The mystique surrounding public companies like Alphabet and Amazon and their evolution from innovative start-ups to brand icons has many executives believing that there is only one “right” path to growth. But behind these and other companies’ scale-up success stories is a distinctive set of organizational capabilities that other founder CEOs may be able to develop as they move their start-ups from aspiration to ascent to peak performance.
Through our extensive research and years of experience working with founder CEOs, we’ve learned a lot about what the hyperscaling journey entails and how it differs from gradual growth. Here’s what we know about hyperscalers: they outperform industry peers, remain resilient during downturns, and maintain strong cash positions. They set the bar high for corporate performance, and they aren’t afraid to make bold moves.
But how do they do these things? We’ve pinpointed six factors that are crucial to the success of companies’ fast-growth expeditions. Specifically, companies need a structure built especially for product or portfolio growth, effective ways of working, a strong talent development engine, a distinctive growth culture, leadership capabilities at scale, and an aligned founder CEO and top team who set clear directions and make decisions that stick—no second-guessing.
Of course, it’s one thing to target hyperscaling for a product or organization; it’s another thing entirely to achieve exponential growth without introducing exponential complexity. In this article, we’ll explore why hyperscaling is so hard, how the six essential success factors can expedite the journey, and how executives might begin their quest. It’s worth remembering that the primary challenge here for founder CEOs is no longer just about securing resources—it’s about moving as fast as their products or organizations can evolve.
Exponential growth without exponential complexity
Achieving exponential growth without introducing exponential complexity is often easier said than done. A start-up is usually a small organization, often founder-led, and reliant on rounds of funding. The main strategic priority is capturing value quickly. In expeditionary terms, this is base camp. As start-up organizations mature, however, what they do (and who does what) inevitably changes. The product portfolio grows—and with it, annual recurring revenue. The ascent from base camp has begun. But the reality is, many start-ups fail to scale up products successfully. According to our analysis, of those start-ups that manage to launch and develop a product successfully, about 80 percent fail to see it through to full scale-up1 (Exhibit 1).
The scaling challenge comes not just from the nature of the company or the products themselves: behind every failed attempt to turn around an outdated business model, capture the benefits of an important acquisition, or scale a tantalizing start-up, there is probably some mismanagement of some aspect of talent, organizational culture, or operating model.2 This is evident from a quick look at the numbers:
- Investors have attributed 65 percent of portfolio company failures to people and organizational issues.
- Companies that have operating models that enable multidirectional growth (outside the core business, for instance, or in different geographies) are 97 percent more likely to outperform those that don’t.
- Organizations that reallocate talent frequently are more likely to outperform their peers.3
Putting one foot in front of the other
The business terrain is tough, with high inflation, high interest rates, a tight talent market, and fragile supply chains—and investors are increasingly demanding profitable growth. As founder CEOs set out on their hyperscaling journeys, they will need to constantly track economic conditions and consider the company’s strategy, its sources of value creation, and its tolerance for risk amid changing winds.
Hyperscalers need an operating model with fluid elements that allow leaders to mobilize quickly as new opportunities emerge, and stable elements that provide the guardrails for getting things done.
To hedge against these shifts, scaling organizations should aim to create a deliberate balance between stability and dynamism within their operating models (Exhibit 2). That is, hyperscalers need an operating model with fluid elements that allow leaders to mobilize quickly as new opportunities emerge, and stable elements that provide the guardrails and norms for making decisions and getting things done.
Our research and experience show that six factors in particular are important for achieving this balance and scaling a product or business up successfully: a structure especially built for growth, effective ways of working, a strong talent development engine, a distinctive culture, leadership capabilities at scale, and an aligned founder CEO and top team that set clear direction (Exhibit 3). We take a closer look at each below.
A structure built specifically for growth
“We just filed for an IPO, and we are growing very fast: How should we restructure as we scale?”
Mention org charts and people’s eyes glaze over. But having an organization that’s specifically configured to encourage innovation, creativity, and risk-taking is perhaps the most critical aspect of successful scale-ups. Founder CEOs and teams need to change their mindsets from “growth for funding” to “growth for sustained scale”—and they need to pivot fast. They will need to reorganize people and processes around value creation objectives that are changing as quickly as the markets are.
