Tl;dr: What’s the difference between a startup and a scale up business? Everything changes when you start getting successful and large with a scale up business. What worked and people enjoyed as a startup will not hold true once you scale up. Here are some of the changes you should expect
At a 10 person company you are a startup, at a 100 you are a scale up.
Now, whilst startup is a term applied to pretty much any company (Uber still a startup?), scale up is a little more of an esoteric term. But the differentiation is worth adopting for our purposes since they denote two distinct phases of growth.
I think the clearest ways to delineate between the two are as follows:
How much you have figured out
- Startup: You and your (little) merry band of thieves are figuring your shizzle out. You probably haven’t figured out product market fit yet, you aren’t 100% sure on who exactly your clients are (You might migrate from enterprise to SME focus?), you aren’t sure on pricing… well, you aren’t really sure about anything. Most of the time, anyway.
- Scale up business: Something clearly is working to have the burn of a 100 person company! It should be exciting and terrifying. You have most likely (Um, think delivery companies are an exception!) validated your product, there is fit for customers and you are trying to get your unit economics to optimise. There are still a lot of things you haven’t figured out, but the future is a little more certain now.
How much you have raised
If you have gone through the whole VC funded startup route, then you’ve raised money. It will be different if you are a rock star and figured out how to boostrap (Congrats, dude!).
- Startup: You are angel, pre-seed, seed, and series-a (Real series-a). You’ve raised maybe $10m max (But that depends how capital intensive your business is)
- Scale up business: To me, scale up starts series-b (Again, real series-b). You’re raising in the tens of millions going forward
Your risk aversion and the threat of loss
- Startup: You literally have nothing to lose. You left Chucky Cheese to build your parking app and if it doesn’t work, you go back to flipping burgers for annoying kids. Your startup is worth nothing, you simply aren’t worried about losing it all. If you find you don’t quite have PMF, and a developer has an idea for instant public updates, then feck it, pivot (FYI, that was Jack Dorsay when we worked at Odeo, which later became Twitter. Read about startup pivots here.)
- Scale up business: You last raised at a $50m pre and you own 50%. That’s $25m on paper. That is life changing money for 99.9999999% of people. You can write a Medium ‘humble brag post’ and do the rounds at conferences and call yourself an angel investor. You DO NOT want to lose the glory that’s so close (but yet so far). In startup phase, you might pivot at the drop of the hat, now? Nope! Investors expect you to grow like a weed doing what you are already doing. They are fearful of the Golden Goose dying too, and frankly, they’ll fire you and bring in Bob Barker if they get a sense you aren’t cutting muster
Time to scale is a distraction, though
Time isn’t a great manner to separate the two as magic can happen. I interviewed a founder who scaled to $8m revenue in 30 days (see the video) from scratch! If you have an amazing team and so can raise a lot of money, you might enter a scale up period in a year or so. For many, it might take 4-5 years to reach that point, if not more.
Now we understand some of the differences between a small and a large company, let’s get into how managing the two are different.
You don’t want to have control anymore. You have to let go… but need to create systems and bureaucracy in a scale up business
I’ve scaled a startup to 200+ people in months from a hotel room. I’ve “scaled down” 100 people from 300 to 200 in a week twice. I’ve also bootstrapped and struggled all the way.
When your mindset is scale, you remove yourself emotionally from the notion of control.
You being controlling is now a futile exercise. Just let go. Focus on:
- Picking the right people to manage at the stage you are at (not where you will be in 2 years; this is key!)
- Getting them up to speed and inspiring them
- Tracking their performance
- Instigating process improvements and remembering you have the ‘full picture’
- Lighting a fire under peoples’ asses so they are never comfortable
- Replacing when you need to (always be recruiting so you have a pipeline. You won’t realise how important this is till you lose key people and think feck… Alex was right)
As a founder in a room, building block by block you are too engaged (unless you have done this crazy shit before and know better). It’s your ‘baby.’ Feck that. At scale it’s not your baby, it’s an angsty teenager that kinda hates you.
Now, when you were a startup, you hired people and they could have systems in place that kinda did the job. The focus was on shipping and not bureaucracy. If your branding on display adds wasn’t consistent, but it converted, eh, whatever if it converted. Maybe the engineers weren’t as anal about documentation and code review, but a little technical debt is a par for the course. Fine, it works, customers are sort of buying and churn is ok.
