The Do’s and Don’ts of Rapid Scaling for Startups

The Do’s and Don’ts of Rapid Scaling for Startups

Stanford Business and Engineering Professor Bob Sutton shares the tactics startups can use to grow fast without fatally breaking.

A few years ago, a landmark Stanford study came out showing that people tasked with remembering one digit made much better decisions than people charged with remembering seven digits. The two groups were each presented with a choice to eat calorie-laden cake or healthy fruit. The seven-digit crowd ate 50% more cake. The culprit: Cognitive load.

“When you give people cognitive load, they lose will and concentration,” says Bob Sutton, organizational behavior expert at Stanford’s School of Engineering. The challenge is that your company is bound to add cognitive load and gain complexity as you grow. The reality is you do need more roles, more hierarchy, more process. It's unavoidable. It's also a lesson Larry Page learned the hard way when Google entered hyper-growth in the early 2000s.

“When Google got up to about 400 people, he started longing for the good old days when they didn’t have all these annoying managers around,” Sutton recounts. “So he got rid of all of them, because he’s Larry Page and he could, but suddenly he had one executive with 100 engineers reporting to him. That didn’t last very long.”

The takeaway is that you have to find a way to deal with added complexity that acknowledges and incorporates human limits. “Put in just enough structure and process that you feel like you’re giving up ground grudgingly,” Sutton says. “Push until things crack, but not until they break.”

In a recent Stanford Entrepreneurship Corner talk, and his brand new book Scaling Up Excellence: Getting to More Without Settling for Less — co-written with Stanford Professor Huggy Rao — Sutton outlines the lessons he’s learned from interviews with dozens of business leaders who have guided successful rapid growth.

Respect Cognitive Load

"The purpose of hierarchy is to destroy bad bureaucracy."

That’s a quote from Chris Fry, head of engineering at Twitter, who is a proponent of using small, stable teams as the core unit of scale. Sutton cites Fry because he’s seen one thing screw up more growing organizations than anything else: Choosing wrong group sizes.

One the best things you can do to respect the challenge of cognitive load and remove complexity is keep teams small and nimble.

“There is a lot of evidence that as a team gets bigger than five, and the closer it gets to 10, things get bad — you end up spending more and more time on coordination chores and less and less time doing the actual work,” Sutton says. “You also start having all these interpersonal problems because you’re trying to track the personalities and moods of 10 or 11 people. It’s like going to dinner and having a conversation with that many people all at the same time. Impossible.”

When the Oracle USA sailing team started training for the America’s Cup, they expanded from five to 11 crew members, and it was a mess, Sutton says. “It was really interesting to watch this adjustment. All of these guys on the boat were mic'd up with headphones so they could talk to each other, but it gets loud out there. They're on a 72-foot boat going 50 miles an hour in 25-knot wind. You can hardly hear or focus on anything.”

Things only started coming together when they took earpieces and microphones away from half of the crew so there wasn’t so much cross-chatter and they could just follow the movement of the people working near them. In their case, ruthlessly eliminating complexity to maintain the small-team feel was the right strategy.

Set the Right Mindset for the Right Time

When your startup enters a growth stage, you want to make sure you’re not just thinking about the numbers — customers, users, headcount. You need to have the right mindset for your current phase of development, and you need to make sure the people you’re working with are on the same page.

Startups are especially vulnerable to mindset mistakes. They see that things are working well — which, of course they are when you’re just 10 people in one room — and they try to hold onto that feeling even as they recruit and acquire customers at breakneck speed.

You need to slow down so you can spread behaviors and beliefs first.

“The hallmark of successful scaling is knowing when to hit the brakes so you can scale faster later,” Sutton says. “And if anyone ever tells you they have solved all your scaling problems, they are lying to you, and you need to send them out the door immediately.”

There is no one straight route to scale. It is deeply personal to each company’s experience.

In 2002, Page once again got into trouble with his investors, his colleagues, and even prospective employees because he didn’t appear to be hiring fast enough. “But when you look back, it turns out that focusing on hiring the right people was critical to Google’s growth at that point,” Sutton says. Ultimately, Page had the right mindset for the right time.

