3 Disasters to Avoid When You’re Growing a Startup

You might have heard this story before.
A buzzy new company has just hit its stride. It’s landed some big-name clients, VCs are pouring in millions, and the media coverage is breathless. Internally, budgets are expanding, promotions are expected, new hires start weekly, and the parties keep getting glitzier.
Then, some 18 to 24 months later, things start to unravel. There are layoffs, declining revenue, unhappy customers, and only a few months of runway left.
So how does a story of rapid expansion turn into a saga that ends in failure?
Sometimes, it’s unavoidable: A larger competitor outpaced and outspent you, government regulations changed, new technologies made your business model obsolete. More often, though, structural challenges in people, culture, and systems are brewing behind all that growth.
When facing the dual challenges of speed and scale, there are three core issues to consider: management, transparency, and culture. Below, startup veterans and industry experts share their best advice for how to keep all three on the right track.

The wrong people end up in management roles.

According to research from Gallup, 70 percent of employee engagement depends on the manager, but only 18 percent of managers demonstrate a high level of expertise in leading others.
Shane Metcalf, co-founder and chief culture officer of the performance-management software company 15five, believes poor management is the most common challenge companies face, as well as one of the most damaging. “Promoting or hiring people to be managers that shouldn’t be [managers] is the fastest path to breaking your culture,” he says.
In a company that’s growing slowly or not at all, symptoms of poor management are easy to spot. You might notice declining motivation among employees, no accountability, political maneuvering, favoritism, or indecision. As companies scale, though, strong business performance can camouflage a lack of management talent. If numbers are being met and complaints remain low, it can be challenging to see the early signs of disgruntled teams.
Figuring out who’s a strong manager isn’t always black and white. Someone who might have skillfully led a smaller team could be stretched past their capabilities as the stakes get higher and the number of direct reports grows. Khalid Halim, an executive coach and founder of the leadership-development firm Reboot, explains what he calls the “law of startup physics”: While “humans grow linearly, companies grow exponentially,” he says. “The double-edged truth of the fast-scaling startup: If the company grows as it should, it will outgrow many of its people.”
“Promoting or hiring people to be managers that shouldn’t be managers is the fastest path to breaking your culture.”
That is a hard truth to swallow, especially because promoting from within can boost team morale. And as companies face pressure to keep growing, using the existing team as a pool for management talent can be a compelling quick fix.
“A lot of times, after closing an A or B [funding] round, companies get pressure to hire, hire, hire,” says executive coach and talent consultant Dolores Tersigni, who has led people operations teams at Headspace and Netflix. “They think hiring is a sign of success, but don’t necessarily take the time to build out a strategic plan, including who to hire, in what order, and why.”
To diagnose these problems, start by asking simple questions, says Metcalf. “Are people burning out? Is there gossip happening? Are there silos of information where people are not addressing issues with those involved?” Also, are there cliques based on who came on, in which hiring wave?
If the answer to any of those is yes, here are steps you can take to get ahead of the issues before they spiral out of control.

Create a clear definition of good management.

“Companies need to take the time to contemplate what makes an amazing manager at their company specifically,” Metcalf says. “There are some universal traits, and some unique traits for each company.” Make your criteria explicit, and use it consistently in hiring decisions and performance reviews.

For the majority of people who won’t be managers, make sure there is a compelling alternative path.

Once you raise the bar for management, it’s equally important to create opportunities for non-managers to grow in title, responsibility, and pay. For those in technical roles, Progession.fyi aggregates examples of career trajectories.

Rethink your org structure, often.

It’s important to make sure teams are structured effectively as things change. Review org charts quarterly, or on whatever regular schedule works for your company, and don’t hesitate to make the necessary changes.

Finally, build a holistic talent-acquisition program.

Tersigni suggests implementing a set of best practices for hiring to standardize and streamline the process, including setting up an applicant-tracking system, establishing hiring panels and scorecards, and creating a set of behavioral interview questions. Ideally, you can also bring a recruiter in-house who will be a true partner to the business leader making hires.

Transparency falls by the wayside.

