Succession for Scale

Recently, I have been thinking about the role of the executive in a scaling startup.

As a senior leader in a growing company, you need to be scaling faster than the organization. You grow by scaling yourself and the leaders in your team more quickly than the business. This fact is well known and is covered excellently in such books as Zero to One and The Hard Thing About Hard Things.

Even if you are aware of this fundamental requirement, it is still challenging to recognize when you are starting to fall behind on that scaling. The people on your team, the people that got you to where you are today, who are working as hard as ever, should be doing better than they are. You may start seeing the signs: teams falling behind, tensions between groups or functions, team leaders beginning to struggle with their work, and increasing responsibilities.

You might not know what these scaling problems look like because you haven’t seen them before. Maybe you do recognize them, but your loyalty to your team lets them go on longer than they should. You can get away with that for a while.

Eventually, your boss (the CEO, the board) or your peers start to recognize the growing gaps in your organization between where you are and where you should be. In a company with a good culture, they will let you know. In a company with a less-open culture, your peers may notice but not feel like it is their place to say.

By the time the problems are apparent outside your team, it will be nearly too late.

When these problems first arise, you need to put together a plan. If you missed the early signs and the challenges are visible outside your team, you need to act immediately.

You need to bring in new talent who can help close that gap. It will take time to do that. If you choose to re-double your efforts to mentor the existing folks, you will only fall further behind. Either you missed your window to mentor, your leaders need more mentorship than you can provide, or they are not yet ready to take on the new responsibilities in their role even with mentorship.

Replacing people who have historically done well in their roles can seem cruel, and this is why it is hard. It feels disloyal to the people that have been loyal to your company and have helped to build it along with you. It is not their fault.

If you don’t make those hard choices, though, they will be made for you by the person whom your boss or the board hire to replace you.

It doesn’t have to be this way.

We have an assumption that in a growing company, people will remain in the roles they have had, and newer employees will come in below them. This assumption is one of the exciting incentives of joining a startup. It can be a career accelerator. Indeed, there are many stories of early employees at startups remaining in their senior leadership roles through rapid growth and past the point of going public. Very few people are capable of this kind of personal development, however.

Instead, we should be explicit about this challenge of growing a company. We should build a culture that acknowledges and celebrates this fundamental fact. Let people your hire know that you will support their growth, but be honest that if the company is scaling faster than they are, they may need to help hire the person who will help with the next phase.

Reid Hoffman talks about these ideas in his book The Alliance. I think Netflix has done well being explicit around the Tour of Duty in their culture. I do think Netflix is a bit too employer-focused in its attitude towards these ideas. This approach works for them because they favor hiring experienced developers and do not invest much in training their employees relative to other companies. That is another definitive decision of their culture.

I advocate for a more balanced and sustainable approach for companies, one that encourages employee development and business realities. Startups that are willing to hire at all levels of experience and support employee growth can hire and retain better. Even those companies face challenges at their scaling inflection points when company leadership changes by the new business reality’s necessities.

Suppose your company builds the concept of succession for scale into its culture. In that case, hiring your successor should be expressed as an opportunity for further mentorship and growth and not as a demotion or failure. Celebrate it as a rite of passage. Challenge the leaders in your team (and give them the tools) to recognize when this time has come, and praise their self-awareness.

Build succession for scale into your compensation structure and leadership career pathing. Ensure that the newly hired leaders train the people they have replaced to assume the role once again. If the position opens up in the future, the person may now have the skills to step back into it.

[This article was originally posted at]

The Myth of the Startup in a Large Company

I was reading this post from John Gruber, which had this paragraph in an ad for the iOS development team at Google:

My thanks to Google — that’s right, Google (kind of awesome, right?) — for sponsoring this week’s DF RSS feed. They’re hiring developers and designers for their iOS app teams, which operate like a start-up within the walls of Google.

and I thought about the number of times I’d heard that line: “Operates like a startup within insert large company name here” or “Operates like a startup, but without the risk.” I’ve heard that line so many times from recruiters, from friends… To be honest, I’ve even said it myself a few times, trying to sell a prospective candidate who I was trying to woo away from a startup.

That notion, of working like you are in a startup, but being part of a much larger organization, is a myth. Anyone who says it is naive, disingenuous or just plain wrong. Large companies that try to build those kinds of teams; be it “innovation lab”, “startup experiment” or “corporate startup incubator” usually fail to achieve the innovation or energy they sought. The result is usually a whole bunch of wasted money and angry employees who felt like they were promised a bill of goods.

