90% of early-stage companies fail before they reach their fifth operational year. A fact also known as “The Valley of Death”. But don’t hurry to celebrate as you might not be out of the woods yet. A “Second Valley of Death”might be just ahead. The term appeared first in a Deloitte report to showcase the moment when startups turn into scaleups and they need to continue growing in order to become market leaders. Turns out, at this stage, more than 60% of these organizations struggle to execute their ambitious plans.
To understand how scaleups might handle the risks associated with growth, we sit down with Ivailo Iliev, Organizational Development Consultant & Managing Partner at Ninety Nine. We discuss the growing pains almost all organizations go through when expanding and how important a holistic management approach is to overcome them. Based on his extensive experience in organizational development, Ivailo also shares insights on how entrepreneurs can become better leaders and achieve sustainable growth.
Can you share your journey that led you to your current role at Ninety Nine, and how your background has equipped you to address the unique challenges scaleup companies face in terms of management?
I’ve spent my whole career helping organizations grow and become more effective. But I’d highlight two very important moments in my professional path.
The first one that was the beginning of my career was while I was studying Psychology. In the third year, we started exploring the field of Organizational psychology and the role of management. This got me hooked and I knew this is what I wanted to do for the rest of my life. Even before graduation, I got my first job in an organizational development consulting firm. Since then, I haven’t looked back and I’ve been helping organizations manage their growth better for nearly 2 decades.
The second crucial moment was in 2013 when I was looking for a partner and vendor to expand Ninety Nine’s offering. At the time we had people with the right skill sets in the field of organizational development and we needed a methodology to implement. That’s how I came across our US partners from Management Systems. For the past 40 years, they have been developing and empirically validating their tools and methodologies to help scaleup companies overcome growing pains and achieve sustainable success. We base our approach entirely on their methodologies, which are both empirically validated and applied in hundreds of organizations around the world.
In your experience, what are the common growth-related challenges scaleup companies encounter?
In short – what makes entrepreneurs successful in the startup phase is usually what fails them in the scaleup one. How so?
Here are some of the most common growth-related challenges we encounter in scaleups:
- Leaders are still executing the same jobs they were involved in during the startup phase. At the scaleup stage, they need to focus both on the external factors for the success of an organization and the internal factors like building capacity, company culture, and employee wellbeing.
- At a certain stage, scaleups need to promote senior experts into leadership positions. However, very often these leaders are not prepared for their new role. We had plenty of cases where the newly promoted managers didn’t know what their responsibilities were, as there wasn’t any kind of guidance to help them understand their new role.
- When a company is growing, leaders and managers need to design processes that will allow them to be flexible, but also develop systematic approaches to prevent common mistakes. This doesn’t mean that startups will become corporations, it ensures that scaleups can have a level of predictability and processes that match their capacity
- Developing a process for strategic planning and goal setting that many scaleups lack. With the growth of a company, it becomes harder for entrepreneurs to share their vision and goals with the rest of the company. At this point, all leaders need to agree on these goals and communicate them regularly with the rest of the team, otherwise a feeling that “we don’t know where we are headed” might creep up. .
All companies, who experience growth-related challenges suffer from a set of common symptoms we call “growing pains”. For example:
- people feel there are not enough hours in the day
- too much time is spent on “putting out fires”
- very little follow up on plans and decisions and things don’t get done
- people are not aware of what their colleagues are doing…
Just to name a few. These symptoms show that the company is in distress and further growth can be either impossible or even fatal if the growing pains are not addressed.
Tell us about the core philosophy behind Ninety Nine’s holistic management approach that addresses these challenges.
The core philosophy is that when the scale of the organization changes, the internal capacity to run the company should also change. And when we introduce such changes, we should consider that every organization is a system. This means that each element relies on the others and for the whole to work, all elements need to be in alignment.
That’s why it’s important to achieve improvement on several aspects of this internal capacity simultaneously. However, we have seen how difficult it is to run a scaling business and multiple internal projects on the side. That is why we developed a program, which we call the Scaleup Copilot, in which we help scaleups develop the critical aspects of this internal capacity together with one effort.
Can you name these critical aspects that your program covers?
Yes, these are strategic and annual (operational) planning, clear roles and structure of responsibilities, introduction of performance improvement process, and foundations of culture management practices.
And key elements for success is Starting on time and Thinking for the whole.
You talk about “Start on time” as a core principle for transitioning to more structured management. When is “on time”?
Our experience shows that the need for a more systematic and structured approach appears when the company has grown to 115-130 people. At this stage, companies experience very heavily the need for more organizational structure and a clear definition of responsibilities.
I believe that companies should start working toward a more professional style of management when the first layers of management and team leaders are hired.
Can you delve into the “Think for the Whole” concept and how it ensures a cohesive organizational design?
As I mentioned earlier, developing your organization to meet its growth’s demands requires a systematic approach. The “Think for the Whole” embodies this principle – meaning that when we change one element of the system we need to consider all the rest. And to achieve maximum effect usually we need to change more than one.
For example, when a company has decided to improve the leadership skills of its managers, it’s not enough to just provide resources and training for them. To achieve greater results this needs to be synchronized with their responsibilities as leaders. If a company develops a process for alignment of the leaders’ tasks with the company goals, this creates better outcomes for the organization.
How does improving the internal capacity help the scaling companies?
First it decreases the severity of the growing pains. The empirical research of our partners from Management Systems shows that when the growing pains are not managed on time, they lead to worse financial results. And vice versa. This is the tangible outcome.
Another important aspect is unifying the perspective of all leaders and managers. Being on the same page allows them to make better decisions that are aligned with the company’s goals and vision for the future.
Efficiently managing the growing pains also helps to build better team dynamics and prevent burnout of employees. With the right systems in place, senior and core employees can focus on what’s important and do it efficiently. There is less waste of time and resources.
Can you walk us through the key steps of an organizational consulting project? What outcomes can companies anticipate upon successful implementation?
Each project starts with a brief introduction into our methodology, so senior managers can understand the perspective from which we will view the company. Then we make an initial analysis of the status quo and the challenges in order to suggest and agree on the scope of work to be done.
The next step is to measure how scaleups are dealing with the growing pains and what is the level of organizational effectiveness. We do that through standardized questionnaires with broader audiences within the company and interviews with key employees and managers to better understand their points of view on the company and its challenges.
After that we involve the company leadership team in creating a specific action plan. Our role in this is to lead the process as consultants and facilitators. We guide them to ensure that they’re thinking in the same direction, we ask them the hard questions, and we facilitate the discussions to ensure productive outcomes. By using this approach, we involve them in crafting their own solutions and embracing them with ease.
We further support the organization in implementing the changes by organizing additional training and helping them communicate the solutions to the whole company.
AI has been one of the hottest topics in the world in 2023. How do you see AI being integrated to improve the management of companies?
I believe that AI can be a great tool and assistant that can support managers in making better decisions. With its ability to analyze large amounts of data and provide predictive analytics, AI can be leveraged beneficially. However, artificial intelligence can’t replace managers and leaders, as there are emotional aspects of leading a company that the technology doesn’t understand right now.
The story of startups becoming scaleups on to becoming established companies, has repeated itself so many times, and the challenges founders face have been solved time and again in different ways. And with the Scaleup Copilot we would like to give the founders access to a research-based approach, tested in many contexts and companies throughout the world and at the same time tailored to their specific needs.