B2B Wins #24: From Mad Scientist's Workshop to Well-Oiled Machine: Governance for Scaling Startups
Separating the founders who fail from those who win
“90% of technology start-ups fail.”- Start-up lore with no data to support it, though it feels about right.
Before market fit and acceleration, investors understand you're not a company. You're a bunch of talented people pursuing a good idea that holds promise. You run a mad scientist's laboratory with all the chaos that comes with it.
But once you're raising serious money, investors expect something different. They expect that you're building a business. It will need to be a business that will deliver an extraordinary return before your investors have to liquidate and distribute to their investors.
The unruliness of your early days is no longer an option. Investors expect a well-oiled machine that runs reliably, throws off encouraging data, and delivers results. Neglect to build a business at your own risk.
Why Reluctant Founders Need Governance
When people have conflicting priorities or unclear, meaningless, or arbitrarily shifting goals, they become frustrated, cynical, and demotivated. - John Doerr, Measure what Matters.
If you're doing it right, your company will reach an inflection point. It's that moment where you have product-problem fit, and product-market fit is within sight. You have your first few customers, and investors are excited. Perhaps you've closed your first priced round and are ready to pour gasoline on the fire. You know what to do. It's what you've always done. Hire more people. Work hard. Iterate. Or maybe not.
Doing what you’ve always done is not an option. Just ask your people. Most employees of pre-management system, high-growth companies are confused. They’re running hard and don’t really know where they’re going. If a trusted confidant has ever whispered in your ear about this, consider it the very tip of a very large iceberg.
Shifting from the experimental stage of the company's life to the operational stage is difficult. It's so tricky that libraries of books have been written about this moment, from Crossing the Chasm to The Hard Thing About Hard Things.
You must accept the mental and behavioral shift that needs to occur in order for you to move forward. The sooner you accept this reality, the easier it will be for you to navigate the shoals before you. These include:
"Growing Pains": Things will inevitably get more complex: new hires, more products, and investor expectations. Lack of governance creates bottlenecks and confusion.
Poor Velocity: You must get all the wood behind the arrow to go fast. People need to know the goals to align their work to help achieve those goals. It seems obvious, but this is often neglected.
Loss of Investor Confidence: Show that you're "grown-up" enough to handle their money. Structure, accountability, and transparency are attractive to serious investors.
Trouble Attracting Talent: The best people want to work in structured, predictable environments where their contributions are clear. Nothing turns off a potential hire like chaos.
Lack of Sustainability: Governance helps avoid burnout, mismatched expectations, and disputes among the leadership team. This lays the foundation for long-term viability. Neglect governance, and your leadership team will not deliver what you need them to, and you won’t know it until too late.
Governance, management systems, and metrics feel corporate. It feels like the system is managing you. The hard truth is both those things are true. Continued chaos is not an option. You need to get control of the company and yourself so that you can both flourish.
The Power of Management Systems
There is a tide in the affairs of men, Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. -Wm. Shakespeare, Julius Ceasar
Buckle up; here’s where we go deep.
Management systems are a framework for decision-making. Designed well, they lay out the near-term and long-term goals of the company, the measurements that will be used to track progress against those goals, and the method of organizing resources to achieve those goals.
There is no need to create a system. In fact, do not create a system. There are plenty of systems from OKRs (Read: Measure What Matters by John Doerr) to the Entrepreneurial Operating System (Read: Traction by Gino Wickman) that will help you design, build, and operate a management system. Choose one.
Let's look at the Entrepreneurial Operating System (EOS) as an example of the essential elements of a system that can help you run your business. The critical parts of the EOS model are:
Vision: Where is the company going long-term? Some companies are all about vision. Most are not. Most are about product and today. They have no real, shared sense of where they'll be tomorrow. For companies with no vision, this topic is often met with eye rolls by founders.
INVEST YOUR TIME: Ask five people in your company where they think it will be in a year. Three years. One of those people should be someone who has been with you since the start. One of those should be someone hired in the past ninety days. The other three are several layers down in the org. Compare their answers. You will try to rationalize the answers as being the same or similar. They are not. Not even close.
Accountability Chart: Who's responsible for what? You will be disappointed to discover that there are people in your company, people you hand-selected, who are in the wrong role. It could be that they don't have the aptitude for the role. It could be that they don't want the job. It could be that they don't have the capacity to get the job done. It could be all three. Who's responsible for what, and are they in the right seat?
INVEST YOUR TIME: Gather a group of three people you rely upon most in the company. Take a look at the critical roles in the company, including product, marketing, sales, and operations. Evaluate each person on those three criteria. Do you have the right people in the right seats?
Data/Scorecards: What metrics matter? It's the metrics that tell you whether you're on track to achieve your goals. More on this in a moment. If you have goals about product, you need measures of product success. Sales, pipeline, and deal progression. Marketing, leads. You get the idea. More than anything, you need cash flow metrics. Every day, you're getting close to your out-of-business date. Know that date. Understand changes in your cash burn. Manage it.
INVEST YOUR TIME: For now, forget everything but cash flow. What day do you run out of money if nothing changes? How has that cash position changed since last week? Why? What are you doing to manage your cash burn? If you personally don't understand this deeply, you're not running a business.
