Beyond hypergrowth and sustainable growth for scaleups
There is an age-old debate on speed over efficiency — hypergrowth vs. slow-building.
The duality of this concept is inherently wrong on so many levels. And it drives many debates and fuels even more excuses for investing time and resources in initiatives that matter.
Now it is a bit better. You can find some startup founders who are open to discussing sustainable growth. This wasn't the case in cranked-up VC-powered Unicornland a few years ago.
Today I'll break down this debate and show you a 3rd way of building a scaleup.
The reality of Unicornland.
Anyone who worked for or with a startup knows how much gravity the usual startup journey has.
Have an idea, build an MVP on it.
Sell the MVP to your first employees (co-founders).
Sell the MVP team to your friends & family & peers (first funding).
Sell the MVP business to your first investors (angel round or seed round if you join an accelerator/incubator).
Reach product-market fit and make some quick revenue.
Sell the barely stitched-together company to your first real investors (Series A).
Now we are in business!
All this journey happens within 1-2 years. If you do it right, you get a 9-figure cheque. Congratulations, you are a unicorn.
The reality is that less than 5% complete this journey. The rest will close doors within their first years.
The model is broken as it is geared towards investment. It is not geared toward builders or owners of businesses.
Hypergrowth comes at huge costs, even if you make it to Unicornland:
Completely burned out team members. Working at a startup sounds cool (really?), but it is one of the most stressful workplaces ever.
Total organizational chaos and a "fake it till you make it" attitude.
"Shiny object syndrome," which prevents real innovation and real growth.
So even IF you make it, you still have to deal with these. Not many founders can.
The "be a camel" argument.
Alex Lazarov wrote a great article in 2020 for the HBR titled "Startups, it's time to think like camels - not unicorns."
It was part of the sustainable growth trend that blossomed in the post-crisis, pre-pandemic era.
Basically, the argument is this:
Instead of fulfilling VC's wishes for hypergrowth, founders need to cherish the sustainable, resilient growth that can withstand any market situation.
Instead of "go investment heavy," you should "go cash heavy." Prioritize slow but predictable revenue making and accumulate a "rainy days" fund for your business.
Acknowledge the cost of things and price it in. VC-funded startups treat their funding as free money to burn. On the other hand, camels understand costs and put in their offers.
That, of course, came with a set of new practices for founders. Prioritizing efficiency over speed means more resources invested in people, operations, and structure.
These companies grow slower but are more resilient in changing economic circumstances. And this was "coined" pre-pandemic, so the landscape has shifted significantly since then.
But there is a problem. And those trying to sell sustainable growth (internally or externally, it doesn't matter) probably have heard this counter-argument before:
I can't afford to grow slowly. If I don't reach a certain stage, my competitors will swallow me for good, or I lose market share.
But there is a third way which takes the best from both worlds. It's boring and not unique, but it has been used for ages and works.
The modular growth.
It is a simple setup. It has three core features:
You have a core non-modular team centered around an idea, MVP, or product, depending on the stage—your core founding team with some other core employees.
On top of your core team, you have a fully modular team. Fractional people, freelancers, consultants, agencies, service providers, you name it. Quick-to-hire, extremely fast to get them up to speed.
To operate it, you have fully flat and transparent operations that treat everyone equally - regardless if they are part of the modular or core teams.
You have the high-growth option because your setup is extremely flexible. Depending on the situation, you can easily scale up or down your focus.
You have sustainable growth because your operations are transparent and flat. You accumulate knowledge and delegate it to whoever is available.
You can raise funding if you want, as you have a small core team that owns the IP.
You are modular and flexible, so you can transfer people between modular and core teams however you (or them) like as operations treat everyone equally (meaning you are working together, not outsourcing work).
Here are three examples of this model (or its variations) currently in use today. Funny, but they may not even think that they are using this model.
The most obvious use case is any enterprise business that employs many contractors. Most contractors can access anything, but their terms are easily reevaluated if the projects fall apart.
Almost any open-source project where the core team handles operations and holds the IP & product roadmap, but contributors help move the ship forward. Sometimes for rewards, sometimes just for fun.
The newest example is some web3 projects - with deep open-source roots, by the way - where people contribute and get compensated based on their contribution and participation. But the terms of their "connection" to the project are open, transparent, and flexible.
I told you it is a boring concept. But it works. So why it's not that popular? I can tell you why.
When you start a business, many founders have their dreams up high.
Ok, this is when I will have my OWN office, team, and company.
Some people in a coworking space plus a bunch of freelancers around them is not a shining city on the hill for most founders.
Also, doing transparent and flat organizations goes against almost any management knowledge people have accumulated over the years. It gives zero cr*p about your authority but requires all your trust in people.
Here is how I explain to my clients that this model is worth the try - aside from the fact that it is working for other successful companies.
Your core team will be the people who are needed most. You will trust them anyway. Pick them very carefully because they can make or break your business.
On the other hand, the modular team will be a bunch of experts. You don't need to train them. You don't need to sell them your employee brand, whatever. Those people with amazing skills will work for you for a fraction of the time and cost but with high efficiency. You do trust your plumber, right? Trust your fractional CMO as well. It's not their first rodeo.
Finally, let that sink in: you don't have a company yet. You have an MVP of a company. You have a venture, at best. So don't act like the CEO of Microsoft during your first years in business. Modular setup is a transitional period until you will have a company.
The modular setup is for those who want to build a resilient, sustainable business that can withstand extreme changes. But they also don't want to sacrifice speed over efficiency.
You must kill your vanity dreams and amp up your risk tolerance to go with it. But I can guarantee you that it will be worth it.
Peter
Share this post!