When you get big, things get a little more boring so that they work at scale. Now there are branding guidelines. Now there are code reviews and extensive documentation since you might have APIs third party devs are using.
The team will no longer be 100% shipping. They might be spending 50% of their time on implementing processes so that someone else can take over.
You will eventually stop hiring each and every person and you won’t know their names, nor if they quit and don’t turn up to work anymore.
You have quarterly performance reviews. The OKR and PPP sheet of mine isn’t enough anymore.
You have to let go of the fact that some important things will be done “worse” than if you were doing them or directly managing them.
Yes, this will not appeal to all staff you started with, but the people you need to start aren’t 100% going to be the ones you need to scale with. Some people will end up having lesser roles and perhaps leaving. They were a star, but they don’t have the chops anymore.
You don’t have control over hiring
I believe you should get in final interviews for as long as you possibly can. Clearly, with under 100 people, it’s a lot of work, but it’s still manageable. It’s so important to keep a handle of your company culture. My friend is a senior at Airbnb and he told me Chesky and co still interview every senior candidate before hiring them.
Once you have over 100 people, you don’t have the time nor interest to hire everyone. And seriously, if you are in ecommerce, do you really give a toss about hiring some inbound minion in the warehouse? No, neither did I. Your time is frankly better placed at trying to land 800 pound senior hire gorillas that move the needle. You lead engineer, new VP of Sales, Finance etc. It is a balls to land senior people. Again, trust me on this one 😉
If you have done a great job mind washing staff with culture, HR have sat in enough meetings with you to know what values you hire for, the questions you ask etc, then you have created a hiring process you like by osmosis that can continue to bear the flame for you. Maybe you wield control over final hiring decisions, but you put in enough effort that the final candidate you get is 95% likely someone you would hire, so the final interview is closing.
Hiring is critical, but you need to vest control of it as soon as you reasonably can. And hiring is sooooo dull.
Being part of any startup is a constant learning process. You should never stop learning and never think you know everything. Satya Nadella said:
Don’t be a know-it-all; be a learn-it-all
Jason Lemkin tweeted this, and I quite like it.
You have onboarding processes
When you hire people in a startup, you interview them and make an offer on the spot. They start on Monday, or right now if you work at Rocket Internet. Maybe they use their own laptop, or you order one over the weekend (Haha, most of my friends don’t give computers to staff anymore to save money). They get an employment contract and you tell them they’ll get their ‘share offer’ soon… and you point at the only desk free and say ‘do stuff’.
At a scale up business your HR team start thinking about pretty things. There are employment startup offer letters (see this example!). You have a mentor/buddy who shows you around.
At Amazon, Bezos gets all execs to spend a week in customer care to understand customers.
But onboarding new staff isn’t a one-time thing. You need to continually onboard people till they can onboard people as good as you would hope to.
And for managers, you need to constantly remind them to spend time with new joiners and not just tell them about goals and culture when new people are hired, or remind them a few times. At a scale up business, staff need to hear about what matters most over and over, to live the company values every day, observe leaders living them. You need to make a conscious effort because it isn’t something that just happens naturally at lunch every day. You’re too big now.
You have a hierarchy
You didn’t start a company to have a boss. At a startup, you’re everyone’s boss. Things are hectic but chilled in terms of corporate BS. Your 10 person startup runs on ideas/passion and transparency. You are all in one (smelly) room, turning your shoulder over to ask if something was shipped. You might start doing startup standup, but not too much more. It’s a flat hierarchy with you at the top and everyone below.
Scale up? Hell no. You might start feeling like you are at IBM wearing a blue shirt. Sorry, but that’s the way it needs to be.
A 100 person scaleup needs organization and structure with functional responsibilities. There are department heads and team leaders. You need to constantly think about cross-department-communication and flow of information. There is a chart somewhere with a hierarchy that is a few branches deep. Developers start getting titles like L2 senior quality control engineer, rather than The Dark Lord, which you might have let them call themselves before.
My advice is to give proper title from the start and do away with all the stupid titles you will need to take away later. Some people mind. Go figure.
Around 25 people, an ironic situation will arise; staff hate the new systems but will bitch on cigarette breaks about why things don’t work well. At 200, people will start vocally complaining at town halls (I experienced this at Lazada). Trust me, 99% of staff expect things to work but will not take the impetus to fix things themselves. It’s better to be more structured than not. It’s better to have a ‘stick up your ass’ than be ‘disorganised; people may not like you, but they will respect you. Staff are NOT your friends. If you feck up, they are out of a job.