Process Documentation: How are key tasks done consistently? Let's go back to your key metrics. How do you know they're not just "happy talk"? How do you know those measures are meaningful and that your leaders will achieve them? You will know if they can demonstrate a documented, repeatable process for progressing against their targets.
INVEST YOUR TIME: Ask your Ops leader for documentation related to the processes that drive the metrics. Don't be disappointed if they don't exist or are so far out of date that no one knows who created them. Then, ask your metrics owners how they will deliver if they don't know the process. Expect Jazz Hands.
Quarterly "Rocks": What are your big-picture goals for the next 90 days? Businesses run on a clock. That clock is the quarter. You are not the exception to this rule. Ninety days in which things need to get done. Do folks know what their goals are for this quarter? Are they all driving towards them to the exclusion of other things?
INVEST YOUR TIME: Ask your leaders what they're working on. Is it what you think they should be working on? Ask their people what their bosses’ goals are. Did they get it right?
Regular Meetings: Do you have a cadence for team communication and progress updates?
INVEST YOUR TIME: Look at your calendar. How much time are you spending on alignment? Too much or too little. Often, it's too much. You have meetings all over the place discussing and rediscussing the same things. This could be a symptom of a lack of alignment exacerbated by everything above.
If done correctly, you get the following benefits:
Alignment and Focus: In the whirlwind environment of a startup, it's easy to lose sight of big-picture goals and for efforts to become fragmented.
Rapid Execution in a Changing Environment: Startups thrive on agility and quick iteration. Management systems provide structure without suffocating this adaptability.
Data-Driven Decision Making: Management systems emphasize measurable results.
Transparency and Accountability: Founding teams often operate on trust and shared passion, but this scales poorly. A system makes expectations and outcomes crystal clear.
Empowered Teams: A management system, done right, prevents micromanagement and frees teams to excel.
You owe it to yourself, your employees, customers, and investors to get this right.
Start with these important things
How do you eat an elephant? One bite at a time. -Dad Joksters Everywhere
You're likely dissatisfied with what you learned in the previous section. Some things need to be tweaked. Some things need to be created out of whole cloth. It can be intimidating. How do you get started? Think Big. Start Small. I suggest three areas.
Work on Vision: Write it down. Test it with the team. Revise. Communicate. Communicate. Communicate.
Build your Quarterly Rocks for each function: What are the handful, no more than five, things that they will accomplish this quarter in pursuit of the vision?
Manage: Meet weekly in brief meetings with each functional leader to track progress.
I would give Sales and Product Management two additional tasks since product development and commercial traction are crucial for B2B startups.
What are the metrics of success?
What is the process to deliver that success?
For now, this will require your personal leadership. You can have helpers, but you must demonstrate leadership here so the team knows it's important.
You get started by getting started. Get started. You can expand across other functions once you’re comfortable with what you created.
Who got you here isn't going to get you there
If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we'll figure out how to take it someplace great. - Jim Collins, Good to Great
You have people who have been with you since the beginning. These people are loyal. You trust them. They have faults, but you know them and accommodate their gaps. This model doesn’t scale. Very soon you won’t know everyone and accommodation is a drag on performance.
For the next phase of your journey, you must assess every role in the organization. A process like the EOS’ Accountability Matrix can help determine where people are a good fit for their roles and where you must make changes.
As you assess the current organizational roles, you should determine who performs two essential roles that don’t appear on the org chart: the integrator and the visionary.
The Visionary is “that person who is always coming up with a list of ideas every week for the business, and who is a natural creative problem-solver.”
The Integrator is “the person who has the Unique Ability® to manage daily issues as they come up and the ability to integrate all three major functions of the business – Sales and Marketing, Operations, and Finance – into one harmonious group. Put simply, the Integrator acts as the glue that keeps the team together.”
“Visionaries offer Integrators a creative insight to the business, while Integrators provide the logical and structured approach that is also needed.”
Integrators are not subordinate to visionaries. I recently had an experience where the integrator role was deeply subordinate to a visionary, and it didn’t end well. Integrators and Visionaries are the Yin and Yang at the top of the leadership team.
Which are you? With all the respect in the world, I have to tell you you're not one of those successful integrator/visionary types like Bill Gates or Steve Jobs. You're probably good at one and not the other. In most cases, you are the visionary. So, who is your integrator?
Because you’re reading an article on Management Systems, you probably don’t have an integrator. Or at least one that isn’t doing it well. As you prepare for your next step, you will need a top-notch integrator-visionary team.
The time is now
On such a full sea are we now afloat; And we must take the current when it serves, Or lose our ventures. - Wm. Shakespeare (again), Julius Ceasar
I’ve been a founder. I get it. You’re used to improvising. Improvising has gotten you this far; why not continue?
Because every company that got beyond where you are now has done so because they’ve figured out how to focus on successful goals relentlessly. This is your challenge.
I’ve said this before; I’ll repeat it: Get started.
If you’re the Integrator, you’re the person to get this done. You’re probably not the integrator.
If you’re the visionary, then get yourself an integrator. In my experience, things don't work if you don’t understand the integrator's role or constrain them in unnatural ways. Set that integrator free to run things you’d rather not run.
Get started, or lose your ventures.