Getting others to buy into your mindset is equally important. Facebook does an especially good job at this. “Right when they start, new engineers are encouraged to make changes in the code that they could point out to their mother or father," Sutton says. That's the "move fast and break things" mindset in action. By expecting this behavior, Facebook leadership is able to scale the belief that everyone should be working fast and making an impact.

But one mindset definitely doesn’t fit all.

Sutton also interviewed an executive at VMWare, and when he asked whether they move fast and break things, the answer was an emphatic “no.” “They build software for nuclear submarines. Everything has to be right,” Sutton explains. In this case, the devotion to precision was communicated as a common mindset that would help the company scale. That said, there is one quality shared by all successful scalers, he says:

You have to have a relentless restlessness to make things better all the time.

Expect Accountability

For Sutton, scaling is defined as spreading excellence. You want to identify your pockets of excellent performance, attitude and execution and spread them throughout your organization. The best way to do this is to make people feel accountable for the success of your startup’s growth.

“There’s this feeling of ‘I own this place and this place owns me,’” says Sutton. “Everybody puts pressure on everybody else to do the right thing.”

Workplaces like this aren’t silent. People feel compelled to tell their colleagues when they’re screwing up, or to teach them and help them reach the same standards. Sutton gives IDEO as a prime example of an organization that has suffused its workplace with a commitment to high standards, reinforced by constant critiquing and short feedback loops.

Subtract as You Add

For most people, scaling is all about more — more employees, more customers, more revenue, more processes, more tiers of management. Often, this drive toward more masks what you are losing, what you should lose, and how it will impact your business.

“Scaling is actually a problem of less,” says Sutton. “There are lots of things that used to work that don’t work anymore, so you have to get rid of them. There are probably a bunch of things you’ve always done that slowed you down without you realizing it.” You have to be aware of necessary subtractions even as you keep your eyes fixed on additions.

At General Motors, former CEO Ed Whitacre — who held the same post at AT&T — is credited with turning the ailing automotive company around by slashing the number of reports that employees had to file. For a while, Sutton worked with GM’s R&D organization, and the sheer amount of paperwork was enough to deter any great idea. By subtracting bloated processes, Whitacre liberated these ideas.

There's all this stuff that everyone else does even if it's stupid, so you do it too.

One of the biggest examples of this is performance evaluations, Sutton says. The number of hours lost to performance evaluations at large companies is staggering, and nearly unjustifiable at a startup. This is one area where he has seen alternative systems work much better.

Sutton points to Donna Morris, senior VP for HR at Adobe — “An incredibly brave woman who actually had the guts to get rid of annual performance evaluations.” She had a very logical reason: It turned out that every year Adobe ran its formal stack-ranking process job satisfaction among good employees would go down. The company was basically collecting hard evidence that the best people were going to leave, and they were spending 80,000 person-hours doing it. Those hours could go a long way toward retaining high performers.

“They came up with a check-in system that made bosses responsible for constantly providing employees feedback throughout the year,” Sutton explains. “And then they’d make time to turn it upside down so people could feel comfortable offering their managers feedback.” Notably, they ran the whole system in person, without an electronic interface or intermediary. “Engineering leaders were forced to learn how to actually talk to their people, and so far it looks like it’s working.”

Hot Causes and Cool Solutions

“To change collective human behavior, your can’t just make a rational argument,” says Sutton. “There’s a recipe: Get people fired up about a hot cause, and then link it to a tangible set of cool solutions.”

By “hot cause” he means a problem or an issue people will be passionate about. In 2006, the Institute for Healthcare Improvement launched its 100,000 Lives Campaign with the goal of helping hospitals and medical clinics adopt small behaviors that could make big differences for patient outcomes. It promoted things like doctors and nurses washing their hands, and ultimately saved a projected 123,000 lives.

