A less painful path to reaching late-stage growth
Congratulations, VC partner. One of your portfolio companies just found product-market fit!
They’ve graduated from startup, a temporary organization designed to search for a repeatable and scalable business model, to an early-stage growth company. As you know, they’ll probably be spending the next couple of years and hire their next 250 employees in this leg of their journey.
There’s just one problem. They are not really set up to scale.
They’ve spent all their time, as they should have, iterating on a product that solves a real need. But now they need to build an organization that will continue to build and evolve that product in the long run. The culture is completely informal and heavily reliant on the founder being in the room. The small management team has limited managerial experience. The recruiting process is a mess and riddled with bias. Compensation is bespoke and out-of-whack with the market. Career ladders? Professional development? Forget about it! Should I go on?
On their journey to being set up for scale, they’ll be clawing their way, by hook or by crook, flying by the seat of their pants, hoping that the tidal wave of organizational debt that they have accrued and will continue accruing along the way doesn’t come crashing down on their head. They’ll be stretching their office manager way beyond the reasonable boundaries of their job, asking them to own benefits, immigration and compliance in addition to their day job. They’ll look to their sole recruiter to not only flawlessly execute the hiring plan but also design a bias-free recruiting process and train everyone in the company on their part in it. And both of us already feel bad for their first Head of People, tasked with the superhuman endeavor of being the subject matter expert on L&D, compensation, benefits, culture, org design, performance management, compliance and everything else in between, seamlessly context-switching across the domains and from getting whatever needs to get done today, to thinking strategically about the needs of the organization 1–2 years from now.
You’ve seen this pattern time and time again so, consequently, you know this means that they’ll be entering the uncanny valley of employee experience. No longer a startup, the appeal with the early stage folks is lost. With the existential risk to the business mostly de-risked, the financial upside is still substantial but not what it used to be. And there’s no way they can compete with the kind of support and comfort that the later stage unicorns are able to offer their staff. Recruiting will become a grueling endeavor on a whole new level, and regrettable attrition will be notably higher than what you’d like it to be.
But hey, this is really out of anyone’s hands, right? Building a world-class People team really doesn’t make any economic sense at their current scale. Not to mention that the challenge they can offer to the people with the necessary expertise is not big and interesting enough to attract them. So there’s really nothing else that you or anyone else can do other than clench your jaw, grit your teeth, and hope they make it through this adolescent, growing-pains phase of the business.
Or is there?
In a couple of years and another 200 employees, all the puzzle pieces will fall into place. They’ll have the scale to justify a world-class People team and challenges that are sufficiently interesting to attract that kind of talent. If only there was a time machine that would allow us to bring that future into the present…
If you continued reading thus far, I have some great news to share: we don’t need a time machine. We just need to zoom out and change our perspective. The key to this conundrum is this: while the depth of expertise is required from day 1, in some cases they are not needed as frequently/intensely as they would be in day 750. And in other cases, just using a best-of-class solution, while not a custom-fit one, is better than what they can cobble together on their own. Take manager training, for example. Skilled managers are needed from day 1 but they may not have the volume at first to run frequent training cohorts. Great instructional design coupled with evidence-based content will likely be good enough for building a solid foundation, even if it’s not 100% fitted to the (still evolving) organizational values. Or consider the recruiting process. Adopting a battle-tested blueprint will likely yield better outcomes than an emergent design which (unknowingly) repeats old/known mistakes.
These simpler needs mean that we can look for a solution to the scale gap across companies. And no person is in a better position to implement such a cross-organizational solution than you, VC partner. You’ve already staked a large sum of money on their success, and on several other companies at a similar growth stage with similar challenges. And since most VCs rarely make competing bets in the same portfolio you have a vested interest in helping as many of your portfolio companies succeed. It’ll look something like this:
The shared people services team, housing the subject-matter experts in various people disciplines starts off being provided completely by VC staff, supporting more junior, generalist points of contact in the portfolio companies. Training and development programs are offered across the portfolio. Over time, as portfolio companies continue to grow, they gradually hire their own experts and bring the programs and services in-house, eventually reaching the standard end-state of having a completely decoupled, standalone people function.
Making this shift stops the accrual of organizational debt sooner in the company lifecycle, and perhaps even starts its repayment. It creates a more optimal experience for early growth stage employees, closing a big chunk of the competitive talent gap between early-stage and late-stage companies. In sum, it allows the company to reach late-stage organizational maturity, quicker, following a safer, less volatile path and wasting less talent, energy, and resources in the process. A win for the employees. A win for the companies. A win for the VCs.
Once product-market fit is found, it really comes down to the people refining the bringing the business model to life. This may be a great way to invest directly in their success.