Startup Companies leadership structures evolve through life-cycle stages

The Startup Phase

When companies are just starting up, two or three founders typically perform multiple jobs. If they are lucky enough to have personal capital or some form of financial support from friends and family (FFF), a team of 5-10 individuals may come together to build an innovative product or service. Startups that cross from idea to early revenue stage must have a significant level of trust among the founding team. In a nutshell, successful founders work closely together and are aligned on the same goal and strategy, and are willing to do whatever it takes to survive until the next day.

At this early phase, one founder may focus more on product / service, and another may drive sales, but they don’t worry much about formal roles or what title goes on the business card. If they do, there is no alignment and trust so you are better off with parting ways altogether.

In my experience, I have seen several startups that have made it through this phase and into the next solely because the founders were a strong team. I’ve also seen several startups crash and burn because the founders lacked strong partnership and trust between them.

The Early Growth Phase

At this stage a startup has a product and growing number of customers who buy / love / consume it. The company has iterated on this  several times with customer feedback, and they are developing a good understanding about who will buy this product and how they will sell it. If all of this is working well, the founders will usually try to raise external financing through a Series A.

At this stage, founders continue to work in a close partnership, but with more specialization and concentration across different functional areas of company operations. Typically, one founder will manage product, engineering and customer service while another founder will cover sales and marketing. Which founder gets the CEO title may be arbitrary and sometimes doesn’t matter all that much if these functions get built up well. This phase involves somewhere between 10 to 100 employees, and perhaps $1M-$10M in ARR.

So Companies in the early growth phase can often feel and act like startups and have people doing whatever it takes to keep customers happy and sales going. They may also lack systems and process that are repeatable. But in successful early growth phases, the founders still behave like a partnership, and the more common successful leadership model that I have seen is when two or more partners continue to drive the business as a complimentary team.

The Scaling Phase

I have seen companies stall and struggle in the scaling phase because they did not have an effective partnership model at the top.

It is during the $10M-$100M ARR phase,  when one or more founders frequently take on a narrower role or even leave the business altogether, since they may have enjoyed the excitement and thrill of the initial building more than scaling. Or they may not have the experience and skills to handle the business’ increased complexity during this phase.

At this stage usually one founder will settle in as the ongoing CEO or perhaps the founders and / or investors will recruit an experienced manager as CEO from the outside, to grow the company.

Hub & Spoke vs. Partnership Model

Regardless of stage, there are two common models of leadership at the top of these companies, the hub and spoke model and the partnership model.

The hub and spoke model is where the CEO has, for example, seven to ten direct reports, each one leading a functional area of the business. The partnership model is where the CEO has a very clear number 2, such as a COO, or perhaps a CFO with broad authority, or an EVP of Operations who oversees several areas of the company. In my experience, nominating a clear number 2 early on, is more likely to yield success throughout a company’s lifecycle. From experience the partnership model is better than the hub and spoke, in theree key dimensions:

First, if all key decisions have to flow through one person, the company can’t move as fast as it needs to gain market share quickly, the single point of reference becomes a bottleneck.

Second, if all disputes between functional managers have to be resolved by one person, the company is probably not resolving conflicts quickly enough and is likely distracted on internal issues when they should be focused externally.

Third, and most importantly, strong CEOs are usually highly knowledgeable and experienced in either product and technology or go-to-market strategy and operations; but I have never met one who is great at both. Successful CEOs know their weaknesses and bring in a strong senior number two leader to complement them.

These are few tips and tricks we have learned from startups across stage and leaderships models in the EU/ USA the last seven years.

Want to learn more on how-to-do, drop us an email and we will be happy to share our knowledge and insights with you!

For Hippocampus.io,

Christos Lytras – Managing Partner

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