So you have product-market fit, now what?2017-07-06 | Salvador Zepeda
Tools for managing growth beyond the founding team
As startups grow they struggle to remain agile while learning to become efficient across an increasing number of teams. Doing that requires redefining how ventures work.
While growing, startup leaders often struggle to build an organization that provides enough agility to learn fast while creating enough stability to capture efficiencies. On the one hand, startups need to remain agile to enable fast learning cycles to keep their product or service ahead of the market. On the other hand, they also need to ensure enough stability to enable significant efficiency improvements to happen. With growth, the tension between agility and stability keeps building, creating friction between people, resources, and goals. Here we want to expose the way we are solving these challenges at Polymath Ventures to achieve both agility and efficiency at scale, through methodological management practices.
The missing piece nobody talks about
Most literature on startup management focuses on finding product-market fit and fundraising. Focusing on these challenges may be enough for some startups early on in their lives. However, after a certain size, startups will face two new challenges: proving profitability and extending management practices beyond the founding team. Firstly, startups will need to prove a path towards profitability to build the model’s credibility for fundraising and recruiting, while reducing cash requirements for scale. Secondly, as the team grows, startups will need to build a system to extend desired management practices to scale with alignment, standards, and self-improvement processes. We call the latter systems: management systems.
“After a certain size, startups will face two new challenges: proving profitability and extending management practices beyond the founding team”
For software startups, the moment to face these challenges might come later than for startups with productive units such as restaurants, call centers, and repair shops. In the latter, you need management systems from the start to manage your team and assets since they strongly influence your unit economics, and thus the viability of the business. For software startups coordination might happen organically in a small team, but as soon as they have to deal with multiple teams, management systems will prove necessary. Regardless of their maturity, all startups that grow enough will eventually reach this point.
The nervous system of the organization
Management systems are the systems used to understand current performance and improve future outcomes. Simply put, it is everything that you do to manage the operation, not to execute it. They function as a nervous system: they let you know where and when you are feeling pain or pleasure, and make you react to that. This is nothing less than the process by which an organization learns at every level. Management systems can take many forms such as problem-solving meetings, performance dialogues, and incentive systems among others.
“Management systems are everything you do to manage the operation, not to execute it”
Using a commercial flight as an analogy, the management systems are the instruments by which you get critical information, the process of reviewing the readings and the standards telling you how to react to the data. Through instruments, you can understand how you are performing and react immediately. You will know whether the flight is on track, underperforming, over-performing, or during an emergency; therefore, you can take actions to continue doing what you were doing well, and adjust what is not working. Finally, after-flight reviews allow you to apply learnings from one flight to the next.
In addition to ensuring learning and action, management systems have another key advantage: they make operational talent more scalable. They base performance and improvements on systems rather than individuals. When scaling, the price you pay for not having good management systems is hiring expensive, overqualified staff. In the flight analogy, you will face that challenge when opening new flights. Without management systems, you will need to hire experienced crews for every single flight. Moreover, each crew will develop different practices that might not be aligned with yours. On the other hand, with management systems, you can hire less experienced, cheaper crews and train them to follow your systems.
“The price you pay for not having good management systems is hiring expensive, overqualified staff”
It is important to mention that management systems are not the only element you need to have a successful flight. In addition to them, you will need a well-functioning airplane and a motivated, well-trained crew. Therefore, management systems are one of the three elements of a successful operating system together with the technical system (airplane) and people mindsets and behaviors (crew).
Current Management Systems are not enough
Several operational philosophies, such as Agile Operations (Agile Ops) and Lean Operations (Lean Ops), already offer management systems. None of these we consider complete to run a growing startup. Individually no existing operational philosophy is suited to simultaneously help you adapt to a fast-changing environment and improve operational efficiency.
The most common management system used in startups is Agile Ops. Agile Ops developed in tech companies and there are several methods deriving from it, of which the most popular by far is Scrum. This method made important contributions to tech project management by defining roles, a common framework for communication, forcing early releases and creating forums to adjust the plan and scope. This operational philosophy’s main advantage is its ability to deliver projects on-time and on budget by adjusting the scope based on learning by prototyping. This is the most important skill for an early startup. The speed at which startups learn from the market might be their only advantage over large companies.
“Individually no existing operational philosophy is suited to simultaneously help you adapt to a fast-changing environment and improve operational efficiency”
A startup with productive units needs to rely on these additional management systems, but it is still a startup. Lean Ops by itself is insufficient because it does not enable fast learning cycles from the market like Scrum. Lean Ops helps you reduce waste once you know what the customer wants. It uses tools to balance resources with demand, to eliminate the root cause of problems, to reduce waits, and to perform work faster and with higher quality. In a startup, however, your service is still a work in progress with potentially dramatic changes still coming up. Unfortunately, Lean Ops is much more effective in making an operation efficient than rapidly surfacing customer needs and translating them into a service.
