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June 20, 2012

The First Breaking Point


This is the second in a series of posts discussing rapid growth. The first post talked about the idea of startups as temporary organizations focused on “discovery” rather than “execution.” The successful ones grow to become companies that can deliver consistent results.  

In the venture capital industry, a startup experiencing rapid initial growth looks exciting. Ironically, this is usually when the first breaking point is reached. For example, according to this article about The Maturation of Mark Zuckerberg, even at a company as successful as Facebook, the grumblings started with as little as 25 people, just after a $12 million financing.

The Successful Startup Phase

When a company is tiny, communicating is easy. Everyone knows what’s going on. Everyone knows each other and dialog flows naturally across all levels. Talking to or hanging out with the CEO is not so intimidating. People may not have formal job titles but it doesn't matter because most people wear multiple hats and they do what it takes to get the job done.

There is no need to show off one’s knowledge. People know what you can do. People admit mistakes and acknowledge when they don’t know something. There is no defensiveness because everyone is focused on learning. The entire company is in “discovery” rather than “execution” mode.  However, nothing happens at a startup until someone does something. Execution does matter, even on day one. If someone doesn't pull his or her weight, word spreads fast and something is done about it. It's a matter of survival.

There is tremendous sense of urgency as people race against the clock to make something happen before time or money runs out. Startups get things done with impressive speed. Even with no business (or even a business model), everyone is committed to a common mission - it can be as vague as "put a ding in the universe." There is clarity and commitment around what needs to happen - like building a product or taking care of customers – so everyone is focused on getting things done rather talking about it. Meetings, if held at all, are usually short and informal. There are no politics, no competing agendas or competing business units fighting over resources.

The First Breaking Point

Force of personality and brute force might be enough to get the job done when a company is small but there aren't enough hours in the day or night. Due to growth – in customers, employees and complexity - things can feel out of control for the first time.

Around this time, startups feel an urgent need to switch into “execution mode.” The vast majority of dollars in the venture capital industry is invested after significant “traction” – evidence of rapid market adoption. Post funding, expectations can run high as new investors want to see companies “execute” and deliver results.

As startups shift into execution mode, doubts about management’s capabilities can creep in. This is not just investors’ doubt. It can be about co-workers and even self-doubt. If a company believes it is in execution mode, patience can run thin, especially if the burn rate is high. Every time plans change for the worse, credibility takes another hit. Explanations are seen as excuses. Investors hate surprises and so does everyone else, when in execution mode.

Eventually, there may be a push to hire executives who have “been there and done it before.” In Silicon Valley, ushering in “adult supervision” is almost a rite of passage. Unfortunately, after burning through more time and money, people realize that the business is not (yet) predictable, no matter who is in charge.

In the meantime, there may be subtle changes that lead to a cultural shift. New managers who are hired for their expertise may not have the agility or mindset of early employees. In the quest for predictability, risk taking may get snuffed out.

In contrast, in the early days, projections were seen as guesses. Plans were hypotheses that needed to be tested and validated. Negative surprises were seen as opportunities to learn and grow, rather than opportunities to cast blame in order to hold someone “accountable.”  

Reset Expectations

Getting through the first breaking point is not about rushing into execution mode. It’s a gradual process that will never end. A framework we’ve found useful in assessing progress along a continuum is the Capability Maturity Model (see the five levels of maturity below). It’s a development model whose origins trace back to studying software projects (and failures) in the 1960s when computer science was in its infancy and few “best practices” existed. Within any company, there will always be processes at different levels of maturity. It's important to keep in mind that even successful large companies will have chaotic episodes and continue to live with countless undocumented, ad hoc processes that are developed and refined over time. 

  1. Initial - the process is new, ad hoc, chaotic and undocumented. Individual heroics are relied upon to get the job done. The focus is on outputs.
  2. Repeatable - the process is somewhat documented. Repeating the same steps may be attempted. It’s not clear if the process will yield desired outputs.
  3. Defined - the process is well defined, documented and confirmed as a standard process that can produce results.
  4. Managed - the process is quantitatively managed in accordance with agreed-upon metrics.
  5. Optimizing - process management includes deliberate process optimization and improvement. 


  • All growing companies go through the first breaking point so don’t panic and don’t over-react.
  • There is no single moment in time in which a company switches into execution mode.
  • Reset expectations. There are no short cuts to repeatability and predictability. It will take time, iteration and constant tuning.
  • Remember essential qualities from the startup phase that will continue to be important.
    • Continue to balance discovery and execution. Focus on learning rather than blaming.
    • Get clarity and commitment around shared goals. Look out for political behavior and stomp it out.
    • Focus on getting things done. Output is more important than process. 


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via @honam The First Breaking Point #PGIVC
Ho Nam
New post discussing challenges faced during rapid growth phase