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Second-Stage Sensei

by Dr. Dino Signore

Manager of Entrepreneurial Education

Battling bureaucracy: Scale while preserving your entrepreneurial DNA

By Dino Signore

Bureaucracy has been one of my pet peeves for a long time, so it’s no surprise that I love “Humanocracy,” by Gary Hamel and Michele Zanini. The book takes a deep dive into bureaucracy’s negative consequences, why it’s hard to get rid of and how to create organizations that energize and inspire employees.

Although bureaucracy is not usually a problem for second-stage companies, it’s something to be aware of. Second stage is a time when CEOs should be building a management team and creating systems, policies and procedures. Yet this new infrastructure needs to be flexible enough to prevent bureaucracy from creeping in. Bureaucracy is the enemy of adaptability, and the current pandemic is a powerful reminder of how important it is to be flexible and ready to make changes.

One section of “Humanocracy” that particularly resonates with me is where Hamel and Zanini deem startups as organizations where employees feel “most connected to customers, most accountable and most committed.” They point to seven characteristics of successful startups, which I’ve listed below in boldface, followed by my thoughts on how this relates to second-stagers.

Employees are united in their passion to break new ground — When discussing passion, I think it’s helpful to reflect back on your organization’s purpose. Why did you start the company? What brought you to where you are today? Purpose is why your company exists; it’s about the problem you solve or the social good you do. It’s what the world would miss if your company didn’t exist. As the company’s owner, you can probably answer this easily. But what about your employees, especially those who are newer to the company? Purpose has to be explicit. It’s important to get everyone in the company excited about its purpose — and keep them excited.

Teams are small, roles are loosely defended and polices are flexible — Navy SEALs are a great example. SEALs undergo vigorous training, and when working as small groups, they adopt like a hive mentality of shared intelligence and fluid leadership. They agree to be both leaders and followers; leadership rotates, depending on who steps up and has the best idea at the time. When I talk to second-stage business owners, they often say they’d like to develop more leaders — or wish their employees acted like owners. That’s great, but if you want to develop leaders, you need to invest in training and then allow your leaders to lead — and delegating authority can be difficult for second-stagers.

A quick word about policies: They’re important so you don’t have to keep reinventing the wheel; however, the external environment doesn’t care about your company’s policy — or strategic plan, for that matter. As we’ve seen with COVID-19, economic conditions can all turn on a dime. Ask the question: Do our policies reflect what the company needs right now?

There are few levels and little pressure for conformance — I’m not a big fan of hierarchy. To begin with, it has a negative impact on status from a sociopsychological perspective. For example, the big corner office or executive parking spaces can subconsciously evoke the threat response in folks at lower levels, making them feel inferior. Lots of levels can also affect agility. Employees often have to go to another level or wait for someone else to sign off before taking action. The flatter the organization, the better.

The second-stage business owner should strive for collaboration and motivation. You don’t want employees to conform to your thinking, but rather to think for themselves. There is always more than one right answer. Differences should be celebrated — both diversity of people and diversity of thought.

Ambitious goals and tight timelines challenge everyone to do more with less — In the movie “Apollo 13,” one of the unexpected challenges the astronauts face is rising carbon dioxide levels in their space shuttle. They need to quickly build an air filter, and resources are far from ideal. NASA flight director Gene Kranz says to his team of engineers: “I suggest you gentlemen invent a way to put a square peg in a round hole — rapidly.”  Similarly, resources and time are always limited in startup mode, which can be a good thing because it keeps you focused. You can’t wait for months to make a sale or solve a problem. As a company matures, however, this feeling of urgency can morph into complacency. Certainly, chaos and lack of resources aren’t good all the time, but if introduced periodically in small doses, it can help spark engagement and creativity.

Regarding ambitious goals, I encourage second-stage leaders to set BHAGs (big, hairy audacious goals) that typically span five years). But I also remind them that strategies for achieving those goals will change with shifts in the external environment. When that happens, it’s important to communicate what the change is and get everyone engaged.

The imperative of scaling fast creates an eagerness to leverage outside resources — Startups are hungry for information and willing to seek help from a variety of sources. In contrast, bureaucracy has a self-sealing effect: The organization starts to believe it doesn’t need anything outside of itself. This discourages new resources from coming and creates boundaries that are too rigid. In second-stage, self-sealing doesn’t occur because of this assumption, but might develop due to the fact entrepreneurs have their heads down working in their business. Thus, it’s important to question your assumptions about suppliers, buyers and outside consultants.

There are few formalities and the preferred method of communication is an all-hands meeting — When you were small, it was easy to pull your team together quickly to share new ideas. Information flowed freely, especially if you were in the same room. It may have felt chaotic, but the information was there. As your company gets bigger that’s harder to do. With the evolution of departments, boundaries tend to form. Yet it’s still possible to keep that steady flow of information pulsating. “Scaling Up”” author Verne Harnish has a framework of “meeting rhythms” that is a good tool to keep everyone on the same page.

I also recommend that owners practice MBWA (management by walking around). Carve out informal time to spend with employees, especially your front-line workers because they create so much value for customers. Be sure these employees get the resources and information they need to accomplish their tasks.

Initiation is prized and individuals are encouraged to take prudent risks — This isn’t about wild crazy risks, but grooming employees to be entrepreneurial thinkers. If people come to you with ideas, consider them, and start placing some bets on initiatives. Granted, team members need to make a case for their ideas — and accept the fact that you can’t invest in every idea.

To recap, I’m a big advocate for becoming professionally managed. It’s the only way that entrepreneurs can truly scale their companies without killing themselves in the process. Yet there’s a difference between a professionally managed company and a bureaucratic one. Like aging in human bodies, bureaucracy is a symptom of decline. It indicates the organization has become rigid, brittle and slow moving. Leaders can prevent that from happening by using these seven characteristics as a framework for smart, flexible growth — keeping their company’s entrepreneurial spirit strong. 

(Published Nov. 5, 2020)