Scaling a startup is like parenting a child from infancy through adulthood. General advice proliferates. But awareness of best practices differs from applying them in action. Most founders underestimate the challenges of scaling and nearly ¾ of startups fail to scale. Shikhar Ghosh sat down with serial entrepreneur Lara Hodgson to discuss her experience growing two startups. As CEO and President of her latest venture, NOW Corporation, she doubled the company’s growth twice in four years. The company’s core product NOWaccount®—an innovative revenue accelerator system helps startups survive cash flow shortages that often accompany rapid growth. From that vantage point, Hodgson has made and witnessed common mistakes CEOs make when scaling. Want to learn more about what to expect as your venture expands? Hodgson offers practical tips for scaling startups, including how to adapt your role as CEO and build a more cohesive team as you grow your business.
Practical Tips for Scaling Startups: Scaling is Like Adolescence
Think of scaling as your startup’s adolescence. It’s a distinct phase filled with new experiences, awkwardness, confusion, heightened emotions, and physical growth. While you’re scaling, Hodgson describes, “You grow real fast, and then you level off and digest your growth, and then you grow again, and you digest it.” Similar to the experience of parenting a teenager, the most important thing founders can do during scaling is to help everyone move through the awkwardness.
Each time you go through that growth phase, you become that awkward teenager again. You’re gangly. Your limbs don’t work. And you trip over things. Nothing matches, and you’re a little bit discombobulated.Lara O’Connor Hodgson
As You Scale, Focus More on People
Hiring choices become incredibly important during scaling. Traditionally, people draft a job description with checklists, and applicants mold their experience to fit those expectations. Hodgson challenges that process and developed her own approach to hiring and building an outstanding team.
“You need to bring in other experts and learn to get out of their way,” she advises. So she invests her time in hand-picking her team. As your startup scales, hiring based on mindset has yielded superior long-term results than hiring based on skills. To identify someone who has a growth mindset, “you have to interview completely differently. You have to look at resumes completely differently and review references completely differently.”
The reality is people don’t fit in boxes. They can say the right thing to make you think they fit the box you want, but that’s not real life.Lara O’Connor Hodgson
Team-Building Tips for Scaling Startups: Rethink Hiring Practices
It’s common practice to hire people based on skills and many people feel pressured to hire superstars to lead functions. Experience made Hodgson skeptical of that practice. At her first company, she assembled a dream team, “I was very intentional about the skill sets of the people that we brought together. We had people that were great at every function.”
Hiring based on skillset seems logical. But, when the company began to scale, she quickly learned that soft skills, like thinking outside the box and being able to iterate, were more valuable than hard skills. Throughout her day, she’s constantly on the lookout for new employees, even at the grocery store, who exhibit a growth mindset.
I can probably teach you to do almost anything I need you to do. But I can’t teach you how to think. Or teach you how to approach a failure or a challenge in a way that moves the company forward.Lara O’Connor Hodgson
Build Cohesion by Giving New Hires Integrated Knowledge of the Company
In Hodgon’s experience, diversity of thought and adaptability are keys to maintaining a growth mindset. To enable her team to feel confident and empowered, she ensures that every employee acquires integrated knowledge of how the company works as a whole.
New hires shadow every department during their first week, even if it’s for 15 or 20 minutes. “Then shadow the entire lifecycle of the client. So they shadow Sales to understand how we even find clients. They shadow the Onboarding Team to understand the client’s first experience with us.”
As a business scales, it’s common for, functions to begin operating in a somewhat siloed fashion. Hodgson recalls, “I was starting to see, Sales say, ‘Well, why isn’t Processing doing this quick enough?’ Or Processing say, ‘Why didn’t Sales set the expectation?’” Having each new hire gain familiarity with all aspects of the business helps build cohesion among different teams. It gives “people a real appreciation for what their co-workers face every day in terms of their challenge in serving the client.” As a business scale past the point where all new hires can physically shadow each function, Hodgson suggests using video-based experiences that still provide new hires with exposure to each function, so all understand how individual teams contribute to the company’s larger mission.
The CEO’s Role Shifts from Doing to Managing
As a founder, you have the deepest, most integrated knowledge of the business. It costs less time and money for you to make decisions than for you to teach others to make those same decisions. But as you scale, your biggest job becomes leading other people. Hodgson equates being the CEO of a scaling startup to parenting an adolescent.
You become more of an advisor. You still have to step in sometimes. But the greatest joy of being a parent is seeing your child make a good decision on their own. And I think that’s the same as a CEO.Lara O’Connor Hodgson
Empowering Others to Do More
One of the toughest parts of scaling was digesting growth, releasing control, and empowering others to iterate on the process. “There were times when new people came in and they wanted to do something one way and I said, ‘oh no, no, no. That’s not the way we do it.’ And a year later, I realized that that was a mistake on my part. If I have to still do it my way, then I didn’t hire the right people.”
She began by creating behavior-shaping constraints that help prevent her team from making common errors or mistakes. That doesn’t mean creating decision-making processes for her team to blindly follow. Instead, she invested significant time, attending every meeting so staff could observe her thought process and internalize how she made decisions.
