A Scaling Magic Trick

By definition, as a company scales rapidly, it adds people quickly. There are many things about this that are difficult, but a vexing one has to do with the leadership team.

Often times, the wrong people are in senior positions. The faster a company grows, or the less experienced the CEO is (e.g. a first time founding CEO), the more likely it is a problem. Per Fred Wilson’s famous post What A CEO Does, this is one of the three key responsibilities of a CEO.

“A CEO does only three things. Sets the overall vision and strategy of the company and communicates it to all stakeholders. Recruits, hires, and retains the very best talent for the company. Makes sure there is always enough cash in the bank.”

I’ve slightly modified in my brain to be that a great CEO has to do three things well. These three things. They can be great at many other things, but if they don’t do these three well, they won’t be successful long term.

Let’s focus on “recruits, hires, and retains the very best talent for the company.” This is where the vexing part comes in. As a company grows from 25 to 50 to 100 to 200 to 500 to 1000 people, the characteristics of who is the very best talent in leadership roles will change. It’s rarely the case that your leadership team at 1000 people is the same leadership team you had a 25 people. However, the CEO is often the same person, especially if it’s a founder.

Stress on fast growing companies comes from a lot of different places. The one that is often the largest, and creates the most second order issues, is the composition of the leadership team. More specifically, it’s specific people on the leadership who don’t have the scale experience their role requires at a particular moment in time.

Take a simple example. Imagine a 50 person company. Now, consider a VP Engineering who has never worked in a company smaller than 5,000 people. His last job was VP Engineering on top of a division representing 25% of the development resources of a very large company, reporting up to the division president. By definition he has never worked in a company that grew from 50 people to 100 people in a 12-month period. He might argue that he’s seen that kind of growth within a segment of the company, but he’s never experienced it working directly for a CEO of a small, rapidly growing company.

In comparison, consider a VP of Engineering who has worked in three different  companies. She started with one that grew from 20 to 200 and was acquired. The next one grew from 5 to 100 and then shrunk again to 10 before being acquired. The one you are recruiting her from grew from 100 to 1000 while she was in the role and is still going, but she’s now tired of the larger company dynamic and wants to get back to a smaller, fast growing company.

Which one sounds like a better fit? I hope you chose the second one – she’s a much better fit in my book.

Now, here’s the magic trick – if you are a CEO who is interviewing for a new member of your leadership team, ask the person you are interviewing if they have every been in the same role as a company that grew from size -50% to +200% of yours. So if you are the CEO of the 50 person company, you are looking for someone who has been in at least one company that grew from 25 to 100 people. Ideally, they participated in growth to a much larger scale, but at a minimum they should bracket these numbers.

Now, ask her to tell you the story of the company, the growth experience, how she built and managed her team, and how she interacted with the rest of the team. Keep digging into the dynamics she had with the CEO, with other executives, and with the people who worked for her. Focus a lot on a size you will be in a year so you know how she’s going to handle what’s in front of her.

Remember – you are looking for competence fit and culture fit. By using this approach, you are exploring both, in your current and near term context.