The world is evolving rapidly, and new technologies or seemingly uncontrollable events can quickly render your offering obsolete. That’s why earlier this year we released The High-Growth CEO Handbook, for founders and executives to learn the fundamentals of steady and sustainable business growth. The book was written as a response to these 6 main themes that typically frustrate executives and founders:
1) Effective Talent Acquisition
2) Maintaining Visibility
3) Scaling Communication
4) Using Data Effectively
5) Growing Without Losing the Culture
6) Turning Managers into Mentors
Below is an excerpt from the third chapter and deals with a major stumbling block to business growth – scaling communication alongside a rapidly increasing headcount.
Dave Sifry founded Technorati, which grew rapidly to be the web’s largest blog search engine. He developed a brilliant theory on scaling communication along with company growth entitled, The Death Zone:
While investors are looking for linear and predictable growth, certain psychological and biological limits prevent that growth on any size team. So no matter how many people you have right now, the key to sustainably scaling communication is to be mindful of where you are in organizational development so that you can find the tools and build the systems that are appropriate for each stage.
If you as a leader are able to scale past the early startup stage to about 20 people, you may think to yourself, If we can just get some more people we can get more done. When we hired people before, we became more efficient. Let’s do it again!
But from roughly 20 to 60 people, that same thinking won’t work. The whole feel and tenor of a company shifts at this stage, and formalized management structures create different teams with their own sets of initiatives.
At 20 people let’s say your burn is $300K per month. This means that you burn through $1M in 3-4 months. You need to understand what each person does and calculate to the dollar how each new person is adding to revenue to compensate for their hire. You can’t raise your way to getting through the 20-60 stage. At 60 people you are probably burning $1M per month. If you don’t have revenue, investors won’t fund you no matter how great your idea is.
Hold-off on hiring until you figure out how to be profitable and repeatable at 20 people or less. Take your investment capital and use it to extend your runway. Sure you are going to have competitors eating away at the sides of your business. That’s fine. If you build a defensible business at 20 employees, the good news is that most of your competitors aren’t going to be able to do that.
You can then add employees one at a time and watch the bottom-line to ensure that you are indeed increasing revenue and profit at least at the rate at which you increase employees. That’s how you get to 60 people and out of The Death Zone.
The slideshare below includes the first three chapters of 15Five’s High-Growth CEO Handbook. You can download the entire ebook here to learn how to navigate common stumbling blocks to growth, like maintaining visibility, scaling culture, and 15Five’s unique approach to management by objectives:
David Hassell is Cofounder & CEO of 15Five, employee engagement and performance software that helps create high performing teams by combining continuous feedback, pulse surveys, objectives (OKRs), peer recognition, and one-on-one meeting agendas, all in one lightweight weekly check-in. Follow David on Twitter @dhassell.