Similarly, Agile Leadership can help improve operations. This philosophy was created for military missions where “fog of war” prevents you from obtaining information. Thus, it has tools to ensure preparedness through team alignment, deep understanding of future scenarios and robust contingency planning. At an operational level, it can help train staff and establish standards for unforeseen situations. It will lose value, however, as an operation becomes more predictable. Since it is the best-suited philosophy for dealing with uncertainty, Agile Leadership also has applications in strategic analysis. In other functions, such as product design, though, Agile Leadership will never beat an iterative approach.
Finally, Project Management is also not the solution to manage startups either. Project Management helps in defining a clear scope and then ensuring coordination and efficiency in the execution of the tasks among multiple stakeholders. With tools such as Work Breakdown Structure (WBS), Last Planner, Critical Path and Critical Chain Management, project management defines the final product and keeps execution on-track. These tools are fundamental in an environment where iterating is prohibitively expensive, so spending significant effort preventing changes in scope makes sense. However, in most startups, it is economically viable to develop services, products, and tools in an iterative way.
To achieve what we need from each operational philosophy, we need to bring these operational philosophies together under an integrated framework.
In Polymath we often run startups that are heavy on operations, such as car repair shops, restaurants, and fleet operators. This has forced us to quickly strive for efficiency while maintaining agility to evolve our services. We want our operations to achieve enough agility so they can adapt fast to the environment, enough stability so they can run an efficient operation, and enough coordination so the whole organization is aligned. To achieve this, we combined into a single framework the fast-learning cycles of Agile Ops, the drive for efficiency and empowerment of Lean Ops and Agile Leadership, and the stakeholder coordination and rigorous tracking of Project Management.
“We want our operations to achieve enough agility so they can adapt fast to the environment, enough stability so they can run an efficient operation, and enough coordination that the whole organization is aligned”
We first start by defining primary operating philosophies for each team within a venture (e.g. Lean Ops, Agile Ops, etc.). We believe it needs to be done at a team level because the nature of the work might be significantly different between separate teams. The operating philosophy will serve as an initial hypothesis for the management systems, but it will be a prototype. It is common to see elements of different operation philosophies in the same team. Similarly, if circumstances change the nature of the work, the main operational philosophy should adjust too. Generally, teams doing repetitive tasks (e.g. car repair, selling sandwiches, accounting) will use Lean Ops and Agile Leadership; teams doing improvement projects (e.g. improve the customer experience, develop radically new operating methods) will focus on Agile Ops; and teams managing projects with non-iterative development (e.g. location openings) will use Project Management.
Then, to integrate all the teams’ work, we run a company-wide cycle based on Agile Ops and Project Management. In this cycle, we start by defining the company’s priorities and goals, initiatives to execute, and resource allocation. This cycle is supported by tools that allow us to track the activities that each team is developing, to understand the impact that is being captured, and to manage the risks on the execution of the plan. It includes leaders of all teams in the company to ensure coordination. The method combines Agile Ops and Project Management. We use Agile Ops to ensure that we stay adaptable with regards to our top priorities, project scopes, and resource allocation. We use Project Management to give enough visibility to important initiatives, keep track of the impact of the initiatives that we are pursuing, and manage their risks rigorously. Additionally, we are able to connect company objectives with the day-to-day activities with the help of both, Agile Ops and Project Management.
This system has allowed us to quickly move organizational focus as our priorities change. It also has been important to establish accountability for initiatives and metrics for every team and every person in the company. All our teams must have a huddle meeting, and everyone must belong to a team; moreover, this mix of management systems allows us to capture what we need from the different operational philosophies, and apply all of them as needed in the same organization. The repair shops and restaurants can work towards efficiency, while our service development or marketing department can be agile.
In order to implement this complex model, three critical things must happen. First, leaders in the organization need to believe that the time invested in managing the organization provides greater value than anything else they could be spending their time on. Second, it also requires investing time bringing initial hires up-to-speed in how these systems work inside the organization. And third, it requires a relentless effort in instilling the company’s vision, values and mindset on all team members. All in all, we believe that the net effect of this system is positive. It has been key for us to improve our operational efficiency while we innovate and adapt.
This is not a panacea for startups. It is a work in progress that summarizes what we have learned so far. We are sure that it will keep evolving as we grow and learn.
Polymath Ventures and its unique perspective
Polymath Ventures is a company builder focused on creating and developing scalable companies that serve the growing middle class in Latin America. It differentiates from other organizations by having a methodological approach to entrepreneurship, borrowing tools from management consulting, human-centered design, lean startup, and a variety of other disciplines.
Many of Polymath’s ventures operate with real production units such as repair shops, schools, and restaurants. This involves managing staff, real estate, and equipment. Still, we believe that our lessons are relevant for all type of startups.
In Polymath Ventures, multiple startups are simultaneously in their early years of development, which provides a unique perspective for observing common challenges. Building and iterating a methodology, sharing solutions across ventures, and surrounded by world-class multi-disciplinary talent, gives us a privileged vantage point.