How to scale a company the hard way

What I learned by scaling from 15-75 employees in 9 months

Welcome Entrepreneurs. I’m so glad you’re here. (If you were forwarded this email by someone you trust, go ahead and subscribe here to join our fast growing group of purpose-driven entrepreneurs).

It’s been a busy last few weeks, prepping to work with 60-80 new world class founders in the next cohort of On Deck Scale. If you’re a founder looking to scale your company and grow as a leader, surrounded by top founders and executive coaches from around the world, register here. Those who do, I can’t wait to build with you.

A good chunk of my work with founders is centered around the process of scaling, so this week I thought I’d share a story around my own journey — how I scaled a company from 15-75 people in nine months, screwed everything up in the process, and then fixed it with the help of some of my favorite people in the world.

If you’re in scale-up mode, and particularly if it seems overwhelmingly hard, my hope is that this story gives you some scaffolding to use to scale more gracefully than I did. But more than that, my hope is that this story reminds you that you’re not alone. Scaling a company is supposed to be hard. The good news is, if you’re lucky enough to be in a position to do it, you have already proven you can do hard things.

Fair warning, it’s a bit longer (~15 minute read). So find a comfy chair, grab some coffee, and enjoy.

How to scale a company the hard way

I knew it had gotten bad when our engineering team started working downstairs at the bar. 

During the previous nine months, as we scaled our company nationally and our team ballooned from 15 people to 75 people, tensions between our teams had mounted steadily. Our sales team was working their asses off but struggling to hit the kind of per-rep sales numbers they’d achieved easily at a smaller scale. They claimed they were losing credibility every time they had to tell customers that an amazing new feature they’d promised had been delayed, again. If we couldn’t deliver on the product we’d already sold, how could our customers trust us when we tried to sell the next new product? The sales team could succeed, they said, if only the product team would do their part.

Meanwhile, the product team, responsible for maintaining our existing product and delivering new features on time and on budget, was also working their asses off even as they fell further and further behind on our roadmap. Each time they tried to deliver a new feature, they explained, they discovered that the sales team had promised way more to customers than they had agreed upon, and as a result they had no choice but to hack something together. But they were also struggling because they were already spending so much time fixing bugs from previous sales-overreach-driven hacks. The product team could succeed, if the sales and support teams would let them just build what they’d estimated on the roadmap in the first place.

Our support team, responsible for helping customers make the most of our product, was (you guessed it) working their asses off. But customers were complaining louder and louder. They just needed the product team to fix the bugs in the software, they said. Not all of them, but at least the ones they’d told customers they’d have fixed for them by this time. The serious ones. If we couldn’t fix bugs when we said they’d be fixed, how on earth would our customers ever trust our product? The support team could hit their engagement numbers if the product team would just fix the things they said they’d fix, when they said they’d fix them. And certainly sales adding more customers to support wasn’t helping.

You could feel the tension in the office. The old-school gymnasium scoreboard where we recorded customer growth reminded me of how vibrant and collaborative our team had once been. But that was nine months and 60 new employees ago, and now everything was different. You had to swim through interteam tension to get anywhere in the office. It was outrageous that the product team had started working from a bar, but I also understood why. I had started working from a table right in the middle of the office myself, just to get people to be civil. 

But people didn’t work at bars. Not at good companies, anyway. I knew we had problems. The worst part was, every time I talked with the leaders of each function, or even with the teams themselves, we’d all leave the meeting with nodding heads. They told me they were aligned and prepared to do their part to help our company scale. They were ready to sacrifice to help the company push through the hard times. And then immediately afterward the bickering started right back up. And now people were grabbing beers at 3pm. 

What the hell was going on? 

I felt alone in solving this problem as a CEO, but as a Coach I’ve since heard versions of this story told by way more founders than I suspected. I wasn’t able to unpack it until much later, measured in both time and trauma. But in case I might save a founder some of each, allow me to share what I learned here. 

Most companies are built initially to look like a wheel, with the founder as the hub and each early employee a spoke. The founder starts out, as many do, doing everything herself, and then once she’s figured out how to execute a role (or reached the limits of her skill set in the role) she backfills by hiring someone dedicated to that role. She hires that dedicated resource for marketing, sales, product, and then leaves them with a strategic direction that she figured out from her time in the role, and, knowing that focus is paramount, makes it her job to remove obstacles and streamline the new employee’s workflow. 

