As startup people, we all aspire to build great & everlasting companies. In the early days, we’re laser focused on getting the product out and finding early users / customers. Then it’s about hiring people, adding some process, and trying to turn a raggedy group of generalists into a “real company”. And this is where it can get messy.
The early days are a rush — shipping product, getting users, raising money — it’s about moving fast and getting shit done. But as you grow, you hire more people to run different functions and abstract yourself further away from the day to day. And then you can begin to wonder what you’re supposed to do and how much value you’re really adding to your own company.
This is for entrepreneurs in that stage.
So who am I? I was an early guy at Xpenser (2 of us when I joined). A few more folks joined the team, and eventually we were acquired by Coupa, an emerging enterprise SaaS player in the spend management space. Over 3.5+ years, I helped grow the company from ~100 people to 650+ with offices all over the world (and also becoming the leader in this space). Along the way, I learned a bit on how to scale a company.
This series will be broken up into a few posts. This is the intro.
First off, what is scaling?
“Scaling refers to the period [where you can] systematically accelerate growth with confidence.”
Once you have something that is working, you pour gas on the fire. Scaling is the art of pouring the gas on without being engulfed by the fire. It involves hiring more people, building out several different orgs / functions in your company, raising money, etc. Mostly though, it involves a mentality shift that we’ll explore below.
It’s important to note the time & place for scaling. Startup Genome Report did a study that shows 74% of high growth internet startups fail due to premature scaling. Fred also notes that “too many startups miss greatness by not changing gears when the time is right”. So timing is critical.
If we chart out the progression of a startup, there should be a singular focus in the early days — find Product Market Fit. How to find PMF is out of scope for this series, but there are several good posts on the web if you need.
But once you’ve achieved PMF, you have to strike while the iron is hot and being scaling.
But why is scaling important?
To illustrate why scaling well separates good companies from great, I’ll borrow an example from history that I learned from Michael Dearing of Harrison Metal during a course I took on management (you should sign up).
Above is Sam Slater. Born in England, he came to Rhode Island in 1789. The textile trade was virtually nonexistent in the US, and so he memorized the designs for a cotton mill and came to America to profit. Once he got here, he raised some money from a group called Almy & Brown and together they built the first textile mills in America.
At some point he decided to split with Almy & Brown and form his own company. Unfortunately, he wasn’t a great manager. His employees kept quitting, choosing to instead compete with him or work as service providers to his mills. Not only that, he was a disconnected with reality. Not paying attention to demand, at one point he overproduced 3 years worth of cotton (~$100K worth)— layoffs and shutdowns of his mills ensued. And he famously missed a huge innovation in the textile industry, the power mill. It’s noted that it wasn’t because he didn’t believe the power mill was better, he just preferred to do what he already knew.
Around the same time, a man named Francis Cabot Lowell came into the scene in Massachusetts. He spent 2 years abroad studying power mills designs in England. Once he came back to the US, he raised some money from The Boston Associates to form the Boston Manufacturing Company.
His story is a bit different. He treated his employees well — paid them more than expected, and he built housing, schools, churches, and more (a stark contrast to the traditionally harsh conditions of mill working). His mills were a massive success — the largest in America at the time with 300+ employees. It was so successful, it grew the town from a few dozen families to a large city and the the leader in the industrial revolution (pop. 2500 to 18K in >10 years). Lowell-style mills became the model to copy for decades after, and they even named the city Lowell, Massachusetts after him.
Now, to be clear — Slater was by no means a failure. Both Slater & Lowell were brilliant. But Lowell embraced scaling & management, while Slater was singularly focused and restricted himself to a self imposed ceiling.
Founders & entrepreneurs can get stuck in the same pattern. Overly focused on what they loved to do in the early days (building product, etc) and miss the bigger picture once they’ve achieved product market fit. In order to build a great and everlasting company, it’s critical for founders & entrepreneurs to be thoughtful about scaling.
How to think about scaling
As you transition into scaling mode, the largest change is a mental one — you have to learn to transition from maker to manager. You have to start to think deeply about how your company works instead of what features to release. You have to focus on culture & values instead of closing deals. Your impact becomes less directly tangible, but if done right, the output is greater.
“Building the business means obsessing over things like product features, getting traction with early clients, competition, and generating buzz.
Building the company means obsessing over things like HR policies, company values and culture, long-term strategy, and investor reporting.”
A helpful framework that I’ve found to think about scaling your company is from High Output Management by Andy Grove, former CEO of Intel. If you haven’t read his book, you really should stop everything and go read it now.
In his book, he refers to the drawing below, the black box. The idea is that you put something into this black box, something happens, and something else comes out.
And how does this relate to a startup? The black box above clearly has 3 elements — the input, the machine, and the output. If we think about your startup as a black box, it’s easier to identify and focus on what matters.
So once you hit PMF, shift your mind state and start to see yourself as the steward of the black box that is your startup. Your job is to continually focus on the 3 things listed above — people, org structure, results and make sure all of those pieces are working at full throttle.
“Founders should think of their company as a product and build it and shape it with the same passion and care.”
In the subsequent posts, we’ll explore each of these topics and some key thing to keep in mind for each area. Links below, still in progress!
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