Stewart Butterfield, discussing his experience selling Flickr to Yahoo:

They sold out to Yahoo assuming that they’d be backstroking in rivers of money and terabytes of memory. Instead they had to fight for everything: servers, people, time.

This is talking about the inverse problem, but it comes down to the central crux of the issue at large companies: resource contention. This is beyond innovator’s dilemma.

In a startup: all of your attention is spent on finding the right product/market fit, finding customers, finding a flow of income, and/or finding investment. You will make the trade-offs you need to get your product off the ground. Often this may mean choosing poor technologies in the short term to help you get going more quickly. Your resources are limited, you need to make do to get going. Maybe you will take some short-cuts in other areas just to get the product launched. You are fighting for your life and your income, and you will do whatever it takes to get there. Why do you do it? Because you love the energy, or because you are looking for the fiscal payoff. No risk, no reward.

In a big company, you don’t have to make those trade-offs. There is probably a very mature infrastructure to build on; there is a brand to build off of; there is the promise of a paycheck no matter what the outcome. It is these conditions that destroy the innovation.

There is a mature infrastructure, but maybe it is not a great fit for what you are trying to build. Maybe you just need some small tweaks, but the infrastructure team is primarily focused with serving the existing teams that bring in the revenue; it will be hard to get your needs prioritized. Maybe you can even prototype or launch with your own skunkworks infrastructure; that won’t last for long. The corporate infrastructure is vetted, financed, regulatory compliant, and they own their turf and don’t appreciate someone jury-rigging something else.

There is a brand, but that brand is well known and highly controlled. You can’t launch just anything using that brand. It needs to be vetted. This means that instead of focusing on building your product, you are instead focusing on getting internal support. Maybe you launch under some new secret brand. This may work for a little while, but if you are successful, there will be increasing pressure to join the fold. And in any case, launching under a secret brand basically kills the benefit of the being part of the parent company.

The lack of risk is its own deterrent. Knowing that you get the paycheck is nice, but it is also understanding that you have very little ownership in the outcome. It isn’t “your” product, it is your corporations’ product, you are just one of the people on the team. While you may still put in startup hours for the joy of it, eventually you will realize that you aren’t getting the startup reward for all your hard work, and that is pretty demoralizing.

The general problem is that even if you have the deep pockets of a large corporation backing you, you don’t have the ability to do what it takes to survive. From the minute the project is launched, you are on a clock. Because you are part of a larger (presumably already profitable) parent, you will be restricted from certain business models: it’s hard to justify spending a few years taking substantial losses to scale your business quickly when you are seen as a drain on the profits of your parent company. Amazon, with their don’t-ask-us-about-profits model could never have been created as a division of Microsoft. The shareholders would have rebelled.

If you don’t succeed quickly, your team’s resources will be coveted by the teams around you. They are like vultures waiting for you to fail, and they will rush to declare you a failure as early as possible if they think they can benefit from it.

If you are successful and start to grow, you have the same problem. Teams will attempt to co-opt your mission, or take over your team, or switch you onto the “official” technology stack, or just flood you with resources trying to get some of your “startup” energy.

If you are successful by startup standards, that may not be seen as much of a success in a larger parent company where there is an established business. Being slightly profitable is a huge win for a startup; being slightly profitable is a major loss for an established corporation.

So, how can you create a startup in a large company? I think the university model is an interesting approach. Say you are Company X, a large multi-national technology company, and you are constantly challenged by your inability to move at startup speed or innovate. Instead of creating a startup team inside some division; instead create an actual startup.

Solicit pitches from your entrepreneurial employees. Pick one or more, and fund them as independent companies. Give the founders an equity stake in the new venture, but Company X will own a significant stake as well, plus some non-exclusive licenses on the IP. Allow them to recruit from your company, but they will no longer be employees of Company X. If the venture fails, they may be able to interview to rejoin Company X, and they may get to get some of their benefits back, but there is no guarantee of employment. Also, get them out of your building. Allow them to raise outside investment if they need.

By sponsoring your own employees, they are likely to build in a compatible way with the way your company works, given that it is their training. They will know your industry. They won’t be complacent because they can’t afford to be. They will also be invested because they will directly benefit from their success. In the end, you will get the innovation you want, and probably cheaper than if you tried to fund it from within your own cost structure with all of its overhead.

[This post was updated on August 23, 2014. Nothing was removed, but I added some more thoughts about business model limitations and startup success levels not matching the expectations of a more established company]