There is a reason you will start increasing the mean age and having ‘grey haired’ people about with corporate experience around 100 people, or far less if you are more product orientated.
You might not like it, but do you want to build a big company and buy a small island, or not?
Google hired Eric Schmidt as CEO. Zuck hired Sheryl as COO.
These folk deal with metrics, targets, processes, systems etc, so your company can scale up, and you look like a pro (so the VCs don’t fire you).
You hire for specialists, not generalists
As a startup, stuff needs to get done. Someone bright with time is enough, to do good enough. Good enough is good enough. Done is better than perfect as the % gain from 0 to 1 is infinity.
A scale up business is about optimising. You need to do everything really well. To do things really well means hiring experts.
You don’t hire one person to run marketing at a scale up as you did when you started. Hell, one person at a startup who knows marketing is magical!
Nope, at a big scale up business you might have 4 people just doing SEM, a few in affiliate, 20 in SEO, a channel management team etc (Depends on your business model). Do you know any of these people? Nope. You might chat every other day with the CMO and weekly with department heads, just in marketing!
At startup you probably knew what keywords your SEM consultant was using, at scale up business there are so many campaigns, you don’t even know how the system works. And do you know what, you just do not care! You’re looking at your return by channels or aggregate CAC.
That was just marketing, btw. You’re going to have teams for everything. And the management overhead for hiring a generalist to do something specialist will drive you insane. You’ll reach breaking point if you have hired badly and pay someone twice what you should have to just get some extra sleep (and then regret it).
As a rule of thumb, you shouldn’t know about one topic more than one person in the company. You need to have specialists that make you feel dumb for everything else. The dumber you feel, the better you will sleep.
Also, whilst you need to hire great people, you won’t really ever find perfect hires. There’s no one that has build the same startup twice. Yes, maybe someone built a food delivery company before, but that was a few years back and the market will have changed, the same market strategies don’t work quite as well and customers’ expectations will have changed (Maybe they want higher end restaurants which mean going operational and setting up a logistics fleet).
The environment is less intimate
The environment at the early stage is intimate. You don’t know everyone’s name, you get to know everyone very well. That’s the beauty of a really early stage startup. You set the culture. You can have an only asshole rule if you want?
At startup, everyone knows what is going on on a daily basis. But once you scale up, that just isn’t feasible. You can’t have one on one conversations with 100 people.
You need to be like Jesus and attract 10 disciples who you will spend time with and then go on and spread the good word for you.
Whilst you don’t need to interact with everyone, you can be the ‘man in the high tower’ and do nice things at scale so the staff think you care. I highly recommend making your startup fun and being a little weird. I used to do random things like organising donut eating competitions and being the master of ceremonies, giving a prize. I buy ping pong tables (managers hate them, staff love them). I create competitions to reward behaviors I want to develop (like working late, thinking for yourself etc).
Just because you are running a scale up business does not mean you can’t interact with staff at scale though.
Now, it does help to be an extrovert here. I was working in a startup and my buddy was technically my boss. I was organising things and he didn’t want to speak in front of 200 people. I personally enjoy it, so I did. Is that to say he didn’t benefit from a better work environment with better communication by proxy? Of course not. I think it’s best for the leader to lead, but if you suck, embrace your weaknesses and delegate. People will still know who the boss is.
You want to make more rules (but you shouldn’t)
If you haven’t heard of it already, you should check out the Netflix Culture Manifesto (Culture). This slide (#43) is the real challenge you face as your company grows:
As you get bigger and have more staff about, the likelihood someone has habits that piss you off gets statistically larger!
Oh god, I had this one COO who ate with his mouth open and made so much noise. It drove me nuts. I ALMOST banned eating at desks blaming mess or something from all the staff… I didn’t though as eating at desks means more work done, he he 😉
Most companies add more and more rules as they grow. Staff hate them.
Of course, there are rules you will have to implement at some point, and that’s around ‘hitting on staff’ and shite like that. But every time something breaks you’ll be tempted to add another rule and you need to fight it.
Learn from the Netflix experience; they learned and implemented this for a reason. Push decision making down as far as you can and let your team learn from their mistakes. NOTE: This only works with smart staff. It doesn’t work in customer care agents and shizzle. They want to be told what to do. I learned this from actual feedback.
Things continually stop working and fixes get harder
Whatever was once working when you were a startup will stop working when you scale up. You didn’t have so many complications and edge cases.
