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Why Your Startup is Likely to Fail at 50 People

Kristen Craft | July 26, 2019

“If I don’t get a title change, I’m going to quit.”

These are words no manager wants to hear. Especially when your hands are tied on title changes. Years ago, I found myself in such a conversation with someone on my team. This person, “Caleb,” was feeling stagnant in his role. He’d previously asked for guidance on how to get a promotion, but as a company, we didn’t yet know how to answer that question. I had to tell him that, sadly, we were still working to define the process on title changes, and it would take more time. Ultimately, Caleb, (and many others on the team,) quit, leaving certain parts of the company in shambles. 

In the world of tech, people tend to salivate over rocketship and unicorn companies. These are the ones that show hockey stick growth curves and the ones that zoom towards a valuation of $1B. We talk a lot about the upsides of being on one of these teams, but we rarely touch on the downsides. 

I’ve had the good fortune of being part of a few high-growth teams, and I’ve advised many other companies as they go through similar rocketship growth. All too often, I see them struggle with situations like the one with Caleb. Across the board, they fail to create the right systems early enough. So, when is early enough? And what are the “right” systems?

The 50-Person Threshold

A few years back, I became obsessed with a particular question: what’s the toughest phase for a growing startup? I began asking everyone who might have a unique perspective: founders, early employees, later-stage hires, friends in venture capital, executive coaches. Remarkably, nearly everyone cited the same phase as most painful: the 50 employee mark. 

I remember hearing this same answer from a friend, Rick Perreault, the founder and CEO of Unbounce. When I asked why this phase was so hard, lack of process topped the list. Unbounce had been extremely successful during the early days, usually taking a scrappy, action-oriented approach to their work. The team’s ability to innovate, move fast, and build the plane in midair was a superhero strength. But as they grew, this scrappy approach stopped being a strength and started becoming a weakness. They’ve since implemented smart, efficient processes, but I’ll never forget the way Rick visibly shuddered when recalling some of the growing pains they experienced during this time. 

Anyone who’s ever been on a team of ~50 knows what a weird phase this is. Longtime, veteran employees tend to resist process or at least grumble about losing sight of the “old way” of doing things.  Newer employees stumble over every poorly documented part of the business, yearning for more clarity and guidance about how to get things done. There’s a tug of war over what to formalize and how. Suddenly, the loosey-goosey approach to job titles and compensation become glaringly problematic. 

For some teams, things go awry later than this 50-person threshold. Julia Austin, a local tech exec, advisor, and senior lecturer at Harvard Business School, has often observed breakdowns slightly later. She writes in her article, “From Zero To 100+: Preparing To Lead And Operate At Scale”:

At somewhere around 75–100 employees, there is a shift with leadership, teams, and individuals and it’s important to plan for it or at least recognize when it’s happening and try to stay ahead of it.”

According to Austin, this is the phase when founders can no longer keep their hands on everything at once. Moreover, they’re usually unable to keep a finger on the pulse of what everyone else is doing. Therefore, it becomes imperative that founders teach others how to do things in the way the founders do them. This includes common process, but also guidance about how to make good decisions.

Jess Meher also pinpoints 50-100 people as a typical breaking point. She notes that during this phase, you’re trying to go from startup to scale-up. “You’ve already got a model that’s working, and it’s time to pour fuel on the fire.” For that fuel to be effective, you need to have the right systems in place: “typically there’s a greater need for more process and alignment, structure, etc.” Getting out ahead of those process and alignment issues can help prevent your company’s fire from raging out of control.

As both Julia and Jess allude, this shift will happen, and good leaders plan for it. Ultimately, it’s not a matter of if things will break but when. For most teams, it happens with a few dozen employees. If those growing pains catch you unaware, you risk losing some of your most valuable employees. They’ll take key institutional knowledge with them and can even drain focus and momentum from the employees who remain. Those companies that get out ahead of process problems gain a major leg up on those that don’t. 

The Advantage of Confronting Growing Pains Earlier

For some teams, things start to “break” even earlier. Remote teams, in particular, seem to experience growing pains at a smaller size. Nick Francis of Help Scout and Vinay Patankar of Process Street both noted that the metaphorical wheels started to come off around 20 employees. Andrew Miller, who runs digital marketing at Process Street notes:

“Due to team members in different time zones and the autonomy that comes from remote work, we had to build processes for every recurring task very early on.”

