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The Journal

From Startup to Grown-up: Helping Digitally-Native Companies Come of Age

6 minute read

Startups enjoy a reputation as the bright young things of the business world. They’re digitally fluent, small enough to be nimble, and new enough to be free of legacy baggage. Yet many successful startups face a rude awakening if they make it past infancy and scale to hundreds of employees. While success is exciting, puberty is awkward. These principles can help.

Like a gawky teen who acts like a kid but resembles an adult, many Internet-born organizations find, a few years in, that their mode of operation no longer matches their growing size. The acceptable norms of a small startup—like decision-making around a shared kitchen table—actually prevent these companies from continuing to innovate once they’ve scaled. As a result, they begin to plateau and become susceptible to disruption and competition.

Often, companies in this teen stage seek guidance in areas they've neglected during their initial growth spurt. As one CEO recently shared, she needed help “jumping the S-curve.” The following three principles can enable digitally-native companies to keep thriving and achieve sustainability—in other words, help the skinny kid fill out and establish the traits needed to become a grown-up.

Rethink team structures and incentives

When startups consist of just a few people in a room, there’s no separation between disciplines: An engineer sits next to the head of sales, who sits across from a project manager and shares a file cabinet with a designer. But as the company scales, teams often become siloed into discrete functions. When disparate groups are responsible for specific parts of the customer experience, it becomes fragmented.

In a project IDEO led with an online retail startup that had fallen into this trap, we noticed that the front-end engineers and UX designers—who were responsible for the website search interface—rarely communicated with the back-end engineers and data analysts. Because of this, the front-end team designed user search experiences that weren’t even feasible from a back-end point of view. In addition to this being a massive waste of time and effort, it represented a misalignment between teams working at the same company, on the same product, and serving the same customer. If internal teams are disconnected, the customer experience will inevitably be disconnected as well.

For organizations struggling with this, there’s an opportunity to reorganize teams around moments along the customer journey (account creation, browse or search, checkout, and so on), rather than function. Eventually, that misaligned company created an interdisciplinary search team that included designers, data analysts, account managers, customer success associates, and others. This resulted in a more consistent and functional search experience for users, which in turn led to more people finding, and ultimately buying, products on their site.

The customer experience needs to guide not only team organization, but also incentives. In early start-ups, individuals and teams are rewarded for speed and execution: The quicker features are released, the better. But this mindset only reinforces the tendency for teams to evolve into myopic silos, unable to grasp the holistic experience beyond their discrete function.

When reorganizing their teams around the customer journey, that online retail startup established new incentives and shared success metrics that encouraged the newly-formed groups to work together and focus on the customer experience, rather than speed and quantity. The new interdisciplinary search team’s incentives were tied to a customers’ success in finding the item they were looking for on the website or app.

Dig deeper into data

Internet-born startups tend to have an abundance of engineers who are experts at collecting and leveraging data. They relentlessly A/B test the product and often immediately take action based on the results: If button A is generating more clicks than button B, it’s best to go with the former.

This is where teenage companies take a wrong turn. Engineering teams rely on their same tried-and-true data and analysis methods used when they were chasing the next round of funding. But now that the company has matured and needs to become profitable, it must change its habits to match this new stage of growth. Continuing to blindly A/B test without considering the implications leads to over-optimizing their current product features. This results in feature bloat and prevents innovation beyond a hallmark product or technology.

Instead of reinforcing old habits, it’s useful for startups to ask why something is occuring—why is this button outperforming the other? Many teams skip this question. As a comparison, during qualitative research, we ask target customers open-ended questions to learn why they think, feel, or behave in a certain way. For example, a shopper may share that they prefer organic produce. But learning why—perhaps due to climate concern or wanting the best for their kids—unlocks the potential to understand how an online grocery delivery startup could innovate.

Rather than merely pushing organic strawberries on the homepage or building an “organic” product filter, the company can use this valuable knowledge to grow beyond their primary offering. They can consider questions like: Do environmental activists or health-conscious parents represent new or existing customer segments? How might we meaningfully shift our product or create a new one to serve them? The key is to follow data collection and A/B testing with qualitative research aimed at understanding why. Engineers will need to push beyond their comfort zone to ask these questions. Companies may also consider bringing qualitative research specialists onto engineering teams to help build this capacity.

For Internet-born startups, data can’t be only an optimization tool. It’s also a catalyst for deeper qualitative understanding and continuous innovation.

Embrace a new mode of leadership

When founders are used to working alongside engineers and designers, they often hesitate or struggle to step into the level of leadership required to run a company with hundreds of employees. The skills that enable someone to build a company are not always the same as those required to lead a mature and rapidly growing organization.

During a meeting with a digitally-native healthcare startup, the founder asked for a pause so he could weigh in on new illustration icons. By this point, the company had 200 employees and the founder had hired over a dozen senior leaders with deep experience managing teams and scaling mid-sized startups. But because of this CEO’s tendency to do the work (which he embraced when the startup was 10 people) rather than delegate the work, he wasn’t empowering this new talent do their jobs. Letting go, trusting others, and delegating can be particularly difficult and humbling for founders of companies in this adolescent period. But it’s essential to make these shifts for the startup to flourish.

This same founder also shared that communicating the company’s vision and big decisions to employees felt like more of a challenge than it used to. When an organization can fit inside a conference room, leaders have a simpler time with this: Small startup teams are often made up of generalists with an “all hands on deck” mindset. But with hundreds of specialists on board, CEOs must translate their strategy to multiple teams with differing expertise.

Each quarter, the founder began holding meetings with each team in addition to town halls with the entire company. Rethinking one’s communication strategy at this adolescent stage can create more of an opportunity for understanding, connection, and inspiration. This transition also reflects a new level of maturity for a leader.

Digitally-native startups initially grow and succeed due to a certain set of conditions: They’re technologically innovative, data-driven, and have leaders who can inspire early hires and investors and build from the ground up. But when these startups scale, those core conditions no longer do the trick. Evolving from a rambunctious, scrappy teen to a promising adult requires a new willingness to centralize around the customer experience, think before acting, and reach a higher level of leadership.

Special thanks to Mike Stringer, Jill Levinsohn, and Deb de Vries for their contribution to this article.

Visuals by Kate Bingaman-Burt

  • Kim Cullen

    Senior Design Director, IDEO San Francisco
    As a Senior Design Director at IDEO San Francisco, Kim Cullen provides guidance to a community of interdisciplinary designers that ranges from deep systems thinkers to code tinkerers to visual designers. She supports teams in creating their best work while partnering with clients to help them understand and engage with the creative process.
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