The path from a successful startup to a large company
On Habré quite often articles are published on how to properly promote your startup (for example, this article). But I have not yet met articles on what to do with a startup after it is successfully launched and untwisted, so I decided to fill this gap and write about the article about the history of one spherical startup in a vacuum. The article does not go without conclusions, is based on real life experience and is under the cut.
Happy New Year! With new happiness!
So, it was a few years ago. Three respected in the IT community people who worked in directorial positions in large companies decided to create their own business. One of the three left work and became president of the newly formed company, the rest remained in their old companies, but began to actively help the new startup business with means, advice and connections (do not think that their companies began to immediately order services from the startup - no, nothing this was not, because the founders of the startup were respected people and appreciated their karma).
After a couple of months, the first customer was found (the startup worked according to the B2B model) and a team of people familiar to the founders was recruited to implement the order. The result was a small but efficient team of like-minded people, and the work began to boil.
First yearthe existence of the company went like clockwork. The company, with the help of a dozen employees, won several large tenders and earned a lot of money to its founders. The company was noticed on the market, it even got into the rating of 100 leading Russian companies in its industry (without any special efforts). In general, the first year of the company’s existence was a success.
Only a year has passed since the founding of the company, and its founders are already receiving an offer to purchase from one large holding. However, the future of the company is presented to its co-founders in a rosy light, and therefore they reject the offer. The founders decide to independently develop the business and decide to invest all or almost all the money earned during the first year in the development of the company in order to turn it from a startup to a large company. And here is how to do it:
1. The company’s staff is expanding, several highly paid employees are hired for the positions of executive, financial and technical directors from among the old acquaintances of the founders.
2. The company’s work is built in the image and likeness of large companies:
- business processes are regulated, a document management system is introduced, which involves the coordination of all outgoing documents;
- a number of information systems are being introduced (electronic document management, CRM, etc.), work with which takes a lot of resources from all employees of the company;
- Technical support services are expanding significantly in order to organize a round-the-clock shift in the office (before, the company was content with a standby mobile phone, which the technicians had in turn).
3. A lot of money is invested in company marketing:
- a new corporate identity is ordered from one of the leaders in the field of design;
- the company begins to participate in all industry exhibitions and conferences.
4. Many non-production costs are made:
- an office is rented, several times larger than the previous one;
- new representative and business class cars are leased.
With all of the above, the company does not hire new sellers, because the founders do not want to teach strangers the business - it seems that there are enough clients, and so, since the founders and newly hired directors have good connections in the market.
The second year of the startup’s existence goes like this:
- attention to business from the founders decreases, because they trust the hired directors;
- new directors dismiss several old employees and put “their people” in their places, more so than before;
- due to new tightly regulated procedures, the company ceases to work quickly and loses its competitive advantage in comparison with large companies;
- the motivation of old employees who worked almost 24 hours a day in the first, “golden" year is falling, because with the advent of new top managers, they were relegated to second roles;
As a result, labor efficiency is falling, the internal climate in the company is deteriorating, its employees (of which there are more than 50) can no longer be called a team of like-minded people. Due to the drop in work efficiency and due to increased costs, the company ceases to be profitable and begins to eat up the money earned in the first “golden” year.
By the beginning of the third year of the company’s existence, the co-founders understand that it does not develop as we would like and decide to rebuild the company and diversify the business:
1. The founders leave their jobs and start working full time for their company.
2. The company is undergoing cuts - several top managers and half of the technical support service are firing
3. Marketing expenses are drastically reduced
4. All the money remaining from the “golden” first year is invested in the development of new products in related areas of the market, a development team and several managers are hired for this.
But the company is no longer lucky as in the first year - new products turn out to be unclaimed, and old ones are already sold with difficulty. The company has to lay off a team developing new products and continue to lay off old employees. Former company managers become simple performers and leave the company one by one. Gradually in terms of number, the company rolls back to the first year indicators - only already without the money earned in the “golden” first year, without positive dynamics and without prospects.
And now - the conclusionsfrom the story told, which may be of interest to startups:
A. Sell the company during the “white streak” - during the “black” nobody will buy it from you.
If there is an offer to sell the company, accept it if you are offered conditions that are acceptable to you. Especially - if you are not sure that you want to manage a large organization. Startups and corporate governance are two different competencies. If you get the first one, it’s not at all a fact that you will get the second.
B. Begin the planned development of the company with the expansion of the sales management .
If you decide to develop independently, it is necessary to conduct active sales and ensure a constant flow of customers that would slightly exceed your ability to serve these customers. Only if this has been achieved can one think about further expansion of the company.
Imagine that you are a farmer. What will you do first if you decide to expand the dairy business - expand the herd of cows, or hire new milkmaids?
C. Expand the technical directorate only after sales increase.
It is known that human resources are “rubber”, i.e. have some degree of elasticity. If the employees of the technical directorate are correctly motivated, they will be glad to do additional work, even if sometimes they have to rework a little. At the same time, refining should not be done by the system, and therefore, when you make sure that sales are growing and not fluctuating, the technical management will also need to be expanded.
G. Forge your own frames
It is much more correct to develop the competencies of your existing employees than to outbid new employees with the competencies you need from other companies. The development of employees within the company increases their loyalty, carries fewer risks and is cheaper. The arrival of external managers inevitably means a decrease in the area of responsibility for existing employees. Therefore, it is better to expand the company, making executives executives and hiring other executives in their place than appointing outside executives.
Organic growth is similar to the natural growth of a tree, attracting top managers from the outside - planting shoots in a tree of another variety, which does not always end well.
D. Do not get involved in business processes and IT systems.
Regulated business processes and information systems are necessary for transnational corporations and other large companies to structure their activities and increase management efficiency. However, a startup of up to 100 people can very well do without strictly prescribed procedures and IT systems or with a minimum set of such.
