Outgrowing the Startup

Middle age often means sensible decision making, assuming responsibility for others, and a (mostly) wise perspective. Several decades of life experiences have taught lessons about perseverance and helped define priorities. As true as this is for people, it also is true for businesses. For startups with staying power, growing the business is often a primary goal, trading speed for scale. But, does that growth and transition to major-player status mean a business outgrows its startup roots?

Isolating a Turning Point

“I knew we were a grown-up startup when it occurred to me that I no longer knew all of the people, all of the customers, and all of the problems,” says Diane Hessan, Communispace chairman. She founded the consumer insights firm in 1999, growing it to the point where today the company has offices on five continents and employs more than 500 people. Hessan still appreciates Communispace’s entrepreneurial spark. “We’re still constantly trying to reinvent the business and innovate.”

The turning point for Rackspace CEO Graham Weston came when his company settled on its differentiator. Historically, Rackspace had rented out access to IT infrastructure. To set itself apart, the company began providing “Fanatical Support” so customers could stop worrying about IT and focus instead on their core business. “When we chose that direction, we frankly didn’t know whether it would work,” Weston said. “We knew we had to do something to stand out in what had become a crowded industry, and we only had three months of cash in the bank.” Success soon followed: Rackspace revenue and profit rose as customers enthusiastically responded to the company’s new direction.

Growing Pains

Leading a growing company comes with its own set of challenges. Unlike small businesses that run smoothly with small teams, scaling a startup involves constantly acquiring customers, hiring new people, and developing the product. Software company Pegasystems got its start in the early 1980s, when CEO Alan Trefler and two others were “three completely frenetic people bouncing around a few rooms in a Cambridge walkup,” according to Trefler. He describes how the small team was almost constantly time slicing to ensure successful product delivery. Now, more of that effort is managed by teams, while Trefler’s focus is on establishing a culture of thought leadership and participation.

“As the company has grown, it has developed levels of structure and rigor consistent with being a publicly traded company,” he says. More than 30 years removed from its founding, Pega is mature about planning, sharing information across the company, and collaborating across groups—crucial as more people came on board. Trefler describes Pega’s growth as “an overnight success after 25 years,” acknowledging that it took the 3,000-person company 20 years to reach the $100 million mark, but has grown more than 20% each year since.

Gaining Perspective

With this growth comes perspective. Startup success has had a lasting impact on each company, yet Hessan, Trefler, and Weston were all quick to identify things they would have done differently in the early days. “Starting out, my advice to myself should have been not to take myself so seriously,” says Hessan. “Now, when I worry, it’s almost always about the people issues: Did I handle a conversation the right way? Did I make the right hire? And so on.”

Having the right people on the team has been important for Pega, too, especially in advisor roles. “I think one of the mistakes we made initially was not having the level of management maturity to run a business that scaled to the level ours did,” says Trefler. “We needed things like support models and go to market models—just having a brilliant product wasn’t sufficient.”

Weston also came to value expert advice at Rackspace. “I’m thinking of Jack Trout’s and Michael Porter’s ideas about differentiation, Fred Reichheld’s ideas about measuring your customers’ willingness to recommend you to others, and Marcus Buckingham’s ideas about encouraging yourself and your employees to play to your strengths rather than grinding on your weaknesses,” he says. These ideas were gradually integrated into Rackspace’s strategy, but Weston wonders what effect they could have had on the company if he’d adopted certain concepts early on.

Sharing their experience with younger entrepreneurs is one of the important ways each of these founders invests in the next generation. “I do worry that today’s entrepreneurs have developed too short a range of focus,” says Trefler. “Even if people aren’t sure they’ve chosen something they want to spend their life doing, the idea that you’re thinking about the exit at the entrance is a disastrously bad way to go about building something sustainable.”

Diane Hessan, Alan Trefler, and Graham Weston are the 2014 inductees into the Babson College Academy of Distinguished Entrepreneurs®. Learn more about their achievements: www.babson.edu/ADE

Posted in Entrepreneurial Leadership

Tagged Startups, Advice

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