To that end, founder CEOs may need to redefine workforce size, composition, and shape. They may also need to clarify roles and responsibilities to support streamlined and empowered decision making. Leaders at one global financial-services company, for instance, launched a three-stage program to assess their existing operating model and whether it would allow for future growth.
Their assessment revealed a revenue expansion opportunity of more than 350 percent over three years, so the team developed a fit-for-purpose operating model designed to capture this value. By embracing both a stable organization axis that made sense within its industry and the dynamism required to innovate, the financial-services company was able to forge its trail to hypergrowth.
Effective ways of working
“If we want to accelerate our current 30 percent per annum growth by 50 percent, how should we think about people, processes, and culture?”
Business decisions, performance management processes, and overall governance can seem more manageable for start-ups, given the typical size and mission of these organizations. But a scale-up journey can introduce (and sometimes mask) challenges in all those areas. The company’s strategic priorities may change. Reporting lines may be altered. Decisions may take longer. And while start-up teams may eschew a shift toward more processes, believing it will slow things down, they may actually find it useful to embrace more good processes longer term. When it comes to governance and growth, for instance, four core business processes (go-to-market, product development, operations, and support) can look very different as companies mature. Early on, start-ups acquire customers and revenue however they can. As they mature, however, they must embrace and manage the complexity of multiple channels, platforms, and partnerships. Communication among business units and functional leads can become exponentially more difficult.
That’s why hyperscaling companies adopt cross-functional approaches to governance and are clear about the KPIs and OKRs (objectives and key results) that teams are expected to achieve. A Chinese financial-technology company realized significant profit and loan-under-management growth over a 24-month period after it shifted to cross-functional work practices—for instance, managing its development process through scrum teams. In another example, a large consumer-packaged-goods company mandated weekly leadership-level planning meetings between sales and operations. Previously, the sales team had been continually committing to deliver a product that operations was unable to manufacture, while ignoring the vast stockpiles of an alternative product. Through this cross-functional sharing, the company was able to boost knowledge sharing, identify interdependencies and pain points, and quickly improve performance.
When it comes to decision making, leaders in hyperscaling companies are generally clear on several important rules: be inclusive and gather perspectives from relevant stakeholders when a decision is on the table, but be clear about who has the final say; there should be no ambiguity on that point. Likewise, don’t conflate consensus with inclusion; distinguish the advisers from the deciders.
A talent development engine
“How do I recruit for jobs that don’t exist yet?”
The talent challenges for hypergrowth companies are the same as those for everyone else: how to quickly move candidates through the hiring process (from application to offer to onboarding) and how to compete with other companies in an always tight, ever-changing talent market. But founder CEOs of start-ups have additional challenges. At the start-up stage, for instance, it’s natural for the CEO to want to interview every prospect; at scale-up, this can become untenable. Similarly, start-ups seeking to scale up products or business units may find that the job candidates they appeal to now are different from the kinds of candidates they attracted when they were “the next new thing.” The company’s culture may change with every new mile covered on the journey to scale, and candidates’ perceptions of the start-up’s mission and values may shift as well.
On both dimensions, it’s critical for founder CEOs to clarify the company’s talent management strategy and its employee value proposition (EVP). Longer term, they will also need to create and communicate clear employee development paths.
In reviewing their EVPs, founder CEOs should consider everything—from roles and titles to team composition to compensation and benefits. One e-commerce start-up with multiple growth-platform businesses used advanced analytics to identify which skills it would need to maintain these platforms and achieve a significant increase in revenue over the following three years. It used individual employee and business unit performance data to model different growth scenarios, and based on the most feasible scenarios, revised its hiring and training programs and redefined key roles and responsibilities across the organization.
A note about redefining roles and responsibilities: as companies embark on a hyperscaling journey, they should remember that the formal titles they use at start-up may not work as well over time. One consumer-packaged-goods start-up, as an incentive, provided its leaders with executive but arbitrary titles, like chief creative officer and chief brand officer. As the organization grew, however, the question of who was senior and who was accountable for which functions and tasks confused executives who were jostling for promotions. The top performers grew frustrated by the lack of a clear career path, and the company struggled to retain talent. One start-up leader we spoke with suggested a simple skills-oriented approach for successful scale-up: consider the biggest talent gaps in the organization and solve for those first; the rest will sort itself out.