I hope my article was useful to you. Happy New Year again!
Happy New Year! With new happiness!
So, it was a few years ago. Three respected in the IT community people who worked in directorial positions in large companies decided to create their own business. One of the three left work and became president of the newly formed company, the rest remained in their old companies, but began to actively help the new startup business with means, advice and connections (do not think that their companies began to immediately order services from the startup - no, nothing this was not, because the founders of the startup were respected people and appreciated their karma).
After a couple of months, the first customer was found (the startup worked according to the B2B model) and a team of people familiar to the founders was recruited to implement the order. The result was a small but efficient team of like-minded people, and the work began to boil.
First yearthe existence of the company went like clockwork. The company, with the help of a dozen employees, won several large tenders and earned a lot of money to its founders. The company was noticed on the market, it even got into the rating of 100 leading Russian companies in its industry (without any special efforts). In general, the first year of the company’s existence was a success.
Only a year has passed since the founding of the company, and its founders are already receiving an offer to purchase from one large holding. However, the future of the company is presented to its co-founders in a rosy light, and therefore they reject the offer. The founders decide to independently develop the business and decide to invest all or almost all the money earned during the first year in the development of the company in order to turn it from a startup to a large company. And here is how to do it:
1. The company’s staff is expanding, several highly paid employees are hired for the positions of executive, financial and technical directors from among the old acquaintances of the founders.
2. The company’s work is built in the image and likeness of large companies:
- business processes are regulated, a document management system is introduced, which involves the coordination of all outgoing documents;
- a number of information systems are being introduced (electronic document management, CRM, etc.), work with which takes a lot of resources from all employees of the company;
- Technical support services are expanding significantly in order to organize a round-the-clock shift in the office (before, the company was content with a standby mobile phone, which the technicians had in turn).
3. A lot of money is invested in company marketing:
- a new corporate identity is ordered from one of the leaders in the field of design;
- the company begins to participate in all industry exhibitions and conferences.
4. Many non-production costs are made:
- an office is rented, several times larger than the previous one;
- new representative and business class cars are leased.
With all of the above, the company does not hire new sellers, because the founders do not want to teach strangers the business - it seems that there are enough clients, and so, since the founders and newly hired directors have good connections in the market.
The second year of the startup’s existence goes like this:
- attention to business from the founders decreases, because they trust the hired directors;
- new directors dismiss several old employees and put “their people” in their places, more so than before;
- due to new tightly regulated procedures, the company ceases to work quickly and loses its competitive advantage in comparison with large companies;
- the motivation of old employees who worked almost 24 hours a day in the first, “golden" year is falling, because with the advent of new top managers, they were relegated to second roles;
As a result, labor efficiency is falling, the internal climate in the company is deteriorating, its employees (of which there are more than 50) can no longer be called a team of like-minded people. Due to the drop in work efficiency and due to increased costs, the company ceases to be profitable and begins to eat up the money earned in the first “golden” year.
By the beginning of the third year of the company’s existence, the co-founders understand that it does not develop as we would like and decide to rebuild the company and diversify the business:
1. The founders leave their jobs and start working full time for their company.
2. The company is undergoing cuts - several top managers and half of the technical support service are firing
3. Marketing expenses are drastically reduced
4. All the money remaining from the “golden” first year is invested in the development of new products in related areas of the market, a development team and several managers are hired for this.
But the company is no longer lucky as in the first year - new products turn out to be unclaimed, and old ones are already sold with difficulty. The company has to lay off a team developing new products and continue to lay off old employees. Former company managers become simple performers and leave the company one by one. Gradually in terms of number, the company rolls back to the first year indicators - only already without the money earned in the “golden” first year, without positive dynamics and without prospects.
And now - the conclusionsfrom the story told, which may be of interest to startups:
A. Sell the company during the “white streak” - during the “black” nobody will buy it from you.
If there is an offer to sell the company, accept it if you are offered conditions that are acceptable to you. Especially - if you are not sure that you want to manage a large organization. Startups and corporate governance are two different competencies. If you get the first one, it’s not at all a fact that you will get the second.
B. Begin the planned development of the company with the expansion of the sales management .
If you decide to develop independently, it is necessary to conduct active sales and ensure a constant flow of customers that would slightly exceed your ability to serve these customers. Only if this has been achieved can one think about further expansion of the company.
Imagine that you are a farmer. What will you do first if you decide to expand the dairy business - expand the herd of cows, or hire new milkmaids?
C. Expand the technical directorate only after sales increase.
It is known that human resources are “rubber”, i.e. have some degree of elasticity. If the employees of the technical directorate are correctly motivated, they will be glad to do additional work, even if sometimes they have to rework a little. At the same time, refining should not be done by the system, and therefore, when you make sure that sales are growing and not fluctuating, the technical management will also need to be expanded.
G. Forge your own frames
It is much more correct to develop the competencies of your existing employees than to outbid new employees with the competencies you need from other companies. The development of employees within the company increases their loyalty, carries fewer risks and is cheaper. The arrival of external managers inevitably means a decrease in the area of responsibility for existing employees. Therefore, it is better to expand the company, making executives executives and hiring other executives in their place than appointing outside executives.
Organic growth is similar to the natural growth of a tree, attracting top managers from the outside - planting shoots in a tree of another variety, which does not always end well.
D. Do not get involved in business processes and IT systems.
Regulated business processes and information systems are necessary for transnational corporations and other large companies to structure their activities and increase management efficiency. However, a startup of up to 100 people can very well do without strictly prescribed procedures and IT systems or with a minimum set of such.
I hope my article was useful to you. Happy New Year again!