Posted by: malstott | November 2, 2014

Start-up Part Two: Tipping Point

balancing_actIt is crowded. There isn’t enough wireless bandwidth. Spreadsheets aren’t up to date and are conflicting. Mistakes are harder to recover from. Hallway conversations aren’t inclusive enough. Plans can’t simply be shared over coffee. Two conference rooms just aren’t enough. Your start-up company is not a cute baby any more. You are approaching the terrible twos.

Growth in a start-up company is a tricky process. At some point you will reach a tipping point when things begin to tumble. Then it is all about falling forward gracefully into a new phase. Anticipating this point in your company’s path is the best case. Recognizing it quickly when it is upon you is the second best. Ignoring it or not even seeing this shift can be the beginning of the end.

Growth is surely good but at some point adding feels more like multiplication. Growing past a certain number of employees, products, or customers can feel like a loss of control. What drives this precipitous change in a small company and what should be done to prepare?

  1. From Entrepreneurial –>Expansion: When a company launches it is all about the product. Assuming that funding is in place the laser focus is on getting the product to work. The organization is flat and the decisions are made informally. Each individual wears many hats and individual effectiveness is the key. Assuming that the early stage is successful and the company has a working product, some initial customers and money to work with, there will be a shift to commercialization. Commercialization suggests volume, profitability, scale. It also suggests process which can be a dirty word to some and salvation to others.
  2. Everything Through the Founders –>Delegating Responsibility: When the company is less than 20 people it is possible to let everyone participate to some extent in the decisions. It is still possible to funnel everything through the founders for conversation and agreement. Most of the decisions being made are relevant to the product or to the strategy and of course the founders need to know and approve. When the company passes this tipping point there is just too much flowing through this bottleneck. This can create a leadership crisis if the founding team is not able to delegate to middle levels of management. The executive team should shift to roles of team building, coordinating and strategy. Shifting doesn’t imply full hands-off management. This is still a start-up company and there are many details to drive. But the shift needs to start here.
  3. One Product –>Multiple Products: As soon as the company branches to multiple product development efforts there is a serious shift in the dynamic of a company. There is no longer one agenda for the company. Even the simple act of adding a side project to the team leads to the need to prioritize. Without an understanding of priority the support personnel will not know what task should be done first. Clear priorities are the responsibility of the founding leadership team.
  4. Early Adopter Customers –>Early Majority: Geoffrey Moore made this shift famous in his book Crossing the ChasmGeoffrey’s point is that the greatest peril in developing a high-tech market is making the transition from early visionary adopters in a company to the open-minded yet pragmatic early majority. This new audience is looking for return on their investment and consistency in delivery. They know that there are bumps in the road for new technology but they have a business to run. They will be only so forgiving. A company’s focus on this transition across the chasm is more than a marketing idea, it is a cross-functional shift.
  5. Process slows us down –>Process speeds us up: As mentioned in the first point above, process can be a dirty word in some organizations. Most people will agree that there is a time and place for process but aren’t very happy when that time in now and that place is here. It does slow down a company to put financial, new product introduction, product life cycle management or forecasting processes in place. But it slows a company down even more dramatically if these processes are not in place as this tipping point is reached. The leadership of the company has to anticipate the need for these controls/procedures/ systems and invest before the heat is too high. An example is the need for a product life cycle management (PLM) system. Engineers like to design without being hindered by a system requiring a BOM, suppliers, drawings, etc. But as soon as something needs to be built by an outside company, it is much more efficient to have one source of truth for what is being made. Pain now delivers ease later.

The tipping point in a start-up company is a beautiful sight to behold. It implies that the company is growing and becoming more valuable. It implies a viable customer base and a product with market worth. But it also requires more than a passing awareness of the changes that will soon be required for success. These can be summarized at a high level as:

  • A leadership shift from controlling to enabling
  • An embracing of process to achieve scale and consistency
  • A push forward into cross-functional delivery
  • Inspiring leadership to describe the way through to the next phase

Change is inevitable. Progress is optional.      Tony Robbins

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