3 stages of a Fast Growing Startup

A beloved and highly respected colleague, Hakan Erdoğan, the CEO of Craftgate, has astutely identified three distinctive phases in the rapid expansion of ventures that have made a lasting impact on the business world. Having experienced these stages throughout my career, I can attest to their profound impact on shaping the role of a CTO.

As a fast-growing initiative progresses, the responsibilities of the CTO undergo significant transformations, unique to each phase. We shall examine each stage individually to gain a closer understanding of the evolving role.

Early Stage (0-3 Years)

During the first three years of an enterprise, significant growth and development occur. The enterprise is still figuring out what works and what doesn’t, which can be uncertain. The team regularly tests their ideas, but things are not yet fully settled.

Being quick and adaptable is crucial during this time. The enterprise needs to find customers quickly, who like what they offer, before running out of money. It’s challenging to have the most talented team right from the start since budgets are limited, and people don’t know about the enterprise yet.

That’s why the CTO’s most important job is to lead the technical side of things in a way that supports and collaborates with the rest of the team. The product needs to work well, from the software to the hardware, and the team should be able to solve any issues that come up. This can be challenging, but it’s essential to ensure that the team has the skills and knowledge they need to succeed.

At this stage, the team should respect and admire the CTO’s technical knowledge and experience. If the team doesn’t have this attitude, it will be hard for the CTO to lead. Instead, the team should work together to make a product that customers want and that will make the enterprise successful in the long term.

Scale Stage (3-5 Years)

During this stage, the product goes through important changes to meet market standards and help the company grow quickly. This period is often marked by a weekly growth rate of at least 10%, showing the company is doing well.

One of the biggest changes is the team manager getting more involved in driving these changes. The CTO still leads technically, but the team manager helps make sure the sub-teams work well together and follow the company’s goals.

As sub-teams form, the CTO lets them take on more work, responsibility, and authority. This helps the company grow in the long run.

Human/Team Transformation:

The early stage of a company is often when most team members in the warrior profile, who have been working since the establishment, either quit or are fired. We can summarize the warrior profile as follows: “People who can operate quickly in an uncertain environment, are driven to achieve goals, wear many hats, are ambitious, but generally lack experience in corporate business life and are unfamiliar with business culture and systems.”

I often compare this to soccer players who play in the amateur league. As the company grows, it will move up from the amateur league to the first league, then the super league, and finally the premier league. Not every player who is successful in the amateur league will be able to play in the premier league.

At this point, you will face two challenging tasks:

1. The team must consist of talented individuals (A players) who have experience working in scalable systems.

To achieve this goal, it is necessary to convince these individuals of the company’s vision, product, and achievements. Once they join the team, they may experience discomfort due to the less mature environment compared to their previous experiences. Therefore, it is important to clearly explain the dream, vision, and roadmap to these individuals.

1. Be aware of differing paths for team members.

When integrating the most talented individuals into the existing team, it becomes a priority to balance and prevent siloing. Additionally, prepare players with the “warrior” profile for the premier league, clearly communicate the roadmap, and expect them to adapt to the transformation and improve themselves. Change is often difficult due to inertia, and there are many who resist it. It’s important to recognize the perspectives of those behind the company, even if it means replacing the CEO - investors won’t hesitate to make that choice.

Technical Infrastructure Transformation:

During the early stages of development, it’s crucial to ensure that our product will perform well in the market. However, this may require working with an imperfect technical infrastructure or architecture, especially when our most talented team members are not yet on board.

It’s important to recognize that technical debts incurred during the early stages of development will accrue interest and must be paid off later. However, this doesn’t necessarily mean that you should completely rewrite the infrastructure or redesign the project from scratch.

