The Startup Within A Startup: How To Stay Ahead Of The Game As You Scale

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When I founded my first startup in 2008, we had to set audacious targets and meet them in marathon sprints if we wanted to build a product that would attract loyal customers. It was our only choice as a new company: Innovate or die.

But how do leaders cultivate and sustain that vital creative energy as their startup scales and the metrics shift from survival to success and sustainability??

This question isn’t academic. Only a fraction of new startups scale. Those that do are in no way guaranteed to have smooth sailing. We hear a great deal about the efforts of established companies to stay fresh — skunkworks projects like Google X, Xerox PARC, and Jony Ive’s lab at Apple. The key is nurturing the innovative spirit within the larger organization — creating startups inside your startup.?As a multi-unicorn founder devoted to staying on the cutting edge, I’ve found this takes consistent messaging, smart team building and a company framework that nurtures and rewards true innovation. These principles work for organizations of any size.

Lay out a roadmap (and set the bar high)

It’s human nature to run fast when you’re chasing a dream, but inertia sets in as you rack up successes. To guard against that natural ebbing of enthusiasm, CEOs and product leaders of innovative companies must keep the adrenaline flowing by holding a high bar.

That starts with being loud and clear about the company’s high-level mountaintop goal and the roadmap for growth and innovation. Leaders should inspire and expect teams to break barriers and make the impossible possible. Some people fear an unceasing insistence on excellence will somehow demoralize teams. In fact, it’s the opposite. Research shows it’s not only possible to hold high standards and be an excellent team builder, but that’s exactly what the best leaders do.

So to maintain a high level of innovation as companies scale, leaders must be vigilant about pushing the bar ever higher and communicating those high expectations throughout the company every day.

Create small, empowered teams (and make funding contingent on clear benchmarks)??

My mentor at Stanford, Rajeev Motwani, used to say the ideal size for a first-version product team is from five to seven people. If a team requires more than 10 members to function, he'd say you haven't chosen the right team. He should know. He helped countless founders develop groundbreaking products, including Google co-founders Sergey Brin and Larry Page.

These lean teams should consist of people who thrive in a highly independent and accountable environment, just like in a standalone startup. Make them responsible for finding product-market fit and creating a competitive product on its own merits, not as an add-on to other successful products. Give the team lead the latitude of a startup CEO and offer prestige, career and monetary rewards for performance, revenue, customer retention and other benchmarks. Widely celebrate their accomplishments when they succeed while reinforcing the message that the innovation team’s wins are a win for the mothership, too.?

Amazon is probably the largest company to successfully use this model to empower every employee to pitch an innovative idea with a PR FAQ: a mock press release outlining their vision and a FAQ that explains the benefits and anticipates customer questions. Our aspiring startup team members have been known to work on prototypes in the evenings or on weekends.?

Like a seed-stage startup, we have a small team of five to seven engineers in the pre-product stage. Once we have a successful v1 product with positive customer response and initial revenue of around half a million dollars, we will increase the team size to 10-12 engineers. That team will continue to grow as revenue increases, but if revenue is low, we will keep the team small and delay additional funding or potentially pivot or discontinue the project.

Instill the freedom to move fast (but insist on accountability)

We support our internal startups with the company’s resources while insulating them from the larger bureaucracy. We aim to give these teams every advantage while freeing them from drag.

For example, our internal startup teams can access shared sales and marketing resources, tech and other useful infrastructure from the mothership. But they are free from the technical constraints that govern our mature products if they might slow down innovation.

Standardizing rules and expectations across teams may equate to fairness in a different kind of organization, but they would be death to an innovative company. The same processes and safeguards that guarantee quality and stability for a mature product or 100-person team would suffocate an internal startup of a half-dozen people.

That means leaders must manage the healthy tension between their startup teams and the larger company. Importantly, they must insist on complete accountability for new products. That’s why at my company, we sell every product separately. This is not just a service to the customer, it ensures every module is competitive and can stand on its merits in addition to contributing to the whole.

Use excellence as a baseline. For example, when designing a new product at my company, we identify the best player in that market, use their product as a starting point, and shoot for the next level. Why set out for second best? Instead of a Minimum Viable Product, we design a Minimum Sellable Product that includes the core capabilities of the incumbent competitor and adds major differentiating capabilities to make it a superior choice.

But to stigmatize inevitable failures would be equally self-defeating. Culturally, leaders must consistently signal that innovation, by definition, will yield duds and misfires. Blame-free retrospectives help identify faulty assumptions without unfairly punishing team members. Just as Amazon's failed Fire phone paved the way for Alexa, your internal startups can achieve brilliant results if they are independent, well-supported, staffed with the right people and expected to fail and learn.

Sustaining innovation in a scaling business is not for the faint-hearted leader, but it’s not only possible – it’s an exhilarating and fulfilling way to work.

Thank you for reading! I'd love to know your thoughts in the comments below. For more insights from my experience as a serial entrepreneur and how we can harness the power of software to change the world, be sure to?subscribe?to Entrepreneurship and Leadership.