The Hagakure #60: Growth Without Scale

Getting people in the door is easy. Getting them to be a team, not so much.

Hey there! 👋

The Weekly Hagakure is now The Hagakure.

Why?

Because while the sentiment remains, the schedule doesn’t. Instead of “weekly” it’s now “whenever.”

Why?

Because I’ve realized that, although I’m now able to crank out one of these every week, I honestly don’t enjoy it. I just don’t care for being on a schedule anymore.

Why?

Because I’ve realized this self-imposed “consistency” is code for “what you must do for The Algorithm to promote you, to get more readers and followers.” I’m stepping out of that game.

Why?

Because I’ve realized that, if I’m being honest with myself, while part of me wants to contribute insight to readers, a larger part of me (ego) is just seeking validation—to be seen by others as competent, worthwhile, interesting. And as I became aware of it, that need dissolved.

Why?

I don’t know. Because.

As I approach 40, it’s become crystal clear to me that stacking commitments on myself is not how I thrive. Life’s too short to simply survive, to chase some definition of success that somehow got programmed into me, or that is forced upon our throats by the culture of more.

So, as Shane Parrish at Farnam Street opens each of his podcast’s episodes, “It’s time to listen, and learn.” And that’s what I’ll do.

Beyond that, I am focusing solely on what truly gives me energy: my coaching practice. If you’d like to work with me, hit me up via DM on Twitter or LinkedIn.

Maybe there’ll be more Hagakure posts in the future, or maybe not. If there are, it’s because I truly had something I couldn’t help but say. Until then, I hope you enjoy this last post below. It’s one of the times, I tell ya.

Thank you! ❤️

There is a quote I came across recently that goes like this:

“Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.”

¹

It’s timely because we are living in hard times—for some measure of “hard” anyway. When I think of what these hard times mean for the global economy in general and growth tech companies in particular, I think of this adaptation with a twist:

“Hard times create strong companies, strong companies create good times, good times creates weak companies, and weak companies die in hard times.”

By dying I don’t necessarily mean getting wiped out. Stagnation, getting acquired in a fire sale, etc, all fit the bill.

My thesis is that, in many cases, the external circumstances (“the downturn”) are the coup de grâce rather than the cause of business troubles.

You see, when money pours into a company’s bank account almost as freely as beer flows at their retreats, it’s easy to get greedy. We can now do all the things, and we just need to hire more people… say, 3x the “headcount” and it’ll be amazing. Because the more people we have, the more we get done. Of course.

Of course not.

When the math stops… mathing.

You see, the nagging issue is that growth does not equal scale. In good times, nobody gives a shit. But in bad times, someone somewhere gets uncomfortable, starts asking questions, which leads to looking at some numbers and, whoopsie daisie, what the hell happened to our “revenue per FTE?” 😱

Growth without scale.

That’s what does growth companies in, and it starts well before the downturn.

I’ll admit that this is pretty much inevitable in the peculiar game of venture capital and high-growth. Greed is, afterall, baked and priced in. The real question is what happens next. And, sadly, what often happens amounts to a case of slow, agonizing seppuku.

A Japanese samurai placidly commiting “seppuku,” a form of ritual suicide.

So, how does it get to that? And what can be done about it?

What Typically Happens (But Shouldn’t)

In The Sun Also Rises, Hemingway has this phenomenal line:

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually, then suddenly.”

In a sense, that’s what happened to so many growth startups over the last 2-3 years when it came to growing without the ability to scale. Abundance is never a good teacher, and it’s a known human flaw to think that the good times will last.

Unfortunately a few things are true during those good times that start as small problems but turn into bigger and bigger problems as the company swells in size:

• Most startup leaders never went through high-growth. 3 in 4 startup founders are first-time entrepreneurs. Heads-down “grinding” leaves little time (or inclination) to learn from history. Instead, they listen to peers (who are just as much trying to figure it out) and, tragically, from investors who often have zero clue and give advice by blindly pattern-matching.