In general, two factors trigger technical infrastructure transformation:

1. Vision: This step involves recognizing the problems and limitations of the current infrastructure and investing in a new one for the future. You can gradually move module-by-module projects to the new infrastructure, much like renovating each floor of an apartment building to strengthen the foundation, columns, and floors without demolishing the existing structure. In this case, infrastructure transformation is not a necessity, but rather a forward-looking investment.
2. Imperative: When existing infrastructure is too worn out to be renewed, infrastructure renewal becomes necessary. In this case, it’s like building a skyscraper next to an existing apartment building or at least a structure that you hope will become a skyscraper. During the renewal period, which may take six months to a year, you need to keep working. So, metaphorically speaking, the second building is necessary.

The necessity of each option depends on your specific situation. However, it’s important to consider that resorting to rewriting should be a last resort. You and your team are valuable assets, and rewriting things often doesn’t yield substantial financial gains, as you might anticipate.

Cultural Transformation:

Corporate culture plays a pivotal role in shaping an organization, encompassing its values, beliefs, practices, and behaviors. It is a collective result of each individual working within the company, and as new members join, the dynamics of the workforce evolve.

There is a common belief that founders establish the company culture right from the start, making it difficult to change as the organization grows. Founders typically seek out individuals who align with their vision, values, and culture. As the company expands, they continue to hire individuals who fit into this culture, creating a pyramid structure.

However, the culture of a small company with 20, 50, or 100 people may differ from that of a company where everyone works closely together. In smaller organizations, roles, responsibilities, and communication channels are often less formalized, allowing for greater flexibility. On the other hand, larger companies tend to create local cultures at the squad level, making it harder to maintain a unified culture across the entire organization as it grows. Thus, it is crucial to establish corporate culture rituals that ensure all employees are aligned with the company’s values and goals.

Corporate culture rituals can take various forms, such as an employee handbook, recruitment processes, decision-making criteria, company events, retrospectives, monthly meetings, and performance reviews. These rituals enable organizations to foster a shared language, shared experiences, and shared values among employees.

To successfully undergo the three transformations mentioned - human/team transformation, technical infrastructure transformation, and cultural transformation - top management sponsorship is of utmost importance. With the transformation initiated from the top, the entire top management team should act as sponsors, providing support in terms of budget, time, patience, resources, and more. When top management demonstrates commitment to the transformation process, it creates a sense of urgency and momentum, which greatly contributes to its success.

Late Stage (5+ Years)

In the late stage of a rapidly growing venture, which typically begins at the five-year mark, the organizational foundation has been laid, and the focus shifts to business continuity and stability. This is a crucial time for the company, as it must maintain its momentum while also avoiding any pitfalls that could derail its progress.

At this stage, the CTO’s role may change significantly from what it was during the earlier stages of the company’s growth. Technical issues are delegated to other staff members, and the CTO may no longer need to hold a technical leadership position. Instead, the CTO’s role becomes more strategic, focusing on the big-picture vision for the company and ensuring that the technology strategy aligns with the overall business strategy.

The CTO must work closely with other executives and department heads to identify areas where technology can be used to improve operations and increase efficiency. By aligning the technology strategy with the overall business strategy, the CTO can help to drive innovation and growth.

However, the transition from a technical leadership position to a more strategic role can be challenging for some CTOs. It requires a shift in mindset and a willingness to let go of some of the technical responsibilities that were once central to their role. To make this transition successfully, the CTO must be able to delegate effectively and trust other members of the team to handle technical issues. Check the chapter “The Authority and Responsibility Duo” for more information.

In addition to adjusting to a new role, the CTO must also navigate the delicate balance between growth and stability. This balance is particularly important in the late stage of a rapidly growing venture when the company’s success depends on maintaining its momentum while also avoiding any pitfalls that could derail its progress.

To achieve this balance, the CTO must remain focused on the company’s long-term vision while also paying close attention to the day-to-day operations. The CTO must be able to anticipate potential problems and develop strategies to mitigate those risks. At the same time, the CTO must be able to identify opportunities for growth and innovation and work with other members of the team to capitalize on those opportunities.