To this day I’m not sure there’s a better way to approach the early stages as a solo-founder (or even as a co-founder), but the problem is that because the founder knows the whole company so well, and because in an early stage startup there is little in the way of proper onboarding to help a new employee get proper context into how their function fits into the whole company, the employee simply focuses on their job, trusts that others are doing their jobs, and leaves the big picture to the founder. After all, they have enough to do. And as the founder works to enable the laser focus of her direct reports, with it she actually enables their lack of context. 

Again, this can work at small stages. But as the company grows, it becomes a big problem.

The issue with focusing each function on its own goals and not investing in providing proper context is that sometimes building a company calls for tradeoffs. When a company is small, when each employee talks with the founder weekly or more, the founder can simply make those tradeoffs directly, and you’re off and running. But as a company grows, the founder makes fewer and fewer decisions directly. What would have been easy for the founder to decide turns into a monsoon of seemingly impossible tradeoffs for the myopically-oriented functional leads.

In his book “The Meaning Revolution,” Fred Kofman uses a soccer team as a metaphor to illustrate why smart people and smart teams struggle to make tradeoffs: 

“If you were a defensive player, measured and compensated by the KPI of goals allowed, would you be better off when your team wins five to four, or when it loses one to zero?

“In order to win, everyone must play for the team. The team members must subordinate their individual goals to the team goal. At times the player shouldn’t do the best for his position—which means his KPIs will take a hit.

“In order to optimize a nonlinear system, you must suboptimize its subsystems. If you optimize any subsystem, you will suboptimize the system. (In other words) when everyone does the best for his position, the team does not do its best for its global objective.”

To make good decisions as a team, to choose wisely when to sub-optimize their own results in service of a greater good, effective leadership teams need a shared context. A set of organizing principles that all agree are of primary importance (usually because all had a hand in creating them), and are used by all as the source of truth for all decisions regarding trade offs. And, vitally, when I say “all,” I mean all.  I don’t mean “everyone except the CEO who can still operate as she did when the company was small.” 

What had, at 15 people, been a simple matter of choosing A or B and letting the teams get back to work, would require considerably more effort at 75 people. And a different approach on my part.

Learning to lead by letting go of being The Leader

For months, as I played this large-scale game of whack-a-mole with interpersonal problems, our top-line revenue numbers were still excellent. I could see the problems internally, but to an outside observer the company was still “crushing it.” I remember thinking maybe it would all just work itself out. But of course it didn’t. Our numbers began to dip, and with them, the volume of all our internal problems cranked up, fingers pointed everywhere. And then one of our board members stopped me after a contentious board meeting to chat. 

That conversation with Hap Klopp was the beginning of everything changing. 

Hap had joined our board (among others) as Independent Director after exiting his role as the founder and CEO of The North Face, which is relevant to the story only because his previous success made people (me) listen. In that excited grandpa way I came to love over the years, Hap said he had gone through his own interpersonal challenges as The North Face grew, and had found it immensely valuable to create a sort of cultural scaffolding toward which employees could align. We had already spent time creating our own Mission / Vision / Values (I still remember one of my more experienced executives chuckling at how predictably pointless they had been), and I told him so. But he persisted. He said that when done right, that type of alignment exercise can be transformative to a fast-growing company, and since nothing else was working, I agreed to follow his lead. 

We started by sending a survey to every person in the company, asking them seemingly basic questions like “who is our customer” and “what makes our company unique.” I remember thinking how many times I’d told our team the answers to these questions, and I hoped against hope that we’d score highly. We didn’t. Our team’s view of our customer (singular) was split between no less than five options. It got more humbling from there. We compiled the results and prepared to have Hap lead an off-site for our leadership team. 

Driving Hap to the office from the airport, I admitted some frustration. I couldn’t believe people didn’t know what we were doing; I’d told them so many times. He gently explained that of course I was right, and he knew that, but that in creating a culture it didn’t so much matter who was right, or even that the team had the best strategy, only that everyone was operating under the same assumptions. He suggested that for the duration of the off-site I let go of any frustration I felt, and simply let the team align on their own answers. To do this well, he suggested, I’d need to step aside from my customary authority as CEO, and be simply one of the team for a few days. I could have an opinion, a strong one, but the best results would come if I prioritized alignment and buy-in over correctness. I was all in. 

Over the following two days, Hap guided us through the process of collectively defining our company. Starting at the top, we approached our mission statement with a blank sheet of paper. In general, people got that we were trying to transform high school sports, but we argued over each word. A couple of our team members brought “I-told-you-so grins” to the conversation, but Hap’s facilitation was such that by the end of that exercise even they had seemed to have put their reservations aside and committed to the process. All said and done, aligning on the mission statement “Transforming communities by celebrating school sports” was relatively painless (if less inspirational than I’d hoped for), which also made me feel like my leadership in the past years hadn’t been totally ignored. 