There’s a certain intimacy to a company in its early days. You can walk up to someone’s desk to ask a question. Everyone’s sharing a scrappy sense of camaraderie. Oftentimes, the company is composed of family and friends, or people in your immediate network; it takes a leap of faith to join an early stage opportunity, and that usually comes from belief in the team and mission.
As the company hires more people, though, that tight-knit group becomes a set of teams, then departments, then hundreds or thousands of people in a complex organization. When this shift happens quickly, it can be challenging for internal communication channels to catch up. What once felt like an open and transparent culture can start to feel opaque.
Take decision-making. You could spend hours in a meeting talking about a certain decision, “but often what gets communicated is just the end result, not the intense debates, multiple perspectives, and difficulty in making that decision,” explains Metcalf. This can be exacerbated not just as companies grow, but also as people are distributed across offices and remote work becomes more popular.
Ironically, some of the structures intended to create order amidst chaos can end up hindering open communication. For example, if a company doesn’t have formal processes for performance reviews, and then implements one quickly without creating opportunities for 360 feedback, it can feel like there is no longer room for dissent. Employees who once felt like they had some control over the direction of the company might no longer feel empowered to push back on decisions or strategies they disagree with.
“So much can be alleviated if you just ask people what they think.”
Aside from reduced employee engagement, decreased transparency also means you risk losing valuable data from those closest to the customer and day-to-day operations. For example, the gap between customer expectations and reality can widen as teams struggle to meet demand at scale, which is what happened to Jobster founder Jason Goldberg. He explained in an interview with The Hustle: “We were so focused on growth that the product itself suffered. We were good at selling a vision, but we weren’t able to deliver on the products we promised.”
Here are some strategies you can use to make your own company culture more transparent.

Overcommunicate.

Metcalf suggests communicating any decisions that arise from leadership meetings, with context, in multiple channels, from live meetings, to one-on-ones, to Slack. “So much can be alleviated if you just ask people what they think.”

Relinquish control.

Evan Walden, CEO at networked recruiting platform Monday.vc, says that a key element of transparency is a greater distribution of responsibility throughout all levels of a company. “In times of rapid growth, it’s critical for leadership to surrender top-down control,” he says. “Clear vision and values give team members a framework to make good decisions autonomously, allowing leadership to let go of tactical details and focus on the big picture.”

Create space for dissent.

If you want open dialogue, don’t just wait for it that to happen. Make sure you implement structures for upward feedback. For example, URX co-founder and CEO John Milinovich holds what he calls “contrarian office hours” every Friday to solicit ideas, questions, and grievances from his team.

Be the example.

Jen Kodner, talent partner at the venture capital firm DFJ and former head of recruiting at Box, says that in her experience, “All of culture comes from the CEO and founders of the company. That person has to be the example. Real talk is always good. Don’t hide things behind closed doors.”

Speak up.

“If you are going to join a fast-growing company, don’t fall back into lowest common denominator of pointing out problems without also coming up with solutions,” Tersigni advises. Be candid with your boss about what you would like to see, but also bring in the data, resources, or suggestions about how to make that happen.

Frequent culture changes leave everyone demoralized.

You’ve probably heard, or said, or thought the following phrase at some point in your career: “I miss the good old days.” Or maybe: “Things just aren’t the same as they used to be.”
For most people, change causes fear, anxiety, and doubt, and in a fast-growing company, it can feel personal. Longtime employees will report to new managers. Strategies will shift. Org charts will change. Projects that were once the top focus will be deprioritized in favor of new company-wide initiatives.
Companies are required to change all the time in response to shifting customer needs, new competitors, and technological changes — but leaders can fear rocking the boat, especially with employees who joined in the early days and were drawn to a particular mission. By not naming the change and helping employees process what that means for them on a daily basis, though, you can end up with even more frustration and resignation.
Here are a few ways to create a culture that embraces change.

First, communicate that change is the norm.

Managers should set expectations that changes will happen often in rapidly growing businesses. And when change does occur, don’t sugarcoat it: Take time to understand what the change means for people at all levels and create opportunities for questions, feedback, and pushback.

Cultivate a growth mindset.

A growth mindset is the idea that abilities can be honed or gained with effort, as opposed to a fixed mindset, or the idea that abilities are innate and largely unchangeable. If you haven’t read Mindset by Carol Dweck, stop reading this article and go check out the book; if you have, take her advice and work on developing a growth mindset, which means learning new skills, seeking feedback early and often, and embracing challenges for what they can teach you.

Finally, be patient.

“Don’t think things will be ironed out” immediately, Tersigni suggests. “When you look under the hood of any fast growing company, they are all figuring stuff out. Things will change, from people to business strategy.” Assume that growth is going to be a long and bumpy ride, and you’ll be better off for it — and better equipped to help guide your company through the process.