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The Lifecycle of startups

Changing landscapes, consistent challenges

It takes 10 years or more to take a company from idea to IPO—a span of time that encompasses an entire economic cycle. In other words, almost every successful venture-backed entrepreneur has to steer their company through both upturns and downturns in the economic cycle.

For founders getting started today, the focus is on achieving “more with less”, but the objective remains the same—to hire a tight and committed team that can create a product that customers love (PMF), and then find a way to sell it to them (GTM-fit)

Between 2000 and 2020, the time taken by highly successful venture-backed tech companies to scale to 500 headcount has shrunk for every stage of growth. While it used to take these companies more than eight years to get to the 500 headcount point, more recent successes took only five years.

Faster scaling offers benefits by locking out competitors and creating network effects more quickly. It reflects a more dynamic startup environment, with a greater availability of capital. Faster scaling is also the result of a deeper pool of experienced operators who have learned firsthand how to navigate high-growth, together with better software tools and cloud infrastructure to enable it.

Marketplaces tend towards a winnertakes-all modality, so they have to ramp quickly once they hit inflection. Consumer apps and D2C are rarely like this, so scaling needs to be more mindful of burn rate and contribution margin.

Damir Becirovic, Index Ventures

Time to scale to 1000 headcount Time to scale to 1000 headcount
As companies start to see real productivity gains from AI, there will be a question for leaders around how to manage team size. If you have 10 × more productive engineers, do you cut back the team by 90%, or do you reinvest in R&D, taking advantage of these gains to go faster? In customer care, do you push to replace your entire team with AI chatbots, or do you ramp up your offer to VIP-grade treatment across the board? We expect to see different companies adopting different approaches to these decisions.

Dominic Jacquesson, Index Ventures

Higher interest rates have dampened the “blitzscaling” model of growth, while the bar for fundraising has risen in terms of demonstrable traction, user engagement and unit economics. However, companies that meet these criteria are still able to access the capital that fuels high-growth. Given that People (i. e. payroll) is the primary way in which capital is deployed in high-growth businesses, we believe that rapid scaling of teams will persist, albeit in a smaller cohort of the very best startups compared to what we witnessed in tech between 2015–19 when capital was cheap, and radically different from the boom years of 2020–21.

My message today to the very best outlier companies that have exceptional PMF and a distribution engine would be to scale aggressively. But this is very different to the broad majority of startups, who will have to keep expenditure and headcount tight.

Sofia Dolfe, Index Ventures

The other profound change we’ve seen since the Covid-19 pandemic has been the rise and normalization of remote and hybrid working. Companies have adopted very different practices, although there’s been a significant shift back to the office during 2022–24. At Index, we monitor open positions across our portfolio companies, including by location. Roles advertised as “remote” peaked at 32% during 2021, but dropped back to 21% by the end of 2023. Nonetheless, this is still dramatically above the 8% remote roles observed prior to the pandemic. The implications of remote and hybrid working on culture, recruiting, retention and performance are a significant and evolving topic of discussion and study that falls outside the scope of this handbook, but you will find excellent resources in our Further Reading section

The Big takeaways

Across all stages of growth, we have identified six thematic lessons relating to people, organization and leadership that you should keep in mind:

1 Keep your talent density high.

Making sure you have a concentration of truly excellent people from the start is a force-multiplier as you scale. The initial focus is on applying a high bar for hiring talent. As you scale, you need to complement this with strong performance management processes so you can nurture your stars and say farewell to those who hold you back.

3 Introduce people and organizational processes gradually.

It’s great to bring in some process early, but you should start simply. The philosophy is that “something is better than nothing,” and over time, processes can be enriched, personalized and optimized. This applies to many areas, including values, onboarding, training, internal comms, compensation, job leveling and an Objectives and Key Results framework (OKRs).

4 Adapt to your evolving role as a founder while you scale.

You start off as Chief Building Officer. You then become Chief Decision Officer, and ultimately, the Chief Inspiration Officer. Being conscious and accepting these shifts, as well as being deliberate in your transformation, will make you a better leader. At the same time, you need to recognize the special sauce that you bring to the company and not let it disappear—this is what will fulfill you as a leader.

