How to Scale a Product Company: Leaders’ Guide to Growth
How to Scale a Product Company: Leaders’ Guide to Growth
Scaling sounds impressive and desirable. It signifies a company's success, indicating that it has found product-market fit and is now on a positive growth trajectory.
But scaling is not easy. Behind the signs of success lie significant challenges, and navigating these effectively during this critical growth phase is crucial.
A study conducted by Inc. Magazine and the Kauffman Foundation evaluated 500 of the fastest-growing private companies in the U.S. The study concluded that two-thirds of these companies had shrunk, stagnated, or failed after five to eight years, primarily due to premature and uncontrolled growth. In fact, the fastest-growing companies performed worse compared to their counterparts who followed more steady and controlled growth.
This does not come as a surprise. When a company is on a high-speed growth path, even a small misstep can have a huge, sometimes fatal impact.
Understanding Scaling
There is a subtle difference between growth and scaling.
Growth involves linearly increasing company revenue along with investments in capital, personnel, or technology.
Scaling, however, focuses on boosting revenue while minimising proportional increases in internal investments.
This distinction makes scaling particularly appealing. Software product business models promise scalable economics. This drives many companies to eagerly pursue the scaleup stage due to its financial advantages.
Scaleup is a Different Journey than a Startup
Scaling introduces its own set of risks, but that doesn’t mean you should avoid it. What's crucial is to understand what you’re entering and to approach it wisely.
First and foremost, scaling requires a shift in mindset that is different from running a startup. This demands new ways of thinking, different working behaviours, and acquisition of new skills.
As a scaleup leader, you should embrace your new role and be ready for the changes ahead.
People and Culture
People drive the company forward. They shape the company culture.
As your team grows, it’s crucial to focus on how you hire and how your culture evolves.
Hire for evolution
Recruit individuals who not only fit your current culture but can evolve it.
During the startup phase, you’ve likely built a culture you're proud of, perhaps characterised by flat hierarchies, strong team bonding, creativity and innovation, risk-taking, and maybe long working hours.
While you’ve been hiring like-minded individuals to fit this culture, now it’s important to bring in people with fresh perspectives who can help adapt and evolve the culture.
This doesn’t mean abandoning your core values; they should remain steadfast. However, as your company transitions from startup to a more mature organisation, your behaviours and practices should naturally adapt and change.
Innovators, accelerators or maintainers
In a startup culture, innovators excel. They are the people who propel the company to the next level. But innovators can be a terrible fit to enable effective scale.
Scaling is about building systems that are repeatable and scalable - systems encompassing people, processes and technology. This demands different skills and mindset, it demands accelerators.
While innovation thrives on divergence, the scaling phase necessitates convergence—bringing together diverse ideas, reducing noise, prioritising effectively, and constructing robust, repeatable systems capable of scaling.
And once these scalable systems are established, maintaining them requires maintainers - individuals with a diligent focus on stability and efficiency.
Keep an open mind and before you hire, think about what role you need - an innovator, accelerator, or a maintainer.
Be prepared for less commitment from new hires
When your startup consists of just a few employees, everyone is fully committed to the mission of your company—emotionally, time-wise, and perhaps even financially.
As the company grows, you can’t expect the same level of personal investment from new employees. This shift is natural and reflects healthy growth.
Be prepared for these changes. Consider how to adjust policies and remain competitive in attracting top talent.
Empower teams and let go of control
Founders, often natural innovators, may struggle with the mindset shift required as their startup grows. Some successfully transform themselves and lead the company through its entire journey from a startup to a large enterprise. However, this transformation demands readiness for a personal change.
Leadership in a startup requires deep involvement in details. Startup leaders make crucial decisions—from acquiring new customers to integrating new technologies into the software architecture.
Attempting to maintain this level of control as the company scales is unsustainable. It harms teams, impedes progress, and creates decision-making bottlenecks.
Godard Abel, the founder of five successful tech companies, shares his personal experience with the challenge of letting go of control:
"In startup culture, holding onto control is almost instinctive, but it should be seen as a flaw. As a leader, one of the most impactful decisions you can make is to lead by example and learn to let go. This isn’t about admitting you can’t manage the responsibility; it’s about wisely delegating the right responsibilities to the right people—including yourself—at each stage of your business. It’s terrifying at first, but I promise it’s the best decision you can make for yourself and every stakeholder in your company."
