Breaking Through the Organizational Red Line

Start- ups typically grow rapidly in many directions in a chaotic environment of change, as the founders deal simultaneously with raising money, developing solutions, hiring staff, closing business and growing revenue. Usually the start- up team wears many hats- for example the CTO may also be a Chief Marketing officer, as well as play a key role in closing sales with major customers. The CEO may also work as the Chief Legal officer and head of human resources, working on contracts and keeping the pipeline of essential hires full. From start up the firm grows to substantial revenue and EBITDA largely through the sweat equity of a group of hardworking, multi-tasking, smart people.

In our experience at a certain size the firm will encounter a barrier to further growth which we term the ‘red-line’. At this red line the lack of institutionalized knowledge, decision frameworks, leadership consistency, and processes become barriers to the next stage of growth and continued innovation. In our experience knowledge- based firms encounter this barrier when staff levels reach approximately 50- 100 people, and asset-based firms a little further on, at 100 to 200 employees. How a firm manages the red-line transition is critical to sustained growth, preservation of its unique culture, and continued innovation. Most fail at doing so in a systematic manner.

In Envision’s experience we have found there are 5 areas critical to that successful transition, listed below with a few guidelines for a successful transition.

1. Sustaining Innovation

The start-up is likely founded upon a great idea- – new technology, a new business process, or combining existing technology in a novel manner. As the firm grows, to sustain innovation, it must find ways to fund and reward innovation without stifling that creative Breaking Through the Organizational Red Line spirit. While big ideas are still important, transitioning to a ‘continuous innovation’ model is essential to sustaining competitive advantage. As a first step consider establishing a Chief Innovation Officer, who is charged with ensuring the vitality of this process. Endow that person with the proper resources and organizational authority to look after the health of the innovation process, and to shift its emphasis to support the growth of the firm. Include a diverse set of stakeholders in this process- R&D, Operations, Technical Functions, and Sales and Marketing.

2. Preventing Siloization

Silos kill communication, teamwork, and collaboration- all seeds of innovation. Carefully design spans of control for leaders to encompass multiple functions and business unit accountabilities to prevent siloization early. Be sure to integrate technical specialists into these spans to ensure a healthy tension between these functions and business operations.

3. Developing an Efficient Center

As a firm increases the scale and breadth and footprint of its business, a need arises for consistent services such as HR, Legal, Regulatory, and IT. Do you have a well-defined center, with roles, responsibilities, and simple performance contracts with the client business units? Does the center have a well- defined role in facilitating the innovation process, in support of your Chief Innovation Officer?

4. Establishing Decision Frameworks

As business complexity increases a need arises to define decision frameworks for key processes that cross disciplines and business units. In our experience these key processes include 1) how capital investment decisions are made, 2) growth strategies, 3) development of key leaders and technical contributors, and 4) governance of R&D and technology development. Each should be mapped clearly in terms of governance and roles and responsibilities of participants.

5. Upping the Sales Game

One of the biggest barriers to large scale growth is breaking thru the sales and marketing barrier. In the early and mid-stages of a company’s growth, the founders are usually the sales force. With substantial growth comes the need to build out sales processes, supporting systems, and a quality team. Don’t forget to include the sales team as a valuable resource in understanding customer needs and competitors positioning, as input to the R&D and innovation process. In summary, how your firm handles these key issues can set the stage for the next phase of efficient and profitable growth and if done well set you apart from the pack