It makes sense that clear systems are even more important when you’re remote. Messy process can be harder to tolerate if the team is distributed because you can’t always have an impromptu, face-to-face conversation to resolve issues. Systems have to be airtight early on, and the team needs to devote significant thought to how they adapt over time.

Both companies were forced to develop smart process earlier. With fewer employees when they implemented new processes, there were fewer feathers to ruffle. They got many of their growing pains out of the way early, and breezed through some of the stages that other teams found challenging.

Confronting growing pains sooner (and doing the hard work to mitigate them) gave these teams a defensible advantage over their co-located competitors. While other companies started floundering at 50 employees, Help Scout and Process Street were sitting pretty. They’d already done the hard work of developing and sharing the processes that people needed in order to do their jobs well. I think there’s a lesson to be learned here, regardless of whether your team is remote or co-located or somewhere in between. By addressing messy process and inconsistencies early, change is a bit easier to navigate.

The Platoon Paradox

There are many parallels between how a startup functions and how the military functions. According to former Marine Corps officer turned entrepreneur, Renny McPherson, a platoon (generally 15-50 people) looks a whole lot like a startup.

“It’s similar to the halcyon days of a startup. We celebrate our wins together, have lunch together, share a beer together.”

But what happens past 50 people? Does the team begin to experience these startup growing pains? 

Apparently not. Paradoxically, military teams experience no such chaos when they hit 50 people. This is in large part because the military recognized that there was a natural breaking point at 50 people and developed clear policies to mitigate the problems. According to Renny, “generations of leading people in complex environments have shown that there are problems in growing one organization that big. Split it up, and clarify the rules and process for each group.” So, why can the military scale so effectively while the rest of us flounder around?

It all comes down to having a clear organizational operating system. Their rules of engagement are clearly defined and accessible to all. Renny notes that the military can scale almost infinitely because they have such clear processes around how teams function. If you’re building a high-growth company, you need similarly clear systems to let you scale efficiently. 

Process as a Competitive Advantage

You might think that you’re saving time by keeping things informal. You might believe that you’re growing “efficiently” by ignoring process. But at some point, these shortcuts catch up with you. And unfortunately, they’ll start to catch up before you realize it’s happening. If you’re a CEO, you’re probably the last to know about team concerns. As many founders can attest, by the time issues get to you, you can rest assured that everyone on the team has already been discussing them.

Instead, get out ahead of your 50-person platoon problem. Invest in building the processes you’ll need before you actually need them. Here at Tettra, we lean into process far earlier than most. At just seven people, we already have a system for compensation changes and revenue sharing. We know that the scaffolding we’re building now will help support us as we grow.

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We don’t expect these processes to remain static forever. Rather, we expect to adapt them over time. And they’re not perfect, but we prefer to not let the perfect get in the way of the good. Already, these processes are helping us to make decisions and have tough conversations more easily. They’ve saved us time already and will continue to help us grow efficiently and pay dividends.

Formalizing processes early means that you’ll be ready when you need them. As Neil Churchill and Virginia Lewis write in their Harvard Business Review article, The Five Stages of Small Business Growth:

“The issues of people, planning, and systems gradually increase in importance as the company progresses from slow initial growth to rapid growth. These resources must be acquired somewhat in advance of the growth stage so that they are in place when needed.” 

Like the military, define and share each process and policy that your team might need. If you do this right, you’ll be able to hire and onboard new team members more efficiently. As the digital agency, IMGE, has found, process is a competitive advantage. Director of Marketing, Alex Boedigheimer, notes:

“We sat down and turned everything into a process that is repeatable, so we can train faster. As we hire more people and scale up, we can cut down on the time we’re using to teach people by giving them reference points.”

At IMGE, new employee ramp-up time has a direct impact on their bottom line. The sooner a new hire knows the ropes, the sooner that hire can be doing billable work for clients. Ill-defined processes could cost the company thousands of dollars. IMGE has a distinct competitive advantage over other agencies because they can grow and scale their team so efficiently with a well-defined internal operating system.

Building a Culture of Documentation with the “Process Loop”

Unfortunately, it’s not enough to create good processes yourself and document them. You need everyone on the team to get involved. From the most junior employee to the C-level, all members of the team can help. Everyone has at least one area of expertise. Each individual has something to contribute since each person has perspective and insight into their own focus areas.