From there, we discussed what Hap called a BHAG, or “Big Hairy Ass Goal.” Hap described this as the biggest, most audacious result we could imagine achieving in the next 10 years, in service of our mission. The debate here was a bit more pronounced, as representatives from each department had specific ideas of how we should quantify our progress. Measuring the number of communities we’d transformed was the most straightforward based on the mission, but some members of our team wanted to count schools, and others to focus on revenue (it was not lost on me that the team focused on revenue thought that revenue was the critical metric, and the team focused on schools thought schools). In the end, after 30 minutes of back and forth we settled on “connecting 50-million users,” as our BHAG, as everyone agreed the user was the atomic measurement that built up to everything else. 

And then we got to the hard part. 

Next, Hap took us through a process of establishing the specific objective we’d need to hit this year, in order to be on pace for our BHAG, what he called our “Annual Theme.” We started by writing our perspectives on sticky notes, and then each one of us read them aloud to the group. Everyone agreed that our top objective for the year was to close $3m in financing, but when the leads of our Sales, Support and Product teams each described how they thought we would do that, it was as if they’d plopped all the uncomfortable tension in the company onto the table. Imagine a triangle of people, each pointing their fingers at the other two points, and you have the idea. For the first time, the misalignment I'd been fighting with for so long was out in the open. 

Everyone turned to me. Hap looked at me too. And despite a strong instinct to steer everyone toward what I thought was the right answer, for the first time I didn’t try to help. I said that from my perspective, it was more important that we were all working on a single plan together, than it was that we picked the right one. My heart raced as we sat in silence, looking at one another. 

“So, how do we square this circle?” Hap asked the room. 

Creating something worth sacrificing for

For the remainder of the day, our teams had it out, holding nothing back. Misalignment at the objective level, when pressed, showed resentments long buried in the name of productivity. Grievances withheld in an effort to remain “professional.” A hopeless tangle of interpersonal frustration came to the surface, and, one by one, each knot was addressed and untied. It was humbling, heartbreaking and frustrating, but it was also energizing watching the teams wrestle passionately about the direction of the company I’d created. 

By the end of it, everyone agreed that in order to hit our BHAG and fulfill our mission to raise $3m, we had to double down on maximizing our unit economics. But we also agreed that we couldn’t afford to start losing customers. And with just that shared context, the teams agreed that our best plan would focus roughly 2/3 of our product efforts on features we felt would grow our LTV, and the other 1/3 on fixing issues for our existing customers. And with that, we had a plan. But boy would there be tradeoffs.

For the sales team, this meant telling customers that we wouldn’t build certain features we’d previously told them we would. It also meant refraining from providing release dates for any future products, no matter how many times customers asked. 

For the support team, this meant telling those customers with one-off issues that for the time being we were prioritizing issues that impacted all our customers. It also meant committing to triage all incoming issue requests on a weekly cadence, creating a kind of human firewall to give the product team time to build.

And for the product team, it meant giving up their vision of a single software system to handle the high school athletic experience soup-to-nuts, and instead focusing their efforts on integrating products built by partners.

I couldn’t help but reflect that I had likely offered just such a solution on previous occasions. But it was different this time. Each team made it clear the sacrifices they’d have to make to pull this off. But each team signed on with minimal hesitation. The teams discussed the tradeoffs and made the necessary sacrifices willingly. Not because I was super persuasive or compelling or strategic. But because it was their plan. 

And for me, it meant supporting the team in executing their plan, even if I found myself up late some night in the future wondering if it was the right one. I could change the plan if necessary, but no longer autonomously, and not without involving them in the process. For this thing we were creating to work, I needed to serve it, not the other way around.

Over the coming months, about a third of our team members left, deciding our now crystal clear direction wasn’t for them. We wished them well. Those team members who stayed, committed themselves to following the plan despite the sacrifices. Not for me, but for one another. 

And we executed our plan. More smoothly than ever before. And on the heels of rapidly growing unit economics, we raised $5m. And every year thereafter, we ran a process to cocreate our objectives as a team. Not to find the best possible answer (although we always tried to do that too), but to come together as a team.

