How to get from growth crawling to growth running, without tripping over yourself.
Today’s start-ups are the corporations of the future, there are no shortcuts nor highways for this exciting journey. Today we are touching on the second most important decision for a start-up after the excitement of building the first product for its first customer: the definition of how operations will be performed within this nascent company.
Are you getting that overwhelming feeling that the pieces are falling into the right places in your company? Finally, it seems you are homing in on that highly desired product/market fit; customer feedback from your first deployments is positive; the time required to close new deals is decreasing; and last but not least the word starts to get around who you are and what you do, and you see that once flat revenue projection starting to tilt upwards. You have even dared to employ more sales representatives and you jump on the opportunity for a small increase in marketing spend. What’s more, you sit back in your chair and – for the first time in a long time – you start to feel that “yes, this is going to take off”.
Go ahead and savor that momentary feeling but please don’t relax too long. You have passed many initial hurdles of a typical start-up, but you will soon be hit by the next big hurdle very soon. New bottlenecks have the nasty habit of appearing once previous ones are cleared away.
The evolutionary journey of a start-up follows a common path. First comes the idea, and the urge to define a product. This usually results in a “solution in search of a problem to solve” – this is, something that solves something that we are not sure is meaningful. So, the next immediate phase (unless you have great foresight and it comes in conjunction with the first phase), is to figure out who the customers are, why they will buy your solution and the value it will provide. This is the famous product/market fit phase. Then you are ready to address the market. This is that first thrilling phase when your value of your dreams hits the harsh scrutiny of the market. In parallel, and as your first investors will often demand, you are putting together a proper business plan with meaningful operational and financial metrics showing rocketing to the sky in a three years’ time.
All of this has been done by your great team of enthusiastic colleagues – and by now also close friends – grinding really hard in the trenches, each and every one pitching in their best efforts wherever needed. Problems have been addressed as they pop up and you (think you) are super agile at every step.
But now you are in a new phase. Customers are starting to line up, volume of projects increase and the number of activities, deliverables, commitments, interactions, market requirements, etc. is just exploding. All this cannot be handled with that previous “we solve the things as they come” approach. Such a way of working is inefficient which eventually eats the budget and does not look very slick towards potential investors. So, what to do? Well, you need to create your own Operational Model, i.e., the “How you do things” which is reflected in the design of your own organization and relationships with your main stakeholders, including customers. You need to become “Corporate Ready”. You are moving from being an infant towards becoming an adolescent -correct, we still have some time left to become adults – which actually is quite positive.
Now, it is worth saying that the challenge you have ahead is positive. It is great. If we would not be in this situation, then we would have a very different problem set which might include a lack of clients, no business, no nothing. But let us leave this line of thinking for now. We are not there. We are on the “let’s build a REAL company track”.
So, what to do?
Well, to design the Operating Model and - very importantly - implement it in a consistent way, you need to know where you come from and where you want to head. The operating model is very different for a company who intend to be an SaaS cloud provider compared with a company which intends to provide HW/SW solutions sold in a project delivery.
The first things you need to do is to make sure you have a common view of the game plan. This implies being able to clearly articulate your overall strategy, stakeholder requirements and objectives. You have probably worked along several parallel strategic lines in your search for your market niche. Fragmentation is however not a good recipe for scaling so stick to the area which now has proved working. Clarity is needed to mobilize a larger team. Jumping back and forth was easy when you were a small team, but this is not efficient where you are heading now. Be clear on the selected value proposition including which are your customer target segments, your value chain position, which use case you address and the offerings and solutions you provide. All of this, get it down on paper. Together with your (current) decision regarding the business model, articulating your pricing model, your commercial model, how you see yourself going to market, etc.
This is a big word that not everyone understands. I would suggest we define / explain what an operating model is at this point which is the first one where we mention this term.
It is important that everyone involved in the definition of the Operating Model has the same understanding of “Who you are” – or at least “Who you want to be” – to be able to define “How you are going to make it happen”. You probably already have all this articulated in one way or another or know it by heart, but it is a good thing to get it all together in one place, polish it up a bit and make it super clear.
