If you’ve ever had the idea of founding a startup, you’ve probably seen the thrilling guides with X steps on how to do it correctly (the internet is generous with advice). There are inspiring examples of big names who raised their garage startups to billion-dollar corporations. But if you dig deeper, you will also see that half of startups fail in their fifth year and that this adventure has a lot of hidden challenges.
While “running out of money” and “no market need” are the on-the-surface reasons for these failures, many young entrepreneurs overlook the weight of the leadership model and scalable infrastructure. And running a startup is, in large part, about planning, creating regulations, writing instructions and hiring the right people. So what happens when your venture grows?
Stage One: Creativity At Its Best
There’s a saying that nobody works as hard as the owner of an old pizzeria. By a long-standing tradition, the owner does everything single handedly: buys supplies, makes pizzas, greets guests, waits tables and takes payments.
People who launch startups alone are often like that old pizzeria’s owner. They take on every responsibility, from shaping the initial idea and looking for the first clients to doing all the marketing and bookkeeping. Although in some cases, everything may be smooth at first, soon comes their first challenge—they have to learn how to delegate.
Broadly speaking, it’s the very first stage when your brainchild grows from one to ten employees. Now you need a sales maestro, a marketing guru and certainly a money master. These people are here to help you apply the investment approach: to find your first market and funding. And building your team at the 1-to-10 stage may determine the entire life cycle of your business.
Choose these people wisely as this is the period of experimenting and complete creativity. When a startup is still young, the founding team is typically in constant search of the optimal business model. This involves continuous and active hypothesis testing. You look for a market need, form another hypothesis, and test it again. You look for investments to get your pizzeria up and running.
However, it’s also a time of changes to the internal organizational structure as it’s important to build a system, whether it’s your hiring policy or communication approach. At this stage, it’s vital to define the criteria for evaluation of your first ten and, subsequently, other employees at later stages. Your first team, ideally, will help you establish the operational approach at the core of your company’s business development.
Stage Two: Establishing Operations
The system becomes crucial as your startup reaches the 10-to-100 employees level. Essentially, the chosen 10 now should be strong enough to face the challenge of hiring their own small (for now) teams. It’s the time of efficient allocation of resources and, at the same time, great responsibility.
Here’s this stage’s challenge: You need to build a robust system that will become the foundation of further scaling while maintaining and constantly improving quality. This is the operational approach in action, and it’s based on the people you lead.
As your startup grows, the team and its dynamics inevitably change. Area specialists replace jack-of-all-trades, and people bring different views and approaches. Understanding how people interact with each other and the company is the key to building a comprehensive HR operations system.
Informal methods are typically no longer effective in this stage. The company now requires rules and a system of reporting and management. Moreover, it’s important to design how the departments interact with each other. In the era of remote teams and work-from-home culture, efficient communication tools become a strategic requirement to maintain the said system.
A job at your startup must not be a struggle for your team. From automated and intelligible onboarding and clear reporting systems to structured training programs and well-thought-through financial management—fine-tune every process to create a comprehensive system where everybody knows their goals and responsibilities.
On top of that, it’s time to establish company values and corporate culture. It’s when your old pizzeria becomes a restaurant brand. Long-term employees, non-toxic environments and accessible leaders can help you build a powerful organization.
Stage Three: Strategic Scaling
The 100-to-1,000 employees stage is the period of strategic planning when the biggest challenge is even more scaling. Your pizzeria brand is now a chain restaurant with fully automated processes and regulated quality control. By now, your system should be flawless and free from red tape and give more freedom to experienced employees.
By this point, you know your market, your clients and market rules. And more importantly, you have clear goals. Your company’s regulations should include everything from choosing another location for your new branch to allocating the marketing budget for that location and hiring people. Total automation that you’ve built on the 10-to-100 stage can enable you to go big. You’ve already systematized cutting cost procedures and don’t need to invent anything new.
How Money Fits Into The Equation
For the most part, I’ve found the growth paradigm is also applicable to the money you earn making your pizzas (i.e., revenues your startup generates). Startups are often adventures. And at first, many founders invest their time and effort to find the funding to grow. As your team grows, your profit is supposed to increase proportionally. Figuratively, when you are on the path to your first million, you may use the investment approach and focus less on internal processes. Your first ten million can change the company’s modus operandi as it brings more responsibility and the need to design the operational approach. By analogy, your first hundred million should be based on automation of internal processes.
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