When your company grew from small to midsized, what did you find different about how it operated?

A great question, Paul! Here's a link to "Taking the Mystery out of Scaling a Company," the first in a planned series of blog entries from Ben Horowitz, partner with Netscape creator and Loudcloud founder Marc Andreessen in a venture capital firm. The first blog post is at http://bit.ly/GrowYourCo, and offers some pithy, cogent observations about the challenges to successful growth, as well as guidance for how to overcome them. My favorite point from the blog post is the "Final Thought," quoted in its entirety below.

"The process of scaling a company is not unlike the process of scaling a product. Different sizes of company impose different requirements on the company’s architecture. If you address those requirements too early, your company will seem heavy and sluggish. If you address those requirements too late, your company may melt down under the pressure. Be mindful of your company’s true growth rate as you add architectural components. It’s good to anticipate growth, but it’s bad to over-anticipate growth."

The examples given so far have been consistent with my experience. One to add is that the leaders in the company must realize that their communication is now passing through multiple layers, often to people who don't get the chance to talk with those leaders on a regular basis. Each direct communication they do have (outside their daily regular circle) becomes an extended version of the telephone game with the message getting the associated "noise" from each interpretation and retelling. It is as if there is a giant magnifying glass on the words that come from the leaders.

The leaders I've seen who make this transition well often repeat their key messages to employees (ie: they know what the company focus is and communicate it consistently in a variety of ways), welcome input and questions from across the organization, and seek out ways to keep the communication lines open at all levels of the organization. Social media tools can be helpful for that but nothing beats a real live conversation. I've seen CEO's who have a revolving lunch calendar - anyone can sign up to join a group lunch, or he'll have lunch various teams, or he'll invite a diverse group. It isn't a facilitated conversation, but he might have a few key questions to get the ball rolling. Sometimes the "repeat back what you think our focus is" answers gave him a chance to clarify, or provided reassurance that the messages were understood.
Another organization I was part of had a monthly one hour synch up meeting in which the entire organization sat through the product roadmap, sales plans, customer feedback, and financial results. Sometimes a customer would appear to speak, or we'd get a fast tutorial on interpreting key financial measures such as inventory turns, or a handful employees were asked to give an impromptu elevator pitch of our company's solution. Most of the "presentations" were without slides and rich on current content. Employees were expected to act like business owners and understand how the business was doing overall as well as how their role could impact results.

These rituals may seem like time-wasting burdens, but they help make that transition from being able to talk to everyone informally nearly every day without becoming a disjointed or slow moving mid sized entity.

I have been part of many growth companies that have passed through this phase. The main difference is that it grows organizationally and becomes more structured. Departments are formed, possibly a more seasoned management team is brought in and the processes become more formalized. This sometimes is a major shock to the system, employees and customers who have been used to Sally managing every part of their relationship. Most important, there are times that people who served the company well when it was small and informal struggle with the change and cannot make the transition. People will get offended if they have some responsibilities and authority taken away form them. If someone is not able to change with the needs of the company, treat them with respect, try and find a position that they excel in that is different or if they must leave do it with dignity because most likely without them the firm would not be at this stage.

Transitioning from a small to a midsize company is one of the toughest an entrepreneur has to make during the life of a business. Lots of what the entrepreneur has done to succeed so far starts to become ineffective or counterproductive as the business grows. More of the same doesn’t work; a new way of operating is necessary to get to the next level. I’ve been through this with my own companies and many more times with clients. Here are four of the most important categories – but by no means the complete list – with some specifics in each.

One of the key changes is to have different people working in different ways. An energetic, visionary entrepreneur is no longer sufficient, now management is needed.
1. Build a management team comprising operational (product and service delivery) and functional (marketing, HR, finance, etc.)
2. The founder doesn’t necessarily have to be CEO.
3. Learn to delegate effectively.
4. Different kinds of people and different levels of skills will be necessary.
5. Understand and clarify the role(s) of the entrepreneur – owner, manager, producer.

In a small company everybody works together and can pitch in to make things happen. A larger company needs to have well defined processes for every (yes, every) aspect of the operations.
1. Define the systems, procedures, and processes that dictate how things get done, who does them, and how to know if they didn’t get done.
2. Document all these systems, procedures, and processes.
3. Plan growth and get ready for what’s coming before it’s actually needed.
4. All jobs are differentiated and described, even those not yet needed, and hiring is a constant process, not a discrete event.
5. Identify new requirements for marketing and sales if product/service needs to change with growth, e.g. higher minimum job size.

Beyond a certain size company, no single person can know what’s happening with all the employees, all the customers, and all the vendors. More information is needed to effectively manage growth.
1. Have and regularly update a well defined plan and budget.
2. Goals and objectives need quantifiable measures for progress, not just results.
3. More detailed accounting provides an understanding of profitability by customer or product line.
4. Growth consumes capital so be aware that profitability doesn’t necessarily mean cash flow.
5. Make sure to get good, timely information from the people who are closest to the customers, and all the vendors.

All the clichés are true – it’s lonely at the top and you and your team are all lost in the same forest and can’t see the trees.
1. Get out and talk with key stakeholders on a regular basis.
2. Recognize when the business has outgrown outside professional service providers (CPA, attorney, bank, etc.)
3. Create a handful of key metrics that show the health of the business at a glance.
4. Only use advisers who have the experience to help plan beyond incremental growth.
5. Meet regularly with other business owners and share insights and challenges.

Every company is different and needs to prioritize different areas. Many of these can be started incrementally. It’s never too early to be thinking about and planning for the future.