• Anxiety and stress impairs learning. High pressure from investors to go for the home run leads to impossible targets. With adrenaline and cortisol running high, capacity to see beyond the short term is limited. Keeping the lights on is hard enough, let alone reflecting, learning, and seeing around corners.

• Dysfunctional (or inexistent) senior leadership teams. Very few leadership teams are more than a group of leaders vying for their set of OKRs and fighting for “resources”, thereby creating silos early on. And CEOs rarely have the ability to effectively run focused, productive staff meetings, and 1:1s with their direct reports that create real shared context.

• Management is poorly understood. Middle managers are seen simply as responsible for teams to “get stuff done.” Ensuring communication flows between all levels of the org is second-class at best, forgotten at worst. And OKRs as a measure of individual manager performance all but kills any lateral communication between peers, further consolidating silos.

As all of these factors (and more) compound, a negative flywheel fueled by assumptions and communication breakdown starts spinning, at first slowly then faster and faster. Those in the frontlines understand less and less why priorities change a lot, why they are pushed to do X or Y, and wonder what their impact is (if any). Meanwhile, the frustration mounts because senior leadership is invisible and even those who want to voice their feedback don’t know where to point it to. Trust breaks down.

At the same time, with goals not being met, the leadership’s trust in the employees also erodes. There’s a growing sense that people are either not working hard enough, don’t care enough, or are simply not good enough. Calls for “increasing performance and productivity” become more explicit, performance review processes get serious, and more time is spent on bureaucracy, creating even more frustration and productivity decline.

What Should Happen (But Doesn’t)

No one can guarantee that a company will successfully scale but I’m very confident based on my first- and second-hand experience that the following are directionally correct:

• Don’t assume; ask people. The cardinal sin of senior leadership teams is assuming they always know what’s up. As company size increases, so does their distance from the ground, and they become out of touch with the real issues. Scale requires ongoing feedback loops with the frontlines.

• System first; then the parts. When things feel broken, it’s easy to default to looking at individuals first, and dismiss the “underperformers.” But in a complex system, the relationships between the parts are always more critical to the outcomes than the parts themselves. How work happens, how communication flows has way more impact in the company results than any individual underperformer.

• Focus on middle management. Middle managers are literally the connective tissue of organizations. They ensure that relevant context is shared and information flows. A company without strong middle managers who show up also as coaches to their people is brittle, and severely limited in its scaling ability.

• Don’t retain control; divest it. The biggest impediment to scale is the formation of decision-making bottlenecks, which typically happens because leaders are fearful of letting go of control, and don’t trust people to make decisions. But people will make good decisions if they have the necessary clarity, and the competence to do what needs to be done. Otherwise, if you still can’t trust them… what’s up with your hiring process?

• Do the inner work. Founders and CEOs are humans like everybody else, but they have more on their shoulders than anybody else. Because of that, it’s imperative they do their inner work—therapy, coaching, meditation, exercise, sleep, whatever it takes. A leader that downloads their anxiety on their team is poisonous and an impediment to scale.

TL;DR

Struggling to scale a company that has grown a lot is a typical problem in VC-backed startup land. Doing it well requires foresight, and the ability to do a great job of balancing the short- and the long-term—a luxury not always available to startups. Simply identifying and dismissing “underperformers” is a quick solution that, by not addressing the systemic root causes, condemns the org to repeat the cycle. Inexperience, anxiety, and blind spots all make it difficult to do otherwise.

But it’s not impossible. It requires doing the hard work of bringing everyone along in the journey, creating clarity and competence at all levels instead of falling into the trap of top-down, command and control management. More than anything, it requires seeing people as people, with good intent, and respecting their potential to excel in the right environment.

And shaping that environment for excellence is really what the job of leading is all about.

1. The quote, from a postapocalyptic novel by the author G. Michael Hopf, sums up a stunningly pervasive cyclical vision of history.