How Do You Scale Your Startup?

That was almost four years ago. At the time, Jason’s revenue had just passed the $1 million ARR mark.

There are many stages to the growth of a startup. Jason was realizing that he was ending the first phase of building a startup:

 

Phase One: It’s all about you. Scaling to $1 million ARR.

 

Now, you can argue that there’s a Phase Zero of just getting your startup off the ground and building your initial team. However, I’m going to include that in Phase One.

There are exceptions, but most startups, as they are getting off the ground, are extremely dependent on their founders, especially the CEO. The company’s vision, recruiting, sales, marketing, and engineering may all be dependent on you.

That was certainly the case with Jason.

Everything depended upon Jason. Even though he had a sizable team around him, all the key decisions were made by Jason. The marketing was driven by Jason. The sales were driven by Jason. The technology development was driven by Jason.

But, to Jason’s credit, he realized he needed help. He said to me, “I know I need other people around me if we’re going to grow.”

 

Phase Two. You’ve got to build an executive team. Growing from $1 million ARR to $10 million ARR.

 

“How many direct reports do you have?” I asked Jason.

“Let me think about it,” he said. He paused for about twenty seconds, and then said, “Fourteen.”

“Whoa!” I exclaimed. “That’s about seven too many! Do you know ‘the rule of seven.?’”

“No, I don’t,” Jason said.

“It’s simply that no manager should have more then seven people reporting to him. It comes from the military, I think.

“Once you get beyond seven reports, then you need to divide up and add more managers. We’ve got to get you down to seven reports.”

“Okay,” Jason said.

“This is how we’ll build your executive team at the same time,” I said. “Walk me through the organization. Where are your direct reports coming from?”

“Let’s see. I have six direct reports in sales. I have another five in marketing, two in manufacturing, and one in product development.”

“Got it,” I said. “I’d focus on finding a marketing VP and a Sales VP first. What do you think?”

“Yes, that sounds good.”

Over the next three months, every conversation we had started with a review of recruiting. It was a way to emphasize its importance.

The focus worked. Jason was able to find an excellent marketing VP first. Then, he we able to hire a really good sales VP.

Their hiring offloaded Jason and gave him the ability to leverage his team, so they could grow faster. Whether it was coincidental or not, revenue growth picked up simultaneously with their hiring.

The company was on fire as it quickly grew from $1 million ARR to $10 million ARR.

Because Jason had a management team in place, he skills grew at just as fast a rate as the company grew. He was able to handle the management of a $10 million ARR company growing at greater than 60% per year even easier than he was the company’s growth to $1 million.

There’s always drama at every stage of your company’s growth.

None of this is to say there weren’t periods of high drama as the company grew. There were the requisite issues of various employees that could scale as the company grew, an ugly personnel issue that was scary to deal with, a major competitor that wanted to start a war.

In other words, the normal stuff that any CEO has to deal with. That leads us to phase Jason is currently in:

 

Phase Three. You’ve got to upgrade your talent. Growing from $10 million ARR to $100 million ARR.

 

“It’s amazing how quickly you hit various milestone when you’re executing well.” I said to Jason. “You’re going to be at $100 million ARR before you know it!”

“I know,” Jason said. “It’s unbelievable.”

“The sad thing is,” I said, then I paused and thought about what I wanted to say. “I think one of the saddest things about being a founding CEO is that many of the people you started the company with will not be there for the whole ride.

“And what really sucks is that you’re going to have to move these people on (fire them) for the good of the company.”

Jason sighed. “I think I’ve already had to do that.”

“I know. I’m just pointing out that it never ends. The challenges are many. You have to be ruthless to keep the talent level high, and you have to keep your humanity; always acting with class and grace,” I said.

I shook my head, and I said, “It sucks!”

“I’m not looking forward to it,” Jason said.

I nodded. I didn’t need to tell him that I knew he could do it. I just wanted to get the issue out on the table, so we could openly talk about it.

 

The challenges never end as your company scales.

 

I only focused on scaling personnel in this article. There are all the other challenges that you have to deal with as a CEO.

However, personnel is the most important challenge for any CEO as the company scales:

• To grow, you’re going to need to add an increasing number of people at an increasing rate, so…
• The challenge is always keeping the talent level high, if not increasing the talent level, as you scale, so…
• You run the risk of hurting the long term growth of your company if you fill spots with B and C level talent, and…
• You run the risk of losing your A level talent when you hire B and C level talent because A level talent wants to work with A level talent, so…
• Nothing will slow the growth of any company like hiring mediocre talent.

That’s going to be Jason’s primary challenge as he manages the company through this phase. Yes, there are the strategic questions to answer about product strategy, partnerships, sales channels, and marketing. However, none of those questions will be satisfactorily answered without a great team.

That’s why the relentless focus on the quality of the team, providing a great culture for the team, and retaining the team drive everything else.

 

Do You Want To Grow Your Business?  Maybe I Can Help.  Click Here.