A startup is a particularly fragile thing. After all, if fights among its founders and scarce cash don’t kill it, perhaps a failure to get customers will. So it should come as no surprise that a successful startup is just as prone to implosion — but for different reasons.
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What’s important for entrepreneurs to know is that a startup can break down as it grows. And while those breakpoints might be measured differently for each startup, the ways to repair those breaks may be common.
Consider the case of 250-person Twilio, a San Francisco-based provider of telecom as a service. Twilio has raised $110 million in venture capital since it was founded in 2008 with three people and it charges customers like Home Depot for customer service calls from consumers looking to get help from home improvement professionals.
By paying Twilio, customers save the money, time, and effort that would be required to build and operate the hardware, software, and service networks needed to supply their own telecom service.
Jeff Lawson — a University of Michigan Computer Science graduate who started three companies and joined Amazon to learn from the best entrepreneur – is Twilio’s founder and CEO.
As he explained in a December 27 interview, Lawson decided to start Twilio to “apply my previous experience solving business problems with software to help companies communicate better with customers and employees.”
Lawson realized that he could help companies save time and money. ”I saw that when companies needed to set up call centers, for example, that it would take them 12 to 18 months and cost millions of dollars. They had to buy all sorts of hardware, software, and professional services. We replaced all that by building our own telecom network that used economies of scale to achieve lower costs and renting it out to big companies,” noted Lawson.
And as Twilio has grown, it has faced and overcome challenges that might have interrupted its trajectory. As it reached specific staffing levels, Twilio needed to change the way it managed the organization. Here are the four ways Twilio kept itself from breaking.
1. Require new people to build product, serve customers
When a startup has under about 20 people, everyone in the company ends up doing just about everything. This means that those employees know how to build the product, how to work with customers, and how to work with each other to get things done.
But when the startup reaches about 25 employees, those new people may specialize in fields like marketing, human resources, or finance and may not understand how the company’s bread is buttered.
To solve this problem, Twilio required all new employees to build an app and do customer service. As Lawson explained, “We realized that we would be hiring new people who would not do what our founding team had done — build the product and work directly with customers. So we require all new employees to build an app — if they do not have technical training, we give it to them. And we require them to do customer service. This is in the spirit of one of our core values — to stretch people to do what they have not done before. At the end of two weeks, they present and demonstrate their app.”
2. Create small teams to maintain entrepreneurial focus
As companies grow, a danger arises — people spend so much time in meeting fighting for resources to do their projects that they get distracted from understanding customers and building products that deliver superior value to them.
One way to keep that from happening is to split off small teams — of five to 10 people — to focus on a new market opportunity. Such small teams have a clear mission and their performance is measured on the basis of specific product attributes that matter most to the customers in their market.
Explained Lawson. “When we reached about 75 employees, we realized that big teams were not focusing enough on customer needs. We split off small teams that would solve the real problems of customers in new markets. We gave the small teams ownership of those customers and measured them based on operational metrics of quality — such as the time and cost to onboard the service — that matter to customers. We did this in 2010 for a team that developed a service for SMS messaging using phone numbers and we not have 70% of the US market for that.”
3. Define core values and apply them to hiring, motivating, and rewarding people
As a startup reaches a certain size, it becomes difficult for all its employees to understand its purpose. While the founders may maintain that understanding, the newer employees may just do their job without a deep understanding of the startup’s mission.
Without a strong culture, people are less productive and turnover can increase. After all, my interviews with over 200 entrepreneurs suggests that people join startups for meaning, not money. And if the meaning is not there, people are inclined to leave.
When Twilio topped 100 employees, it developed a culture built around nine values. According to Lawson, “We formed a tiger team from different functions that spent three months defining our nine core values. We knew that people would be cynical about this unless we put each value into practice. We developed a memorable phrase and compelling stories around each one. One example is Draw The Owl — [per this link, it exhorts people to start with a simple pr0blem definition and improvise a solution with little direction from management].”
4. Create a common language for setting and achieving goals
Another problem that afflicts startups as they grow is that people do not have a common understanding of what they should do to implement corporate goals. For example, a startup’s strategic plan might state a goal of improving a product’s performance by 20%.
But engineers might not have a clear idea of how management wants to turn that goal into specific changes to the product nor a deadline for achieving it. This failure of communication could mean that managers expect people to do things that don’t happen because the employees do not have a clear understanding of what they are supposed to do.
At 250 employees, Twilio is now introducing a new “operating system” intended to eliminate this confusion. Said Lawson, “We studied Google’s approach to this problem — called Objectives and Key Results (OKR). We decided to tweak it to fit our values and called it Objectives and Memorable Goals (OMG). OMGs encourages people to propose aspirational — but measurable — objectives to their managers. We want people to own the OMGs but not punish them if they do not achieve them. So we don’t link OMGs to compensation.”
While it remains to be seen whether Twilio will reward its investors with a big exit, these four changes to its management process as it scaled strike me as valuable to many entrepreneurs seeking to grow their startups through these breakpoints.