5 Balance immediate with longer term priorities.

You need to be thoughtful about the downstream impact of people-related decisions that you might take today for the sake of expediency. Sometimes accepting the “debt” this incurs is the right thing to do. (For example, heavy early hiring in customer support, rather than focusing on automation.) But other times it is a big mistake. (For example, offering inflated job titles to close early hires.) You also need to cultivate a sense of judgment about when to invest in certain initiatives today that may offer compounding payback tomorrow, such as university recruiting.

6 Embrace change.

Change is the only constant in high-growth environments—changes in products, priorities, people, processes, systems and structures. You need to cultivate a resilient and trusting culture that accepts the need for change rather than resisting it, and where people collaborate to drive success. This is about accepting a measure of chaos and uncertainty at all stages of the journey, and achieving a temporary equilibrium that you need to be willing to throw away when necessary. You want to think of your company like a complex organism or natural system that survives by adaptation and evolution, not a machine that’s constructed to function only in one set of circumstances. This requires role modeling, transparency, consultation, empathy and over-communication. Bring people with you on the journey so they understand the “why” as well as the “what”.

Common early people mistakes

We’re an optimistic, future-focused team at Index. But of course we’ve seen our share of poor decision-making and observed how bad decisions taken early in a company’s journey can damage its prospects down the line. As in other complex systems, the initial conditions for a startup have an outsized effect on its later performance. Here are the “People” mistakes we see most frequently, which we advise you to avoid:

Insufficient focus on talent density

  • Forming a founding team that lacks technical DNA
  • Forgetting that no hire is better than a bad hire
  • Being reluctant to get rid of A-holes or B-players
  • Insufficiently focusing on diversity from the earliest stages
  • Over-indexing on loyalty to the early team when you need to bring in more specialized or experienced talent

Mistakes around people and hiring processes

  • Outsourcing early hiring rather than embracing founder-led recruiting
  • Assuming others can make hiring decisions and stepping back too soon from personally vetting all candidates
  • Not spotting when you need to hire an in-house recruiter
  • Hiring an inexperienced in-house recruiter
  • Inflating job titles, leading to resentment and attrition down the line
  • Being seduced by sexy brands on a resume rather than focusing on competencies and fit
  • Failing to establish and stick to compensation principles, seeing it as a win to hire cheaply, or conversely, by offering a sweetheart deal
  • Insufficiently focusing on onboarding

Failing to future-proof and not investing upfront where it matters

  • Being too slow to explicitly articulate the culture you want to build and the values that will underpin it
  • Not communicating a clear vision, mission and strategy, allowing fiefdoms to develop, which undermine collaboration
  • Building a tech stack for today’s scale and scope, which absorbs headcount and slows you down when you face tomorrow’s scale and scope
  • Not recognizing when professional financial and legal advice really matter and are worth the expense

Hiring into the wrong roles

  • Hiring a senior product leader too early, when the founder needs to personally own the product vision
  • Hiring a senior salesperson too early rather than embracing founder-led sales
  • Running key marketing and/or sales experiments through a generalist and therefore prematurely shutting down promising marketing and/or sales channels

Failing to hire into the right roles

  • Not having a superstar owning early Community and Customer Support/ Experience (CX) functions, leading to an inadequate loop from early user feedback into product and growth
  • Getting bogged down in operations by not hiring a Chief of Staff or Head of Business Operations (BizOps)
  • Not recognizing when, and in which roles, you need to shift from generalists to specialists
  • Reluctance to hire, or to properly partner with, an executive assistant (EA) as a way of creating leverage

Misallocating your time

  • Spending too much time on low priority stuff for your stage (e.g. attending tech conferences, media appearances, meeting potential investors)
  • Not investing in building and leveraging a full-stack network of advisors and mentors
  • Not monitoring or creating space for the physical, mental and emotional well-being of your team and yourself

People challenges by headcount stage

Having a larger headcount is the inevitable consequence of building a successful business. You have a larger codebase to orchestrate, more customers to serve, more products to maintain and cross-sell, a higher volume of data to interpret, and more geographies to cover, among many other things.