To kick the initiative off, the organization called a conference of 4,000 health workers, insurance professionals, and others. And the first speech came from Sorrel King, whose daughter had died due to a preventable medical error. This raised the stakes of the entire campaign, which was then able to offer a cool solution: Let’s get medical centers to adopt six simple practices to prevent things like this from ever happening again.

Social movements happen because emotions get cranked up so people stop thinking about their self-interest and start thinking about the collective interest.

So when it comes to scaling successfully and keeping people enthusiastic and committed to their work, it’s important to do enough internal marketing to remind them why they should be not only invested in their jobs, but emotional about them too. That’s how a dedicated and impassioned mindset gets passed on as you grow.

Keep Moving Forward

“There’s good research that shows that even if people don’t like the direction you want them to go, or even if they don’t believe you, if you keep them going in a direction long enough, their beliefs will change,” Sutton says. Forward momentum is a key part of smart scaling.

Years ago, when JetBlue was suffering from terrible PR around cancellations, wait times, and poor customer service, Bonny Simi — now the airline’s VP of Talent — stepped in to try to solve these compound problems with design thinking.

With an inter-disciplinary team of 40, she walked through a simulation of a major storm hitting JFK airport and how that would affect travel and customers. They mapped it out in gross detail with Post-It notes representing different types of problems. Together, they spent hours strategizing and re-strategizing how to solve every incremental problem an event like this might cause. And at the end, she asked her team how many of them thought the exercise would be effective.

“Not a single person raised their hand,” Sutton says. “But Bonny kept moving forward — and if you fast forward a few years, the process they devised has largely fixed their operations problems during difficult weather. In some situations, all you can do is clean up the best you can and keep moving forward.”

Along these lines, when you look at human psychology, “The average mood of the average person always sucks the most in the present moment,” Sutton says. “Most of us misremember how good things were in the past, and tend to be pretty optimistic about the future.”

A lot of leadership is moving people's attention away from the present to think about how great things are going to be in the future.

This is a strategy employed by IDEO Founder David Kelley. Some refer to it as “next big thing management,” where he intentionally calls attention to the next big project, event, or challenge on the horizon. It’s one of the most effective ways Sutton has seen anyone inspire forward motion.

Remove the Bad So the Good Can Thrive

One of the most famous books on business strategy is Jim Collins’ Good to Great, but in Sutton’s opinion, you’re more likely to be dealing with a “bad to great” situation. There are a lot of examples of this: the fact that five positive comments are needed to neutralize one negative comment; data showing that just one poor performer can lower the effectiveness of a team by 30 to 40% and much more. “All of this is evidence that in order to truly spread excellence, your job is to first get rid of the bad.”

And while many focus on the importance of firing fast and never hiring the bottom 10% that you’ll need to fire anyway, eliminating dead weight isn’t always about people.

When Cost Plus World Market was on the brink of bankruptcy, Barry Feld took over and made it his mission to get rid of the bad. Armed with data showing that people who are personally greeted when they enter a store buy more and steal less, he instituted a mandatory greeter policy across the chain. Secondly, he made it a firm rule that the bathrooms would always have to be clean. “He had learned from his career in retail that dirty bathrooms were correlated with a bunch of other problems,” Sutton says. These were two major changes that led to the company’s rebound and eventual sale to Bed Bath & Beyond.

Twitter’s Chris Fry removed the bad in the form of cell phones during management meetings. He noticed that leaders at the company were actually voting on issues while staring at their phones. It wasn’t clear they were even listening. So he rounded up all of their phones in a basket — a tall order for Twitter employees.

“The way he described it, it was like he was taking away their heroin or something,” Sutton says. “But he also said they now have shorter more effective meetings. To me, that’s a great example of getting rid of something bad so the good can spread.”

The good news about working at a startup is that you have the chance to spot all of these things as they pop up, and catch them before they become entrenched. In essence, as a founder, you should make your job about removing roadblocks so that pockets of excellence can spread, unobstructed. When you envision it this way, you have a much better chance at scaling smart.

Click here to watch the original video of Bob Sutton's Stanford Entrepreneurship Corner talk.