Getting everyone involved requires building a culture of documentation. People need to feel empowered to help build the company’s operating system, especially during this phase leading up to 50 employees. Building a culture of documentation means leaning into a system of spotting issues and figuring out how to resolve them with efficient processes, (and then refine those processes over time as things change): a “process loop,” if you will.

Each team member should feel empowered to engage in this knowledge loop. A culture of documentation means everyone helps to identify problems, create better processes, share them with others, and tap into this valuable knowledge. Through our work, supporting thousands of teams through rapid growth phases, we’ve noticed that the most high-performance teams create a culture that’s universally committed to good documentation. 

One of our favorite customers, Ryan McKeen, describes this as building a wiki-driven culture.

“Ultimately, it’s a mindset: the notion that we’re both working on our clients’ cases and building systems to do things better in the future.”

This culture has been a major source of their ability to grow efficiently and serve clients well.

Part of building this culture means getting rid of antiquated ways of thinking about process. Some of the most famous works of literature from the 20th century lambast process. Consider Franz Kafka’s satirical novel, The Trial. The protagonist, Josef, spends the entire novel getting tangled up in the mindless, inefficient legal process. In our society, (and especially in the world of startups,) “process” is nearly a dirty word. We need to scrap this old-school way of thinking about the role of process.

Again, contrary to old-school thinking, process can actually mean more freedom for those on the team. With clear guidance on how to do things, there are fewer hoops to jump through. Employees don’t get slowed down, soliciting approval or buy-in, when trying something new or making a decision. Margot Mazur, Senior Marketing Manager at HubSpot, points out that documenting processes creates more autonomy because people know what they own.

“You have to start thinking about ownership and the channels folks have control over. Implementing DARCI and finding ways to manage projects, keeping folks productive and providing clarity, while allowing them to own their work.” 

You need everyone to recognize that – although process sometimes gets a bad rap – it’s the key to avoiding growing pains. Going even further, it’s the key to people’s freedom and ownership over their own work. Building a well-defined company operating system may seem like something you can delay, but lack of process will catch up with you. As Chris Savage, CEO at Wistia, puts it “Process totally sucks. The only thing that’s worse is lack of process.” The more quickly your team embraces the idea of implementing efficient processes, the better off you’ll be.

Process and Knowledge Need a Home

Building smart process is all very good and well, but it only helps you grow efficiently if everyone can use those processes when needed. This means that people need to:

  1. Know that the processes exist
  2. Find documentation about these processes
  3. Use and update them

Let’s dig into what the three above elements require. In order to keep everyone in the know about common processes, teams need a mechanism to alert people to new documentation. Here at Tettra, we rely heavily on our own product, and in particular the Slack integration. Whenever someone documents something in Tettra, a notification pushes into the relevant channel in Slack.

For example, we recently clarified our policies around working hours and remote work, as well as the process for letting people know when you’re working remotely. When our CEO, Andy, hit publish on the new Tettra page, everyone saw a notification in our team-wide “General” channel.

If and when anyone needs to refer to our policies and processes, they can search for the info within Tettra or directly from Slack. As we begin using these processes, we look for ways to make them better. If anything is unclear, or if we decide to update our processes over time, our team asks questions and gives feedback directly on that Tettra page, Again, those comments push into Slack, so we’re all in alignment.

Despite years of working in tech, I’ve never seen another system that enables this sort of process development and knowledge sharing. Tettra allows us to share and access information in a highly efficient way. As we hire new people, the heavy lifting around onboarding is already done. We can grow and scale far more efficiently than we could, were we approaching things in looser way.

Creating Organizational Value 

In short, life at your startup is going to get really hard around 50 people. It may happen a bit sooner or a bit later, but it’s going to happen. Your ability to navigate will depend largely on how well you’ve prepared for these growing pains. Preparing for them takes work, yes. But this work pays off in spades. 

By leaning into documentation and smart processes, you’re creating lasting value for your team. This documentation is an investment in your future sanity and your company’s future success. You’re buying a compass and set of maps before embarking on a hike while others go marching off into the forest with no plan about how they’ll reach the summit. Aren’t you glad you’re one of the people with a map?