If this story cuts, what you can do

Some CEOs certainly navigate the scaling process more gracefully, but my story is not unique. Building a startup is messy -- intentionally so, as mess breeds innovation. But scaling a startup, without scaling the mess along with it, requires a change in approach. 

How I’ve done it, and how I’ve seen it done in company after company, is that the founder must co-create a cultural/strategic framework for their company with their leadership team, and then subordinate herself to it. The process of creating such a framework is how a team learns to find its way through the inevitable tradeoffs of growth. And only by sacrificing her authority to a higher purpose, demonstrably and publicly, can a CEO inspire others to do the same.

There are many frameworks for doing this systematically (none of which Hap and I used at VNN, but all of which are similar enough), each with a book and a network of coaches you can hire to help you navigate the transition. Here are a few: 

Navigating this transition, a big part of growing from a founder to a leader, is difficult. But if you get to the point in your startup journey in which this problem is relevant, congratulations. You can do difficult things.

(HT: Julie Mosow for editing)


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Who is Ryan Vaughn? 

I’m an executive coach for startup founders, a role in which I get to help high-performing founders design a more conscious life and expand into extraordinary leaders. I’m a 3x Founder/CEO who’s raised $20m+ in VC and built a market-changing company, as well as two other companies that taught me things. I’m an avid writer, meditator (decade+ practice), reader, athlete, father, husband, amateur physicist, student of leadership, and adventurer. I’m also none of those things. But I am glad that you’re here.  If that’s not enough, here’s a more detailed bio.


THINGS I READ THIS WEEK

One: Small Giants (Bo Burlingham)

A while ago I was struggling. I saw an opportunity to serve a massive need for entrepreneurial executive coaching in the midwest, and a part of me wanted to build the organization to go for it. But another part of me knew what kind of lifestyle I had when I was running large organizations, and I knew I didn’t want that.

Stuck between these two divergent paths, a mentor of mine said:

“You know you can build a company that doesn’t try to just get big, right? We (a nationally-renowned, multi-state firm, for the record) have actually never set a growth goal for our company. We just focus on doing our best work.”

The idea was radical to me at the time. But then I read Small Giants, and learned about all the awesome companies (including Zingerman’s in A2) doing just that.

LINK >>

Two: The Upper Limit Problem (Forbes)

I was first introduced to the Upper Limit Problem, how we actively limit our happiness because being too happy is uncomfortable, via the Conscious Leadership Group, who pulled it from Gay Hendricks’ The Big Leap. And now I see myself doing it everywhere, and am taking steps to address my limiting beliefs.

This article is a great starting point. But once you see it, you can’t unsee it.

LINK >>

Three: Founder Burnout and Why You Should Care (The Information)

I remember feeling like I was completely alone when I burned out, but apparently it’s becoming a thing. This article, which points to founder burnout as the driving factor in companies deciding whether to raise capital, IPO, or sell the company, could have easily described me from three years ago.

“More CEOs feel burned out and are evaluating their next steps. (We’re seeing) it the most with leaders of fast-growing companies that are five or six years old. 

They don’t want to work less, (Reboot co-founder Dan) Putt said. “It is much more existential. They are deciding that the life they are living now no longer fits them, and [the trend] seems to have accelerated very quickly.”

Count me in favor of any time human beings consciously choose the direction of their life, rather than spending it on what they’re supposed to want.

LINK >>

Four: The Only Things That Matter When You Die (The Rubesletter)

Speaking of getting in touch with what we truly want, apparently palliative (death) doctors will cite many interviews with patients in saying that what dying people want is simple:

1) Please forgive me. 2) I forgive you. 3) Thank you. 4) I love you.

This is the first time I’ve read The Rubesletter, but there’s a funny, poignant story here worth reading about a man wrestling with the death of his father.

LINK >>

FIVE: The Dubrovnik Interviews: Marc Andreessen (Fisted by Foucault)

I’ll just leave this here. If you’re a fan of Marc Andreesen (founder of Netscape and generally the Godfather of the Internet), this is quite the interview.

LINK >>


WANT TO DIVE DEEPER?

Top Posts

If you liked this, check out this list of my top posts, read and shared by thousands of entrepreneurs.

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Executive Coaching for Entrepreneurs

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At Inside Out Leadership, I’m privileged to work with amazing humans every day to help them grow into extraordinary leaders, and support them in building the company of their dreams. As a 3x founder and CEO for 15 years myself, I coach entrepreneurs how I want to be coached:

  • Focused on the person, not the role.

  • Focused on results, without the fluff.

To find out more, click here or simply reply to this email.