The 3 stages a CEO of a scaling company has to go through

Since my time as a VC some twenty years ago, our understanding of how to build businesses has grown dramatically—particularly when it comes to topics such as raising capital, achieving product-market fit, and developing go-to-market strategies.

But one aspect remains a common and mysterious challenge for many founders and CEOs: the question of how to build a high-performance organisation that scales.

Over the years, I noticed that my clients kept encountering the same problems over and over as they grew, often at roughly the same stages in the scaling process - problems like functional leaders whose growth doesn’t keep pace with their departments; teams that get bogged down by internal conflicts; cross-functional relationships that become strained or break down entirely; and staff who become disconnected from the company’s leadership and devolve into tribes.

Many CEOs ignore these issues—until the problems are severe enough to visibly slow them down. At that point, they tend to approach each symptom as a one-off, trying ad hoc solutions that might help temporarily but don’t address the root causes. Others just push harder, throwing more money and people at the areas that are holding them back.

Unsurprisingly, none of these approaches work. The harder you push an organisation that’s bogged down in friction, the more dysfunctional it gets. This is not exactly a failure of your leadership. What you did in the early days may have worked great, but it won’t necessarily work forever.

To be a truly great founder/CEO, you need to be able to not only spot these problems quickly but also anticipate them—and build the habits and skills that enable your organisation to avoid them. It’s completely doable, but most leaders aren’t equipped with the knowledge they need. As a result, many successful scaleups end up stumbling just as they seem to be coming into their own.

The Stages of a Scaling CEO

There are three key stages for the CEO’s role. Most founders make it from Stage 1 to Stage 2 unscathed, but as they approach Stage 3, where the learning curve gets a lot steeper, a lot of them get stuck. These problems are common, but far from inevitable.

If you understand how your job as founder/CEO needs to shift as your organisation scales, you can take proactive steps to make sure your leadership keeps pace with your company’s growth.

1. Getting Stuff Done

In the early stages, founders are all about getting stuff done — and that’s as it should be. There are people to hire, prototypes to design, customers to win, and investors to woo. It’s all hands-on deck, and everyone does a bit of everything — so even though your title is CEO, you’re as much an individual contributor as you are a manager. Aside from defusing the occasional interpersonal conflict, your organisational worries mainly boil down to deciding who to hire next.

2. Making Sure Stuff Gets Done

Things start to change around the time your company reaches thirty to forty people. This is usually the time that each function gets a clear leader whose only job is to build and run that function — as opposed to the early days, when everyone is double or triple-hatting. With solid teams focused on each of the core functions, your main job is no longer to get stuff done — it’s to make sure stuff gets done.

3. Building the Organisation that Gets Stuff Done

When the company reaches 100 to 150 employees, it gets exponentially harder for you to ‘make sure stuff gets done.’  There are simply too many workstreams, too many meetings, too many projects. So a different approach is needed.

In addition, at this stage you’ll generally notice that people and collaboration problems are appearing faster than you can solve them. Many of these problems aren’t simple ‘one-offs’, but rather ongoing tensions that don’t have simple solutions. This can all come as something of a surprise after a few years of dealing with things as they arise.

What’s going on? The answer is Organisational Complexity, which grows exponentially with the size of your company. Think about people as nodes in a network: a five-person team has 10 possible one-on-one relationships, but a 150-person company has over 11,000. There’s simply no way to deal with them all individually. And as your headcount grows, so do the numbers of products, projects, offices, time zones, cultures and even languages spoken.

As a result of all this, your job as CEO is fundamentally different at Stage 3 than it was in the past. Now your job is to build the organisation that can reliably and sustainably get stuff done, even as it scales. This requires you to develop entirely new competencies, like building high-trust teams, surfacing and resolving tensions and conflicts, and facilitating effective cross-functional collaboration.

So, how do you make this successful transition to stage 3?

#1. Give up your old job

It’s time for someone else to make sure things get done. Instead, focus on what you can’t delegate: the vision, the strategy, and, especially, the development of your organisation.

#2. Build a collaborative culture, starting at the top

As your business scales, your capacity to take on more complex projects grows along with your growing expertise. But these projects can no longer be accomplished by a few people or a single department. This is the point at which frictionless cross-functional collaboration becomes a make-or-break capability.

Your senior managers need to be the most skillful and visible adopters of the collaborative culture you’ll need throughout the organisation. As the company grows, new hires inevitably identify more with their department and its leader than with the company as a whole. If they don’t see their leader building effective collaboration processes with other leaders, they won’t collaborate well across functional lines either.

#3. Become an organisation builder

Learning to be a great organisation builder is how you become a true scaling CEO. Even better, it’s how you get out of the way of your company’s future growth. Organisational Complexity is a lot like arthritis: it makes you stiff and slows you down. Your job as CEO is to minimise this complexity.

One key to this is ruthless prioritisation. What I’ve noticed in working with many CEOS is that the most successful ones understand that every additional priority adds complexity, and that complexity slows you down. You need to diagnose the spots where ownership is unclear, information isn’t flowing, processes aren’t streamlined, or people aren’t working well together. Then, find a way to work with the people to bring agility and smooth flow back to the organisation in these areas.

#4. Don’t get stuck just growing

Growing your head count—or your revenues—is not the same thing as scaling. I’m not sure how many CEOs really appreciate the difference. Scaling is about building an organisation that gets more effective and efficient as you grow; that maintains speed of execution with minimal internal fiction, and results in highly motivated, energised employees.

When you successfully scale an organisation, yes, it also gets bigger, but its culture and performance should stay the same, or get even better. CEOs who understand this and can successfully adopt the shift to organisation building are the leaders who build truly scaling businesses.

Excerpted from Smooth Scaling: 20 Rituals to Build a Friction-Free Organization.