But that proved worthwhile. “Now I feel like my team can develop a perspective, run it by me. And in 15 minutes I can give them the direction that before would have taken two hours of my time because I had to be involved in the whole process.” Confident she’s hired the right people, she explains,
I can take their input, give them a suggestion, give them my input and then let them go. It’s really kind of the proudest moment. It allows them to grow. It allows me to grow. If I don’t do that, the company won’t grow. Because I’m not scalable.Lara O’Connor Hodgson
Equipping Your Team for Change
Successful founders and CEOs, Hodgson discovered, learn to equip their teams for future changes—”that might be your biggest superpower during scaling.”
At NOW Account, she wants her team to react to suggestions with curiosity, not defensiveness. She devised an exercise to help staff get comfortable with iteration inspired by Molly Graham’s talk, “Give Away Your Legos,” Before a period of rapid growth, she gave staff a barrel of Legos and instructed them to build something—anything they wanted—to sit on their desk. Once everyone built a creation and placed it on their desk and felt some sense of pride, Hodgson dropped a bombshell: in a few days, new staff would be joining the team and they would have to relinquish their Lego construction to the new person.
The exercise evoked chaos as people realized that “they’d just built this tower, or boat, or whatever they built, and when you give it to someone else, all sorts of things could happen. Someone could break it. They might put it together differently. They might take it apart. They might change it.”
Help People Navigate Growing Pains
The Lego exercise mirrors the complicated emotions that staff experience when their role evolves. It’s natural to want to cling to and preserve what you had, especially if you quite can’t see what the new role will bring. Hodgson explains, “we’re afraid to give up the role we had because it’s our security, it’s our job security, it’s what we’re great at, we’re the expert.”
Even though it’s a compliment to say, “You’ve done that so well. Now, give it to someone else because I want to give you a bigger challenge,” it’s still challenging for most people. Giving staff something tangible that allows them to experience the emotional impact of change can really help reduce stress.
Prepare to Iterate Processes Regularly as You Scale
Most early-stage startups cobble together processes based on things that worked at the moment. During scaling, many founders begin standardizing those early processes to help maximize efficiency and minimize communication challenges. But growth will strain and break most early processes. Because founders lack time, resources, and bandwidth, it’s common to postpone iterating on processes until they break, Hodgson notes. And in the long run, this slows growth. After making that common mistake, she learned to designate time to periodically assess processes before they begin to impede growth.
Iteration doesn’t end when you scale. But you need to iterate in different ways than you did during the launch phase.Lara O’Connor Hodgson
After a Growth Spurt, Assess Strained Processes
She remembers an intense period of rapid growth. “We were running and gunning, serving clients. We had a problem. We solved it. We had another problem. We solved it.” During that whirlwind, they followed processes that worked well in the past. After they moved through that growth spurt, she noticed that things felt clunky.
She observed, “The aggregate of all those point solutions was awful. It was inefficient.” Not only did she need to iterate the process, but she intuited that she needed to build time for the whole team to review and iterate processes regularly. Hodgson equates the “unexpected things that grow on top of your processes” and slow growth to barnacles that attach to boats.
Look Out for Barnacles
After NOW Account’s first major growth spurt, Hodgson took a step back and went on a family beach vacation. She noticed barnacles attached to docked boats. They became a symbol of their recent growth experience that underscored the need to iterate. She collected some barnacle shells and brought them back to the office, “I put them in the middle of the conference table, and I said, ‘That’s us. We have had all these barnacles growing on our beautiful boat, and our boat doesn’t look the same anymore.’” For Hodgson, the barnacles represent the process solutions implemented along the way to meet the business’ current needs.
Each point solution makes sense in the moment. But, taken in aggregate, they may not work. In a short time, they can become a mess and slow your growth.Lara O’Connor Hodgson
Expect Barnacles to Form as Your Startup Scales
Periodically, Hodgson recommends searching for barnacles. And, she warns, that means detaching your ego. “You have to have no pride of authorship,” she advises, continuing, “Half of the barnacles I created, and I had a great reason for it. I had a problem in front of me, and I solved it.” But pulling focus and taking a systems approach, she noticed those, “those collections of solutions did not go together, and it became clunky.”
Although it’s counterintuitive, she advises founders to set dedicated time every few months to “step outside of the craziness, look at what’s evolving, and see if it makes any sense.” At NOW Corporation, Hodgson leads her team through a “barnacle scraping” process.
Unexpected Benefits of Barnacles
Building in an expectation of iteration, and framing it as a natural art of scaling, had an unforeseen positive impact internally. It enabled staff to collaborate more effectively by minimizing uncomfortable feelings that often arise when processes change. Instead of creating a cycle of accusations and defensiveness when a process someone suggested doesn’t work, people expect to iterate on processes as a team.
Tips for Scaling Startups Looking for Barnacles—Broken Processes
- Identify the problem you’re trying to solve.
- List the assumptions you had about the problem and solution.
