[Guest article by Sanjay Anandaram, entrepreneur turned investor and a strong advocate of entrepreneurship in India. This is a must read article for startups who are in the growth curve.]
Startups thrive in an environment of chaos where multiple tasks are done, undone and re-done often times guided by just a leap of faith. Decisions are taken in quick time without long (boring?!) meetings typically by a small team of extremely committed and passionate people. Systems, processes and procedures are considered inhibitors to their competitive advantages of speed and innovation.
But as the startup grows, the lack of systems and processes start inhibiting growth; indeed, the company can implode before long without adequate attention and focus on having and implementing systems and processes. These processes and procedures relate to every functional area of the startup and these functional areas cannot scale, operate efficiently and effectively without the right systems. And the management team cannot manage the growth of the company if they cannot measure and track activities, people, money, time, contracts and documents among other things.
As the startup matures, expectations from various stakeholders only increase. For example::
- Does the CEO know the sales, receipts and payables position of the company on a daily basis? Does he have visibility into the cash-flows of the company for the foreseeable future? Are receivables being tracked age-wise and managed? And payables? Does he know what are all the deposits that the company has paid, to whom and when they’re due? What’s the policy for transferring money and issuing cheques?
- How are departmental and company performances tracked and discussed? How often?
- Does every employee have a job description with a clear position on the organization chart? Are employment contracts in place? Is there a hiring, firing, performance appraisal and management, promotion, training, compensation and benefits system in place? What is the system for dealing with employee travel and entertainment expenses? Is there a new employee induction programme – so important for ensuring the comfort of every new hire?
- How is customer service organized, tracked and measured? What’s the system for dealing with refunds and returns?
- What’s the effectiveness of marketing? ROI on campaigns?
- How’s sales organized and measured? What’s the incentive structure for direct and indirect sales?
- Are all the assets of the company documented (including intellectual property) and physically verified? Are maintenance contracts in place for say, the computers? What’s the inventory situation?
- Is there a system for authorizing travel, approving expenses, investments, payments and the like?
- Are there contracts governing partnerships and vendors or are just handshakes and phone calls substituting? Are these contracts still active or do they need reviving? Do the contracts need to be renegotiated keeping in mind the changed circumstances of the company?
- Are statutory requirements being complied with – board meetings and minutes, registrations and licenses, taxes, filings with various regulatory and statutory authorities?
All too often, startups do not pay attention to the need for creating the soft infrastructure within the company for growth. It is not surprising therefore to see most startups flounder after achieving initial success. The capabilities within the company need to be continuously enhanced if the company is to reach subsequent levels of growth with each level being built on a strong foundation.
Stronger the foundation, higher the levels.
The foundation in turn is determined by the company culture and the quality of the people. The culture must value discipline, diligence and data. Discipline to ensure that systems and procedures are implemented and followed; Diligence to ensure that the systems are continuously working as they should across the company; Data to ensure that the quality of decision making goes beyond pure leap of faith.
Making the transition is not easy. Juggling growth, investments, customers, partners and investors takes up time and energy – systems and processes therefore take a back seat. And then one day, there’s panic! The management has lost its grip on the business with no idea of the finances, customer, employee and partner issues. The company is ripe for an implosion.
However, as with all things, timing is critical. In addition, different systems are required for dealing with different stages of growth. But what is always required from day one is the realization that systems and processes are critical elements of soft infrastructure for the startup.
To realize and to act requires the startup CEO to start thinking like a grown up CEO.
What do you think?
[The article first appeared in FE. Reproduced with author's permission.]
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well articulated – would have helped if sanjay also wrote about how to prevent it and what a startup could do (in real terms) to not get into this trap
This article is like foreplay without orgasm
– builds the expectations and just when you are ready to understand what is needed to get out of the mess you are in right now, it ends…
Waiting for the follow-up post
Thanks! The objective was to highlight the need for “growing up” and not to live in perpetual start-up mode; Awareness is more than half the battle, else blind spots take over. Entrepreneurial energy finds the resources to address questions and concerns that awareness creates:)
a) Determination is the single most important quality in a startup founder. If founders are in any superhuman in any way, it was in their perseverance.
b) Perserverance is important because in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainity, isolation and some times lack of progress.
c) Innovation = Startups
Startups, by their nature, are doing new things – and when you do new things people often reject you. But only in early days ! It’s curious to think that the technology we take for granted now, like web-based email, was once dismissed as unpromising. Innovations seems inevitable in retrospect, but at the same time it’s an uphill task.
d) In addition to perseverance, founders need to be adaptable. Not only because it takes a certain level of mental flexibility to understand what users want, but because the plan will probably change.
Guys,
2 words which describe how overcome these perils have been mentioned by the Author and we missed it, well so have many organisations across the country.
Magic word is Process and in the article refer para 2
“But as the startup grows, the lack of systems and processes start inhibiting growth”
How do we develop that?
Well easier part is to have some software in mind to do 2 critical things, ERP and CRM, both these are systems and process enablers than just software solutions. Also have a time frame for each of these software since they need to be phased out every 3-4 years to something better and new.
I have been working for 12 years in various companies big and small i have rarely come across a situation where both of them religiously used.
Yes i can be wrong as well!
Need help means talk to experts who tend to charge you a bomb!