems that lead to positive social change.
Company leaders and founders attempting to take their businesses to the next level need a broad understanding of how each of their key business areas and their stakeholders scale together. We sat down with founder and Scale School instructor Gary Traynor to get his take on the key challenges that entrepreneurs commonly face and the competencies and tools needed to skillfully lead your organization through periods of rapid growth.
Here’s the advice for founders and company leaders that Gary shared …
Getting ready to grow your company? Join founders and other leaders within rapidly-growing organizations for the six-week course Introduction to Scaling: An Organizational Plan For Growth taught by Gary Traynor and offered by the UNC Eship Center at the Kenan-Flagler Business School.
Let’s start by drawing attention to the word “planning” in your question because the first mistake is not doing enough planning. We all know that over 90% of startups fail, and in my opinion, a significant portion fails from trying to figure things out along the way. In the early phases before raising outside investment you can do a lot to de-risk your business by preparing written and financial plans for certain key functions. For example, if you plan to hire people with new capital, you should also have plans for how you will take care of your employees and for dismissing people when necessary.
One more thing — it’s really important to value founder time at least equally with capital. Planning how you and your co-founders will spend your time is critical for de-risking. This includes planning for unexpected changes like product redesigns or a pivot in sales strategy. Too often founders “plan for perfection” when they can be assured the unexpected will happen.
During the scaling phase, over 80% of operating expenses are paid to people as employees, contractors, and professional service providers like attorneys. Therefore, your ROI depends almost entirely on how effectively you can grow your team with your business. And remember that timing is critically important — hiring key positions too early, or too late, can cause real problems.
As you can imagine, building culture while ramping up headcount is challenging but necessary. Since culture can be hard to plan, I believe it’s important to plan for the controllable aspects of your culture, such as fostering creativity or efforts that advance diversity in your organization.
This may be the ultimate challenge for entrepreneurs — how to manage to scale with a sense of balance and very limited resources. You have to start by acknowledging that you can’t do it all, so the question becomes one of prioritization, with minimums. By minimums, I mean that you need to decide how much is “enough” attention to devote to each area.
Overall, you need a complete view of your business that starts with understanding how it will operate at scale. With an “at-scale” view, you can assign owners to every major function and more importantly design systems with KPIs across the organization. It’s impossible to watch all areas constantly, but with functional owners and reporting, you can operate with much more agility.
Agility is one of the fundamental traits of an entrepreneur. I don’t know if it is innate, but you rarely find someone attempting to launch a company that doesn’t at least have an appreciation for agility. As you prepare to scale your business, you can develop organizational agility through preparation and planning.
It’s worth pointing out that certain types of bias weaken agility, like the often used phrase “founder’s bias.” One unexpected way to foster agility is for founders to surround themselves with enough “challengers” to question their key business decisions.
I am someone who loves puzzles, and to me, the scaling phase of a business is one of the most interesting puzzles to solve, with infinite potential variables and solutions. Undoubtedly I am also drawn to the types of people who have the courage to launch a new business. I like to say “to build a unique company you need unique personalities.” I have loved getting to know so many entrepreneurs over the last 30 years.
Gary’s background is a unique combination of investment banking and startup operating experiences, ranging from IPOs and M&A for technology companies to building scalable operating platforms and raising over $150 million in venture capital across seven different tech companies. He helps founders do what they do best – create, innovate, and sell – while preparing them to scale their business with an operational & financial strategy. One of his specialties is in guiding early-stage, venture-backed companies through the first and second rounds of capital raising (A&B rounds) while strategically balancing the precarious tension between adding scale and preserving capital.