Systems will stop being adequate faster when you are scaling up. The constant change in your business will mean constant changes in your systems. What worked a month ago might not be good enough this month. This will surely put a strain on staff who have to keep adapting.
When hiring people, it’s a good idea to set the expectation that they have to be ok with rapid change and the need to adapt to it. And whilst you need technical skills, you need to hire for culture too. It can take a long time to build a great culture (you actually enjoy) and only a few hires to destroy it. Not everyone you hire will have an appetite for change.
Which leads to this inter-connected point:
You need to remember you are a company, not a series of departments
You eventually need to start preempting failure in departments. Understand that each department is a fundamental growth unit. If one thing breaks, it can impact the whole organisation. There can be real implications of a department break down. Customer care might once not have been important, but if you notice you NPS steadily decreasing, you have an issue now. It may stem from product, but your underinvestment in CC and CS is now not capable to pick up the slack and mollify these pissed off customers.
You have limited funds so you can’t do everything perfectly. It becomes a juggling game where you prioritise one hole to plug as another spring.
At one scale up business I had a CEO screaming at me to do more marketing campaigns and get bigger discounts from merchants. I told the CEO to feck off as my merchants weren’t being paid on time and our processes needed to be fixed first. There were no processes nor communication between supply chain management, finance and buying. Buyers didn’t give the info to finance and wouldn’t share their contacts, SCM then didn’t give the PO/Invoice together so they wouldn’t pay suppliers. Buyers only found this out when they tried making an order. Shit show. We had department heads, but no one tasked with interdepartmental integration.
Do not forget that people need to talk to each other outside their department! I’m telling you from experience they won’t. You also monetise people on their department targets- they have no incentive to stick their head out and try make changes with other deparments. My recommendation is to organise weekly meetings with department heads and get them to share openly. You’ll learn so much they didn’t share before, about things you simply had no idea was really an issue.
Erik Fairbairn, Founder of POD Point says:
“Each time your business doubles everything seems to break; your sales process, finance processes, management information flow, so every time your company doubles in size, you end up re-designing every process you have. The challenge lies in predicting this and updating your processes before they break, but when scaling really quickly, all your processes and procedures are under pressure all the time, so it is hard to spot which one is about to fail next.”
Start to scale is a paradigm shift
In ‘start’ you have to be engaged in everything as you have no people!
When you have a lot of people you need to be a bit of a sociopath and think of everything as inanimate objects, akin to chess pieces.
This is harsh, but if you have to fire 100 people, the decision needs to be thought of like sacrificing Pawns. Sure doing it sucks, but it’s just a business decision. You have to be ruthless (sorry, not sorry).
With a scale up business everything is about processes. You don’t know peoples’ names (ideally you do, as they’ll love you for it) anymore. The people in customer care is the CS department and you think about KPIs and if the average person is doing enough calls and if you need new software? You wonder if feedback is getting to the buying team, or if supply chain management knows certain suppliers suck. You don’t think about individual cases, you think holistically.
Then someone needs to build processes and run the department. Those people just report to you. They need to figure things out. You make it clear they are accountable for results and have the control to do whatever needs to be done. Let go (again, let go).
Meetings might seem like a pain before, but now meetings are your job. You aren’t meant to be busy- your staff are. You are there to do meetings with them. That’s your job which must sound weird to you now.
Finally, your problems are bigger now. They’re more detailed and inter-connected. You need people who know more than you do. Hire better than you. Interview people and think F me, I have so much to learn from this person and that is AWESOME. Don’t think they make you look bad. Your KPI is hiring to make you look great by being the dumbest, most senior person.
Fundraising gets easier (or much harder)
One thing I tell founders is ‘You only have one chance to tell a story!‘
What do I mean by this?
If you are a great salesperson, you can spin a reality distortion field by the strength of you will and personality and ‘con’ investors into backing you. They buy into your dream.
Ok… you can maybe do this twice at angel and seed… but not at series-a. Forget it.
You think angel and seed are hard, but you ain’t seen nothing yet if you don’t have metrics at series-a+.
At series-a+ it is about your metrics. Yes, your sales bullshit STILL MATTERS, but, if you don’t have metrics now, you are fecked.
I joke to founders ‘if you have kick-ass up and to the right metrics, you only need a five-slide deck. One cover, second team, third a graph, fourth a picture of a hotdog and the fifth where to wire the cash.’