Now you are ready to define that Operating Model which will be the basis for your ability to scale in an efficient and controlled way – with happy customers. Before digging into the different perspectives to cover it, it is worthwhile to say that we should not boil the ocean here, nor be too academic. We do not have to define all the perspectives in the Operating Model in one go, and we should follow the good “keep it simple” rule. Do not overdo it. Define what needs to be defined, to the minimum level of detail required. Otherwise, you risk being overwhelmed, and that is not beneficial for anyone.
The first perspective to address is Ways of Working. This is another way of saying Process. Scale is underpinned by the ability to replicate the ways we do things and for all levels of the organization to understand the process. This drives speed and flexibility. The ultimate level is to automate process steps, avoiding human interaction. But we are not there in all aspects, so a good old process map is very helpful, so everyone knows what and how to do things and it also facilitates onboarding of new team members. And this goes for a broad array of areas e.g., marketing & communications, sales & commercial management, deployment & projects, sourcing and supply, operations & support, product management & development and finally business control. We are moving along the path of scale-up so some disciplines are starting to become a bit more specialized, and people cannot be all over the map.
The next thing is Metrics. As Peter Drucker once said “Tell me how I am measured, and I will tell you how I behave”. The functions in the company require different behavior and therefore some metrics need to be tailored. But in an early stage it can be enough to have common targets and incentives on people, except the sales team who usually have stronger accelerators (yes, it might be seen as unfair, but this is life…). But metrics are not limited to the team only but also to stakeholders. The company must have a financial model which on one end reflects the business and delivery model and on the other end connects with financial reporting requirements.
So, now we start to figure out how to work and what drives our behavior. Now it is time to look at People. As commented earlier, the organization is becoming a bit more specialized in different tasks, and we need to find the right person for the right place. This calls for role definitions, inventory of existing and required skills, staffing needs, competence development etc. This can be one of the toughest parts for the team since the founding members have to look themselves into the mirror to assess where they contribute the most, and they might need to adjust. And see new people joining the company, doing parts of the tasks they did before. It is important to be openminded and acknowledge that every phase has its unique and optimal team constellation.
What about organizational structure of the company? Isn’t that one of the first thing to define. Actually no. It is sometimes counter intuitive, but Structure is actually one of the last things to address. The organizational chart and the split of responsibilities between functions is a consequence of the previously mentioned perspectives and very often ends up looking a bit different from what was originally envisioned. And - this is important - not everyone will be able to get a first level seat. Read again the last sentence in the paragraph on People and you see why this is the case. This can be tough pill to swallow for some. Another aspect to consider is to make a distinction between the formal manager/employee relationship reflected in an organizational chart and an organizational chart trying to reflect a wanted way of working. Many times, these perspectives do no play well together, so if possible (and if it is manageable) it is a good option to make a clear distinction between the two. An organizational chart is usually a poor reflection of how a company works and functions.
Finally, we have the aspect of Culture i.e. the way we live our values, manifest our leadership etc. Every person is an island so we need to be able to articulate the culture which shall be common for us all – when being together in this company. This aligns and unites us and explains to anyone joining us what they signed up for.
The above constitutes a short summary of what needs to be defined in an Operating Model. It is like a jigsaw puzzle where each perspective constitutes of sub pieces which all must fit together to create that complete picture. If one piece is misshaped, the puzzle does not come out right. Once you have a coherent view of the pieces which are consistent with each other, then you are ready to take the next step in the growth journey. You will be better prepared to go from being a start-up to becoming a scale-up. To become corporate ready. To become a REAL company. And to be able to run fast making that revenue curve not only tilt upward but eventually skyrocket.
You have defined the plan on the How. Now it is time to implement it, across the complete team. That calls for execution, that calls for change management... and this is sometimes a “chicken-and-egg" dilemma: you do not want to hire your professional CMO or COO too soon, but you feel like needing them badly … have you tried hiring a temporary team of seasoned professionals to define and initially execute your desired operational model?
Stay tuned. There are more articles to come.