Another note—this time about team composition: don’t underestimate the value of diversity. Research shows that start-ups gain value when not everyone in the company looks exactly like the founder CEO and top team members. Ultimately, greater diversity produces better business outcomes. It’s important for hyperscaling companies to manage diversity, equity, and inclusion (DEI) with the same rigor as other elements of strategy—including setting measurable but bold goals for representation across the organization. The company’s DEI strategy should be reflected in its recruiting, performance management, and compensation programs as well.
A distinctive culture
In start-ups, culture permeates everything. It’s baked into every interaction, every design decision, every process step—intentionally or not. So as companies scale up, so must the culture. Founder CEOs must acknowledge that the culture that enabled a start-up’s early success may not cut it during the next phases of growth. They can use surveys and benchmarks (industry and internal) or focus groups to get the information they need to determine which elements of culture to keep and which to sunset. Above all, founder CEOs should take care to explain why the company is pursuing hyperscaling—all the better to engage employees on the journey and maintain a cohesive culture. They can communicate the growth mission via town halls with leadership, in forums on culture and values, and even early on in employees’ tenures as part of the onboarding process. And they can reward those employees who live out cultural values in a number of ways—through financial perks, extra days off, or even a personal thank-you from the CEO.
Scale leadership capabilities
There is a difference in the type of leadership required at start-up versus scale-up phases. In the early days of a business, there is probably little distance between senior leadership and the rest of the organization—in fact, the top team likely comprises much of the company. But as the company grows, so do the layers of management—thus requiring an intentional approach to developing leadership capabilities across the organization.
As the company grows, so do the layers of management—thus requiring an intentional approach to developing leadership capabilities across the organization.
Team sprints can help leaders and teams co-create an operating model that balances the needs of “growth leaders” and “operational leaders.” This is especially important as the number of midlevel managers grows and they begin to take on different kinds of responsibilities. An online food-delivery platform in India, for instance, created a leadership development program targeted at the top 140 members of the organization. A team built customized leadership journeys for each person, including 360-degree feedback and one-on-one coaching to sharpen individuals’ business acumen and their long-term strategic thinking. Through this program, the company was able to get agreement among managers at various levels on priorities for growth, and participants reported significant personal growth.
An aligned founder CEO and top team
The founder CEO shouldn’t presume that the entire start-up team is ready for a hyperscaling journey. The CEO must engage in clear-eyed, honest conversations with members of the C-suite and functional leaders and gauge their interest and capabilities for the expedition. Some may be better off remaining at base camp, within their current scope. Likewise, founder CEOs should be clear about their own role, picking the decisions to own (for instance, the most mission-critical choices, or the decisions only they can make) and delegating everything else.
During the hyperscaling journey, disagreements may emerge between founder CEOs and their supporters and any newcomers. For instance, when one consumer conglomerate acquired a specialty brand, part of the agreement was that the conglomerate would retain the specialty brand’s independent board. The board was responsible for protecting the brand’s environmental, social, and governance efforts and core values. The deal was initially successful; sales doubled, and operating margins tripled. Then several values-related issues came to the forefront, and the specialty brand sued its new parent company for violating the brand’s core values.
The founder’s vision should be a catalyst for the start-up’s scale-up journey—but not its only guiding force. That’s why it’s important to clarify the ongoing role of the incumbent CEO; founders often see the company as “their calling” and have a personal stake in the scale-up process. But that doesn’t mean their skills still match the evolving business strategy. Some companies have addressed this dilemma by establishing a chairman role to which the CEO is typically appointed, ensuring that the company continues to benefit from the founder’s vision. It’s an effective option, so long as the founder CEOs are willing to evolve their role and relinquish control.
Hyperscaling companies dare to be unreasonable. They set a course with a clear and audacious vision of why they need to grow. They have equal parts stability and dynamism in their operating models, which allow them to find, retain, and develop the right teams, cultures, and processes for scale-up. They are ready to plant a flag in the short term—and are able to navigate whatever challenging terrain lies over the horizon.