It’s kind of true. Wag got $300m for dog walking. Seriously!? They clearly had metrics (I’ve tried to get them, but I haven’t yet). Who wants to fund dog walking? But if you have metrics, eh?
Slack got craaaazy money… why? Growth.
In scale up land, it’s easy to raise money… if you are kicking ass. Investors love growth stage as you have significant traction and there is visibility about most things. Numbers have a tendency to give people comfort. Trust me, it’s way easier to raise $100m with a great company than $5m.
But if you don’t have #s, you’re screwed. You can’t tell a story anymore. You’re desperately trying to close a bridge round, and no VC likes bridge rounds (unless they are on predatory terms).
You have a board to report to
If, like many companies you have raised, you have a board. A board means reporting. This means creating board decks (could take a day to a week). In a scale up business your board is paying attention to you as they hope you are going to make their fund.
Here is a template board deck for you. I made it for one of my venture built companies, so it is designed for early stage companies, though you can remove some of the accountability slides and augment it for a scale up business.
As a startup, you may have had angels or a VC at seed which let you just get ship done. They know you are figuring things out so it’s less strategy and more grind. Yes, you need to say what you are doing (weekly/monthly email is fine).
Scale up means perhaps a 3 hour call every month. I wrote about this in the board deck template above, so read that.
What I will say is that the VCs are your boss now. If you piss them off they can and will fire you. They will not do their pro-rata and therefore 86 your raise. My VC mate told me about a company they took over and fired the CEO, bringing in a new one. He’s actually a nice VC, so there was a reason… but yeah, you can get fired. So keep informed and happy.
I will also say… the board works for you, so get them to help you. Control board meetings. Give them tasks to do like help you find a VP eng, make client intros, whatever. Leverage them. They really do want you to succeed, and firing you is a tonne of work.
You have product-market fit (or close to it), so you are focused on growth
As a startup, you are trying to figure out if the idea you mapped out with Johnny in Murphy’s bar when totally wasted is actually as awesome as you thought it was (Post hangover). You figure out who the customer is, where you find them, how much it costs to acquire them and how much they will pay you. You raise money to figure out ‘what works.’
At a scale up business, you have (hopefully) figured this all out. It’s called having ‘product market fit.’ To me, PMF means you know your CAC and your LTV (Spend $x and you get $y back with a certain payback period) and you are happy with that. Your product and its features are what customers want. You are now figuring out how to do 100x of ‘what works.’
Growth is hard. Yes, startup sucks as you have no resources, but scale up has its own challenges, just a hella lot more of them. At startup, you stressed about figuring out which CRM to use. At scale up you’re integrating a new CRM with marketing automation, customer care, and success and whoever needs the data like your business intelligence team.
You think you can do all that yourself? Hell no! You need to hire a lot of specialists who have the knowledge you need to implement that really quickly! Where the hell do you find all these people now?
At startup you might have been smart and identified kids 22-27 who are super bright and ‘figure shit out’, but this just doesn’t cut it in a scale up business. You have to pony up cash for salaries and do some wining and dining to close these experts you need.
It’s probably going to take you a year to migrate your paradigms, processes and systems from startup phase to scale up. And yes, it’s going to be both painful and expensive.
My advice to make it less painful is to hire better than you whenever you can. These people will know what to do and do a better job than you. Embrace that. Laugh how much easier your life is not, and don’t be threatened by them. Watch out for the ‘bozo explosion.’
You spend a lot more money on marketing
Darn, the amount of money my marketing teams have spent is insane. It’s not always spent perfectly. I’ve seen CACs in display channels in the hundreds of dollars. But that’s fine, well sort of! The marketing team needs to figure out what works and doesn’t work for your business model. You have to burn money in tests to figure that out. The team also likely needs to be trained up to get better.
When you are trying to scale up, your hacky methods don’t work anymore. Marketing gets a lot less efficient. Scale up marketing is hard as things need to move the needle. There is a trade-off between efficiency and volume.
You need to spend a lot of time reviewing metrics and looking at channels more holistically.
I highly recommend making a really good dashboard for you to review with your management team each week. Start with something hacky, but improve it over time. Also, hire at least one person in BI (Business Intelligence) who does all this prep for you. If you don’t have data, you can manage.
Conclusion on scale up business
There we go, guys. Do me a favor. What are your biggest learnings scaling? Share them in the comments and let’s discuss.
Video on YouTube
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