Five ways founders can build enduring organizations Apextalk

Brilliant ideas, energetic founders and supportive investors can help startups get off the ground. But keeping the company flying is a different challenge, particularly in these tough and uncertain markets. In a McKinsey analysis of almost 1,800 startups, 78% that had launched a successful product failed to scale it up. Why? It is not just about ideas or capital, but is driven much more by whether or not founders can build a robust organization and culture. In fact, investors have attributed 65% of any less-than-expected performance in their portfolio companies to issues related to people and organizational set-ups. Hyper-scalers are geared to outperform the industry, remain resilient during downturns, maintain strong cash positions, set a high bar for corporate performance, and make calculated bold moves.

Five factors stand out from McKinsey’s experience with founders in India and around the world who have scaled up to build organizations that endure:

They build a structure designed for growth: The principle is that the operational model needs to be both flexible enough to allow for future growth and stable enough to manage it. This requires a change of mindset—from ‘growth for funding’ to ‘growth for sustained scale’. That means building an organizational structure that encourages innovation and risk-taking, but with clear accountabilities and decision rights. Too many founders say they want to delegate and do so on paper, but those who succeed actually empower their teams and enable them to make their own decisions. In addition, startups whose operating models allow for multidirectional growth, beyond their core business or geography, are 97% more likely to outperform those that don’t, our study shows.

They create new ways to collaborate: Start-ups are keen to bring in customers and revenue by all means. As they grow, however, they face the complexity of coping with multiple channels, platforms and partnerships. Communication becomes fragmented and siloed. Founders who scale up are much more deliberate about creating joint teams (across products, operations, compliance, tech) with specific operating metrics that they are responsible to drive, with focused daily meetings to resolve urgent issues. They use data transparently to drive actions, and do not allow historical friendships and personal equations to get in the way.

They get talent right: Startups can often cram everyone in a room, and the founder-chief executive officer interviews all new prospects. ‘Scaled innovators’ accept there comes a time when this is no longer tenable, and that they may need different kinds of candidates than the time when their startup was ‘the next new thing’. At this point, systems come into play to clarify the talent management strategy and define a differentiated employee value proposition. One digital commerce company used advanced analytics to identify which skills it would need over the next three years. Then it revised its hiring and training programmes and redefined key roles on the basis of this scenario. It is difficult to overstate how much this matters: A McKinsey survey of more than 600 companies found that organizations which reallocated talent frequently were twice as likely to outperform their peers.

They foster a distinctive culture: Startups create culture on the fly; with maturity, however, this needs to become far more intentional. It is important to acknowledge that the culture that enables a startup’s success may need to evolve to drive its next phases of growth. They communicate their growth mission and reward those who live out their core cultural values, and let go of those who do not, even if they happen to be current high performers. Digital entrepreneur James Bilefield, who helped scale up Skype’s global business, put it this way: “Failing to maintain a clear focus on core values and principles during the scaling process can result in unacceptable behaviours and other harmful effects.”

They adapt their leadership model: In the startup phase, the leadership team and the company are pretty much the same thing. But growth requires more layers, diverse talents and more structured development paths. An online food-delivery platform, for instance, created a career development programme targeted at its 140 people, with customized leadership journeys for each. By doing this, the platform’s founders got a highly motivated and skilled team of talented individuals who were now able to drive massive growth together.

Founders who believe in the myth that aggressive, dictatorial behaviour drives performance can have some initial success, particularly if they also got funds raised on the basis of their ‘idea’. But those that scale successfully have understood how to create 100-200 leaders who operate like owners themselves, have high levels of mutual trust and bear accountability towards one another to achieve the company’s goals.

Look at the journeys of unicorns in India just in the past decade. Those founders that have scaled and created value have not just talked about these five factors, but executed them with due focus and determination as well. They will keep flying in good times and tough times both.

Claudy Jules and Kate Lloyd George contributed to this article.

Alok Kshirsagar is a senior partner at McKinsey & Company, and co-leads McKinsey’s global practice focused on founder-led companies.

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