- Identify what you changed for good reason.
- Working as a team, determine how to update or replace existing processes to meet updated business needs.
Barnacles will inevitably form as you scale. Instead of being embarrassed by barnacles, Hodgson recommends making time to periodically investigate why they formed. Then, scrape off what no longer works. Approached in this way, “Barnacles are a gift!” she stresses, “in scraping them off, you might discover something new that you never would’ve seen.”
Rethink Trying to Attain Balance. Think about Optimizing Your Time
Empowering others to make good decisions, managing time, and helping your team function efficiently means letting go of some of your control and refocusing your time and priorities. Many founders describe the struggle to maintain some balance between work and family or personal life. Hodgson disagrees with that goal and offers a unique perspective on balance.
Instead of Looking for Balance, Optimize Time
“Is balance something that you can achieve or not?” she asks, “I think that’s the wrong question. You absolutely can achieve balance, but you don’t want it.” Essentially, she continues, reaching balance implies that things are equal, but then “everything’s average.”
Balance is not good. If two kids are on the seesaw, and it’s balanced, nobody is having any fun. Because there is nothing happening—you’re dangling. Everything’s average.Lara O’Connor Hodgson
Along those lines, Hodgson learned that to scale her startup she had to scale back on multi-tasking. She notes, “it’s really hard today. We are so distracted” all of the time.
It is so hard to focus when things are flying at you, emails and texts and buzzes and beeps. But it really hurts our productivity. Because we think we multi-tasked, but really we did everything only average.Lara O’Connor Hodgson
She believes you can optimize your time by choosing to pay 100% attention and that means not checking her email while in a meeting or spending time with her son. Whether she’s running a board meeting, serving as a room mom for her son’s school, interviewing prospective staff, negotiating a multi-million dollar deal, or spending time with her family, Hodgson learned to focus completely on the task at hand. She informs people in advance, “You have my undivided. You better use it well. Because when I leave, something else has my undivided attention.”
Taking Time to Refocus
Take time to recharge away from your business, Hodgson advises, because inspiration and fruitful connections come when you’re not searching for them. Empowering staff to make independent decisions allows her to optimize time. That means really paying attention in the moment, multi-tasking less, and doing something controversial: taking time away from her business.
Your best ideas don’t happen in a board meeting. Your best ideas don’t happen in a management meeting. And they don’t happen in a brainstorming session. They happen when you are nowhere near your office.Lara O’Connor Hodgson
In fact, in 2018, while attending her son’s lacrosse game, Hodgson struck up a conversation with the dad of another player. That impromptu conversation led to their collaboration on an innovative $100 million bond securitization for NOW Corp. “It would not have happened if I had not been at my son’s lacrosse practice. That would never have happened in a networking event. It would never have happened in a formal meeting. It had to happen at a time when my brain was open to new ideas.”
Makes Sure Your Passion Comes from Your Impact, Not Your Ego
During rapid scaling, adding staff can provoke reactions of anxiety and insecurity. One of the most counterintuitive lessons she learned while scaling: “you have to be very careful that your passion or your ego is not in what you do.”
When scaling her first startup, Nourish, the spill-proof water for children, she candidly remembers being extremely passionate about the product design, which she calls the “what.” She learned that when your ego is attached to what you do, not the outcome of what you do, you tend to react defensively to suggestions. Over time, she discovered that, by focusing on the company’s impact instead of the product, she gained valuable insights.
I really was very proud of the “what.” Everything about the design had a reason and a rationale. And it created a bias for me that kept me from listening to other people who offered criticisms of the product.Lara O’Connor Hodgson
Wanting to justify what you created or your actions is often an involuntary, visceral reaction. But that prevents you from listening and responding to what might be insightful observations. Now, she helps her team differentiate between what they do and why what they do matters.
No One is Scalable
When you’re scaling, it’s natural to want to hold onto your company more tightly. She reflects, “sometimes you want it to really be about you. But if your company’s going to be more than a lifestyle business, it’s not about you. Your DNA is in it and certainly is reflected in the way the company presents itself, the way people treat each other.” But in order to scale, your startup has to become bigger than you. You are not scalable.
If Hodgson had to distill her experience into a simple checklist for founders expecting to scale, it’d look like this:
Quick Tips for Scaling Startups
- Be prepared to iterate processes and roles frequently as you scale—even more than when you were launching.
- Look out for barnacles—unexpected things that grow on top of your processes and can slow your business.
- Expect that barnacles will form as you grow. Build time periodically to discover why they formed and scrape off what no longer works. Barnacles are a gift!
- Forget about “what” you do, focus on your impact–on your “so what.”
- Hire people who have the mindset to grow with you instead of hiring for skills. Don’t be afraid to wait for the right person.
- As you expand your business, reduce multitasking. Optimize your time by fully focusing on what you’re doing.
- Take time to recharge away from your business. Inspiration and most fruitful connections come when you’re not searching for them.
- Be prepared to iterate processes and roles frequently as you scale and proactively communicate changes to your staff and board.