This month at LoCo we are focusing on the theme of “Scaling September”. I was invited to share my thoughts particularly around scaling talent in growing companies. In my tenure at Encompass Technologies, we grew from a start-up with under eight employees to an international group with over 500 team members spanning 4 countries and 6 offices. At each stage on this scaling path, the people management needs of the company evolved and changed. Today, I wanted to detail some of the thresholds I passed through on that journey and point out some of the landmarks that may help you find your path.
The Start-up Phase
Small, start-up organizations present unique challenges when it comes to talent. There is a special breed of person that is willing to take a leap of faith and join a start-up that may or may not have revenue, customers or even a product yet. Recruiting can be difficult, and often involves hiring friends or family–people who have high levels of trust in the founder entrepreneur. Additionally, start-ups and small companies are very people-driven. Everyone is wearing multiple hats and knowledge rests with the individuals doing the work. You don’t hear someone in a small company say “you’ll need to talk to HR for that,” they just say “talk to Sarah, she’ll know what to do”.
Be Selective: On the talent front, it may seem easy to bring on cousin Jerry because he is willing and available. However, it’s extremely important at this stage to ensure you are being selective and hiring people who are bringing either talent, experience or clear potential. It’s likely that many of these early hires will become the foundation of your company for years to come and you want a strong, capable team. Almost all of the eventual Encompass executives were in the boat very early on and became the core of the company culture. Conversely, a mis-hire at this point can be devastating to morale and productivity. If you realize you’ve made a mistake, unhire that person quickly and move on. At Encompass, we had a pretty solid crew of nine but I distinctly remember hiring and firing the 10th person several times. I felt demoralized because it seemed like we just couldn’t get it right. Then I thought about it and realized that this 10th hire made up 10% of our team–and it made me feel justified in striving to get the right fit at this early stage. When you are working so hard to build a company and a great team you can’t afford to have 10% of your company dragging you down. While it can be challenging to attract talent at this stage, be selective. It will pay off in the long run.
Plan for Success: Another challenging consideration in the start-up phase is compensating employees when you may barely be able to pay yourself. In this arena, you may need to be creative in terms of incentive pay, bonuses, equity, flexible schedules, etc. to attract the talent you need. However, the important thing is to plan for long-term success. Test out bonus structures or equity grants in a scenario of grand success and make sure they are reasonable and sustainable as your revenue grows. If you are planning to share equity, be judicious. Your equity may not seem incredibly valuable to you today, but build your models based on success so you don’t give away the farm before it’s had a chance to prosper. Additionally, many founders make sacrifices in their own compensation as they try to attract the right people. but you’ve heard the oxygen-mask analogy: you can’t build and sustain a strong business if you don’t take care of yourself first. I strongly advise you to talk with your tax & financial advisor and build in deferred earnings if you aren’t able to pay yourself outright. Starting a business takes tremendous amounts of time and energy and you deserve to be compensated for yours.
Ramp-up & Delegation
In James Fischer’s book, Navigating the Growth Curve, he outlines the next stages of growth as “Ramp-up” and “Delegation”. A key takeaway here is that there are transitions organizations pass through on their way to the next stage of growth. Fischer called these chaotic periods “flood zones”. These are times when what was working starts to break down, chaos ensues, and you have to do something different to progress to the next phase. I experienced these flood zones very viscerally as we grew: communications broke down, balls got dropped, frustrations bubbled over and we often had to sit down with our leaders at the dining room table and redraw the organization. Then we had to do it all again 6 months later when we outgrew that design.
Build the Foundation: As organizations grow into that 20-40 person range, the complexity of the team ramps up. It’s no longer possible for one or two people to know or manage everything. In order to survive and thrive, the company must develop processes rather than rely solely on individual people to carry the weight. At this stage, companies will need to start hiring outside talent to bring in the expertise they might not currently have in their tight-knit, start-up team. It’s also when you start to form departments or teams to focus on sales, administration and various other tasks. Some groups see a need for more advanced IT systems to manage things like payroll or customer support. Encompass hit all of these thresholds at a time when we were outgrowing our office building and navigating a major real estate transaction.. We struggled in the people-to-process evolution and I definitely felt the chaos. Having clear processes, defined roles, and clean lines of accountability as soon as possible will shorten Fischer’s “flood period”, minimize the chaos, and make hiring, managing, and leading easier for everyone.
