How to Scale Up Gracefully
Most entrepreneurs want their company to grow and be more successful. Even if you've had a certain amount of success so far, getting to the next level is often more difficult than it seems, according to Stanford professor Robert Sutton, author of the new book Scaling Up Excellence.
Here are the highlights of my conversation with him.
What's the most important thing that entrepreneurs need to know to expand their companies?
That what used to work no longer works. The behaviors, strategies, and tactics that make a startup successful are different from those that make an SMB successful, which are different still from those required in a large company.
At what point is change required?
In the early stages, there are three crucial transitions. When you grow beyond a tight group of four or five people, you need to break people into groups. Then, when you get to about 20 people, you need to bring in people who can manage groups. Finally, there's a point at which you need to implement structure and process, simply to make those groups work together to achieve a common goal.
That sounds like building a bureaucracy. Don't entrepreneurs generally hate bureaucracy?
Yes, that's often the case. Take Lotus founder Mitch Kapor, for instance. At one point, when his company had grown huge, he realized that he'd created a company that he hated working for. There are counterexamples, though. [Google CEO] Larry Page, for example.
When it becomes necessary to hire, what kind of people should entrepreneurs look for?
You want people who have both the technical depth needed to contribute to product development and the personal skills to manage other people as the company grows. The perfect example is Marissa Mayer at Google. Before working there, she was a top student of computer science who also became the manager of the 40 teaching assistants required for the undergraduate courses.
What's the most unexpected problem that can come up in the growth phase?
Having too much money! In Silicon Valley, you see companies that have 70 people and $100 million in venture capital. That's so much that it encourages sloppy thinking and poor implementation.
What about growing by mergers and acquisitions?
The research says that the most successful acquisitions are when one company is much larger than the other. What doesn't work is when the two companies are the same size, unless the two companies have an almost identical culture. For entrepreneurs in the early stages, you should generally avoid trying to acquire a company that's more than two or three people.
Is there a management style that works in such situations?
Surprisingly, what's needed from the CEO in these situations is a sense of vision along with an intolerance of other ways of doing things. The goal is to absorb and assimilate the smaller company as quickly as possible.
Can you give me an example?
Probably the most famous example is Oracle's acquisition of PeopleSoft. For the employees of PeopleSoft, getting acquired by Oracle was a traumatic experience, because they were forced into Larry Ellison's far more regimented culture.
What's the biggest bullsh*t that happens when companies try to scale up?
The combination of illusion, impatience, and incompetence. First, you have the illusion that scaling up is easy. Second, you have the impatience to think you can do it quickly. Third, the illusion and impatience combine to create situations in which even very talented people can't do their job competently.
How can entrepreneurs avoid this?
Read my new book.
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