Startup growth stages: Five developmental phases and challenges that managers need to know and overcome

All stages of human development, such as childhood or adolescence, are important and instructive. Growing organizations also have natural and necessary maturity stages. If an organization gets stuck in one of them for a long time, its growth journey becomes similar to driving on a potholed gravel road. Therefore, to grow healthily and enjoy the growth journey, as if rolling on freshly laid asphalt, it is necessary to know how to properly navigate all the stages of maturity.

First, let's agree. Growth, as a goal, is not set by all company owners and managers. It's their choice. In this article, I will discuss the natural evolutionary stages and the challenges that arise for organizations aiming for growth.

A startup in its first years usually does not face significant managerial, structural, or process challenges. It seems like something distant, heard from other startups that have already overcome more miles on the growth path.

However, a maturing organization, like a person, must eventually go through five evolutionary stages and solve the challenges that arise during the maturing period. American economist Larry E. Greiner referred to these stages as crises.

It is better to prepare for the growth stages than to allow them to catch the company off guard, as each stage is characterized by a certain crisis that will eventually have to be resolved. The company's growth is possible even while dragging along unfinished "homework", but such organizational growth becomes limited due to the extra weight in its trunk.

Infancy. 5-10 employees. Leadership crisis.

This is the stage when a startup begins its activities. In this stage, special management skills or complicated written processes are unnecessary, as informal communication among a small group of people overcomes all emerging challenges. One of the biggest, and perhaps most enjoyable, challenges at this stage is to select a real leader from among several co-founders. At this stage, it is helpful to have a visionary leader with good communication and team motivation skills. The company will exist in this stage until it grows to around 25 people.

Soon childhood will be replaced by adolescence, during which one of the biggest challenges in the company's life awaits. Some companies never abandon the harmful habits typical of adolescence throughout their lives. Heard somewhere, right?

Childhood. The company is approaching 25 people. Delegation crisis.

In corporate life, childhood is a very important stage of development, just like in humans. Because the lessons learned or not learned during childhood will have a significant impact on the subsequent life of the growing organization.

At this time, the work of the company's leader with oneself is especially important: how much the leader who has raised the company from minority will trust colleagues and instill confidence in them. Management theory says that one manager can effectively manage 7-15 people, in exceptional cases 25 people, but no more. That is why, as the number of employees approaches 25, it is time for the organization's manager to delegate decision-making autonomy to department heads. This stage of company development involves the creation of sections and departments, with more tasks delegated to department heads, encouraging them to make autonomous decisions and be responsible for department results.

Remaining in a directive management stage without delegating decision-making rights to people is very harmful, as not transferring responsibility in time does not develop the abilities of department heads to be responsible for their area and make important decisions for the area, they are not encouraged to work effectively. When the company grows, such managers may find it difficult to follow results, as they are not used to it. The fact that the company has lingered too long at this stage of maturation can be recognized from employee complaints that the general director "micromanages."

Adolescence. 100-150 employees. Results verification crisis.

The organization has grown and is characterized by a strong structure and effective processes. In this stage, if it has not learned earlier, it begins to check results not by personal opinion or intuition but by data analysis. Mature organization leaders actively analyze various data related to the company's activities, customer needs, employee productivity, and other aspects. Data analysis helps optimize work processes, improve customer service, increase company efficiency, and competitiveness in the market. It is important that at this stage, managers at all levels can access and properly use data, interpret them, and make correct strategic and tactical decisions.

A just-grown organization. Laurel-sharing crisis.

As the company grows to 150-400 employees, the business is hit by the laurel-sharing crisis, when there are so many employees that determining who contributed the most to achieving the results and how the brought benefit will be shared becomes complicated.

At this stage, the need to pursue company goals (KPI, OKR), record results, and measure progress is especially emphasized. It is essential to implement an effective results monitoring and evaluation system to objectively assess the contributions of employees, departments, divisions, and departments. Also, distribute bonuses and other benefits transparently and fairly, based on the analysis of achieved results. This will help maintain employee motivation and loyalty.

Adult and mature. 400+ employees. Collaboration crisis.

The stage when there are already many separate organisms within the company - organizations, divisions, and sections with different interests, goals, and objectives. They must learn to work together in harmony and create value for customers. Conflicts often arise between them: who and for what purpose is allocated the most resources, which projects are prioritized, and who is responsible for what.