Embrace the Pain: Building out processes can seem painful. You might hear things like “why do we have to document this, we all know how it works” or “we don’t need a system for that, our spreadsheet works just fine”. Expect pushback because this does take effort and time, and might feel like it temporarily slows things down. Just remember, you are not documenting the processes or implementing IT systems so you can maintain the status quo. You are building for the future, for the 50 new people that will join your company soon. The investment now will bring clarity to the chaos and create a foundation for the future.
Another painful part of this stage–and every other phase of growth you will go through— is realizing that this stage is not for everyone. Your start-up warriors joined because they loved the excitement, the risk, the adrenalin, the close camaraderie. When things become more stable, more process focused, and less about the personalities they may choose to leave- it’s just not their jam anymore. This is natural and okay. At each stage, your needs are evolving too and you are now looking for people who want to build in structure and help lead teams. Your job descriptions and hiring profiles need to adjust to match your changing needs. At this point, Encompass was growing like crazy and we enlisted the help of an outside consultant to help us build our employment brand and accelerate our hiring.
Scaling for Growth
I encountered two big challenges at Encompass as we grew through the 50-120 people range. The first was around team structure and communication. Companies at this stage have to be strategic about organizational structure and build org charts that can expand and grow. The second challenge was around culture. We had built this amazing, vibrant culture that was competitive, yet collaborative and we didn’t want to lose it as we brought in new team members and took on larger, more “corporate” clients.
Own the Org Chart: There is definitely a management breaking point that sits around 80 people. Below 80 I could keep everyone in my mind–names, background, what individuals were working on. Beyond that, it was much harder. Leadership, strong management, and delegation became so much more important as Encompass grew. We iterated many times on the org chart and it was something that was always top of mind as we consciously worked to build interconnected and interdependent teams rather than isolated silos. This took a combination of internal promotions and a few key external hires. We tried matrix structures, customer-focused structures, product-focused structures and experimented until we found a model that worked well for the stage we were in. Not every org chart has to look like one you find in a business book, but it does need to be clean, clear, and well-communicated. And it needs to change when it’s no longer working for you.
Pizza: Another guideline that I leaned on heavily in organization design is the Jeff Bezos’ two pizza rule: A team should ideally be able to be fed with two pizzas. This is around 8-10 people. Teams of this size can collaborate and communicate efficiently and remain focused. A manager can give individuals the attention they deserve in terms of coaching, direction and performance feedback. When your team or span of control starts to get larger than this, take a look around and consider adding a level of management so you don’t become bottlenecked and start actually losing productivity in your organization.
Culture - Last but not Least: Although I saved this for last, I think it is THE most important thing when considering people and scaling. Part of the joy of building a company and a team at Encompass was designing and safeguarding a culture that I was aligned with and proud of. It is really, really, really hard to keep culture intact as your team grows. There are people coming and going, the nature of the work itself changes, the vibe of the office can change when you move. There are so many factors that come into play. In my experience, the only way you can maintain your culture is to talk about it openly and invest in it. Define it, create the words for your norms and how you treat people, name your rituals. Share this with new people, bring it up in meetings. When you feel like things are shifting and it feels off–talk about it out loud with your leaders and teammates. Discuss and plan for how to get it back on track. Culture takes active management. An analogy I’ve started using is that company culture is like a soup. You decide from the outset whether you are making a tomato based or a cream based soup–this is your value system. From there you add ingredients: people, operating norms, rituals and expectations. You can have all kinds of ingredients and diversity and spice that makes it interesting and delicious, but they all need to be compatible. You wouldn’t put strawberries in gumbo and you may have to un-hire someone who is not a good cultural fit. As your company grows the pot can get bigger and the taste can evolve, but as a leader you’ve got to keep an eye on the stove.
Encompass has continued to grow through private equity investment, onboarding a professional executive team and moving on to its next stage of growth. I recognized that the next stage in the growth curve was not for me, took my own advice and chose to exit for a new adventure. I am incredibly grateful for the supportive colleagues, coaches, and advisors who have helped me on my path and who continue to share their wisdom with me. I am now fortunate enough to be a facilitator in a LoCo ThinkTank peer advisory chapter. I hope I can share my hard won wisdom and help business owners anticipate and prepare for their next wave of growth.
My parting thought for LoCo’s Scaling September is to encourage founders and leaders to use their community. Building a company is incredibly challenging and can feel lonely at times. It helps tremendously to have a coach, a mentor or a peer advisory group that can help you recognize when you are coming up on a new threshold of growth and give you a leg up as you step over it. Every company has its nuances but we are usually encountering challenges that others before us have conquered. Tapping into their wisdom can be invaluable.