Only a tiny fraction of startup ideas turn into businesses that change the world. There are dozens of reasons most fail -- the most important of which are failing to solve an important enough customer problem, running out of money, and weak leadership. After interviewing hundreds of successful founders and scores of startup investors, I've found seven levers that CEOs can pull if they are serious about turning their idea into a large company.
1. Building Growth Trajectories.
As I wrote in my 2017 book, Disciplined Growth Strategies, companies seeking to sustain their growth must build growth trajectories.
Leaders create growth trajectories by creating chains from five dimensions of growth: customer group (current or new); product (built or acquired); geography (current or new); capabilities (current or new) and culture (current or new). Companies that scale successfully can jump on a new growth curve as their current source of growth is peaking.
By contrast, startups that fail to scale wait too long to invest in a new dimension.
2. Raising Capital.
Once a startup has figured out its growth trajectory, the CEO is better positioned to persuade capital providers to invest. But as I wrote in my 2012 book Hungry Start-Up Strategy the source of startup capital varies depending on its stage of development.
When seeking to win the first customers, CEOs should raise money from their co-founders, friends and family, or possibly crowdsourcing. Once the company has reached, say $10 million in revenue and is developing a scalable business model, venture capitalists will get interested.
And as the company sprints to liquidity venture capitalists and institutional investors will want in. The way to raise capital is to show that customers love your product and will buy more and that the market you can sell to is at least $1 billion.
3. Creating Culture.
Culture is what a company's CEO and leadership team value most and how the company uses those values to select, motivate, reward, and punish people who work there.
Companies that scale successfully reward employees who take responsibility for building and sustaining customer relationships.
By contrast, companies that do not scale either have the wrong culture or fail to sustain the right one. For example, when a company is small its first employees implicitly understand the culture and are in frequent communication.
When a company hires new people, the culture will only survive if the CEO takes time to formalize it by explicitly defining the company's values, telling stories about each value, and using the values to hire, reward, and punish people.
4. Redefining Job Functions.
As startups grow, leaders must change their organizations to adapt to the evolving needs of customers, employees, partners and investors. Leaders do this by adding new jobs, changing existing ones, and eliminating others.
For example, when a startup has a team of 10 or 20 people, they have a clear idea of the startup's mission and take it upon themselves to perform many job functions. As the company grows, leaders define jobs more narrowly--for example, separating the roles of the head of human resources into more specific jobs for, say, recruiting and compliance.
Successful CEOs anticipate how job functions must change as a company scales while less effective leaders wait until crisis hits before recognizing the need to change.
5. Hiring, Promoting, and Firing People.
As startups scale, leaders must fit the right individuals into these evolving job functions. To do this well, leaders must hire talented people who have succeeded in these roles before or promote current employees into these jobs.
At the same time, leaders must part ways with people who no longer fit within the redefined organization--which can be particularly painful for founders who must fire people with whom they have worked for years.
Successful CEOs constantly monitor how well people are performing in their evolving roles, are actively engaged in recruiting and training key talent, and firing those who no longer fit,
6. Holding People Accountable.
As a company adds business functions, it becomes more difficult for a leader to give each person specific goals and hold them accountable for achieving those goals. For example, to scale a startup, the CEO may seek to increase its revenues in a given year from $25 million to $50 million.
And while it may be easy to assign a portion of that desired revenue growth to each sales person, it is harder for people in product development, human resources, customer service, and other non-revenue-generating functions to set the right goals.
Successful CEOs establish and apply rigorous processes that hold all people accountable for contributing to the startup's growth goals.
7. Communicating Globally.
As startups scale, more people are often working in different time zones. Moreover, scaling changes the average tenure of the startup's employees.
For a growing startup to maintain the vitality of its culture and make all employees feel a sense of belonging, leaders must create effective processes for communicating its values, goals, performance, and other key topics with its global staff.
Such processes must overcome the challenges of communicating with employees who work in different time zones, are native speakers of different languages, belong to different cultures and follow different holiday schedules.
If you can do these seven things, you'll be closer to leading a company that changes the world.