Put on your new hat of a scaleup leader. Focus on assembling the right team, share your vision, align on the right goals and empower teams.
Let go of control.
Operations and Technology
Without scalable processes or technology in place, the risk of failure is high. Overburdened teams and operational bottlenecks can quickly overwhelm your company and strain your budget.
This phase demands optimising your operations and technology, eliminating the waste before you scale.
Funding for scale
Building scalable systems is an investment.
During the startup phase, you likely didn’t implement fully scalable systems. Technical decisions made earlier may now be costly and hinder your growth.
With focus solely on growth without investing in scalability, significant improvements will be unlikely.
Securing adequate funding and planning for scalability is required. True, this doesn’t directly bring in revenue, but is crucial. Not only does it keep your margins healthy in the long run, but it also mitigates the risk of overwhelming your team and collapsing your systems as you scale.
Scalable processes in every part of your organisation
In the scaleup phase, solving a problem once isn't enough. It's about reducing or eliminating the problem the next time it occurs.
Every department— sales, HR, technology or customer support—must operate with scalable processes. Standardising procedures, investing in the right tools, automating repeatable tasks, and continuously evaluating and optimising workflows are essential. These practices help maintain consistency and efficiency as you expand, making growth manageable.
Take the customer support department as an example. Initially, handling inquiries via email might suffice. However, as the company grows, this approach becomes inefficient and slow. Implementing a scalable solution like a ticketing system, combined with AI-driven chatbots, can be the way to improve team productivity and maintain high customer satisfaction.
Scalable technology
Wrong technology choices made in the past can harm your business as you scale.
Non-scalable software architecture can create bottlenecks, limit performance, and significantly increase costs. You may hit these boundaries at the least desired moment, risking customer satisfaction and causing employee burnout.
Making substantial changes in technology and architecture can be expensive and time-consuming. This can be a painful reality, but waiting only worsens the problem and increases the technical debt.
Addressing these issues as soon as possible is the best way to avoid escalating costs and operational disruptions.
Organisational Design
Scaling introduces complexity in team dynamics and responsibilities. As your company grows, a clear governance model becomes essential to manage this complexity effectively.
New specialised roles
In the startup phase, responsibilities are often spread across multiple domains, with employees—especially leaders—juggling various roles. This approach becomes unsustainable as the company grows, leading to bottlenecks, diluted focus, and lower quality work.
It's time to begin hiring for specialised roles. However, don’t rush this process, as moving too quickly can be detrimental and costly.
Prioritise initiatives that are critical and currently lacking attention. Assign a dedicated person to drive these initiatives. This role could also be filled internally, but ensure the assigned employee has freed up her schedule and can be committed to this new focus.
Scalable team structure, more accountability
Is your team already large but lacking clear structure and accountability? Now, imagine the complexity of adding 10 more people to the mix.
Effective growth demands a well-defined team structure. To scale successfully, design your organization by creating smaller teams with clear purpose. Start by identifying key domains within your team and assigning dedicated roles to focus on each area, while minimizing dependencies between them.
Each high-performing team should have a clear focus, purpose, and accountability—this can significantly boost productivity.
Key Takeaway
If you have reached the scaling stage— congratulations, it's an amazing achievement!
Scaling is the next exciting journey filled with new lessons and challenges. It’s more than just growth; it requires strategic planning and adaptation. Prepare for changes - new approach to hiring, redesigning your organisational structure, or optimising your processes and technology.
Most importantly, this phase demands a shift in mindset across the whole company.
Build a lean and scalable system of people, technology, and processes, and embrace the scaling journey with confidence.
Originally published at https://www.mindtheproduct.com/ on Sep 10 2024.
Enjoyed this read? Subscribe to Lean Product Growth for regular updates on building and scaling a successful product organization.
Access more product growth content on Lean Product Growth
Is More Headcount Necessary? How and When to Scale a Team?
How the Over-Promise and Under-Deliver Strategy Pushes Team Performance
How To Structure Teams That Effectively Execute Product Strategy