Some questions and challenges will remain constant regardless of your size or stage, but mutate and evolve as you grow. For example:

  • Is my hiring plan for the next twelve months appropriate and realistic?
  • How can I keep my hiring bar high?
  • Should I promote from within or bring in experienced talent from outside?
  • How many direct reports should I have, and who should they be?
  • Do I have too many, or too few, people in function X?
  • What level of leadership do I need for function X? What are the differences?
  • Is too much process slowing me down, or do I not have enough of it?
  • How do I keep my team aligned around our key goals and milestones?
  • What management reporting structure works best?

Other people and leadership challenges come into focus at more specific points as your headcount grows. We’ve therefore mapped out a framework for the steps you should be taking, and when you should be taking them, in relation to people and leadership. This is far from definitive, as every startup follows its own unique journey. Rather, the aim is to give you an idea of the sequence of challenges you’ll face and actions you’ll need to prioritize to address them. We’ll turn to every area listed here in greater detail throughout the book.

0

Coming together as a founding team (or choosing to be a solo founder) is the critical starting point to building a company. You’ll need to ensure that you collectively have sufficient “technical DNA” to be successful. You’ll also align as a founding team around a (scrappy) written statement that sets out the type of company you want to build. This includes the values, culture and behaviors you want to embody, as well as the company’s mission and vision—the impact you want to make on the world.

1–10

You’ll focus on creating your MVP and building out product features to move you towards initial PMF. You’ll be cash-strapped (pre-seed or seed only), so keep your team lean, with slow and limited additions to headcount. In pure software startups, hires will mostly be into technical roles. In Marketplace or Direct-to-Consumer (D2C) E-commerce startups, you’re likely to hire more broadly, including GTM and Operations roles. Hires will largely be drawn from the best of your own networks and your second-tier contacts. But you need to be thoughtful about diversity in this early team to avoid groupthink or a clone factory. Every team member will have super close working relationships with each other and with you, so internal comms will be fluid, with daily standups. Objectives are focused and known, but roles will be fuzzy, with the expectation that everyone will step in where needed. Though early, much of your company culture is also established during this stage, so take time to define what you want it to be.

11–50

With solid initial signs of PMF based on user acquisition and engagement, you can obtain significant funding (typically $5–20 million Series A) to support experiments towards developing a scalable GTM motion. With a timeline to hit growth and product milestones, you’ll step up to more systematic expansion of your team across a broader range of roles, including GTM and G&A. You might benefit from an internal recruiter to support outbound candidate sourcing and to embed a more systematic hiring process that keeps your bar high: engaging, screening, assessing, referencing and closing candidates. Your Technical team will split into squads. You’ll also appoint your first non-founder people managers, marking the beginning of hierarchy— with all its consequences, good and bad.

51–125

As you identify a successful GTM motion, you’ll build out a more specialist GTM team to scale it. Founders will step back from interviewing every hire as more managers and team members are approved for assessing excellence and values-fit. Retention will become a challenge alongside hiring, so you’ll need to roll out at least an initial performance management process plus basic manager training. With larger and more complex functional teams, you’ll hire two or three outside executives, potentially one each to lead Technical, GTM and G&A teams.

126–250

With a proven GTM fit established, you’ll rapidly scale GTM teams to take advantage of it, which potentially includes regional or international teams. Above 150 people—a point known as The Dunbar Number—nobody can really know everyone else at the company. People processes will instead need to get more sophisticated, especially when it comes to high potential talent (HiPo’s), compensation bands and internal comms. You’ll need to define your Employer Value Proposition (EVP) and communicate it as part of your talent brand to drive hiring and retention. You might also experiment with internships and graduate hiring. This is often a crunch phase for CEOs as complexity ramps up but you lack a proven executive bench. Appoint and/or substitute an additional two to three executives, probably including a VP People. You may also need your first “Scaler” exec, as opposed to the “Builders” you’ve been working with up until now. That is, experienced “managers of managers” for your larger teams, most likely in engineering or sales. You’ll establish an executive committee and senior management team to formalize and clarify decision-making. Your budgeting and planning processes will become more robust, combining top-down and bottom-up inputs.

251–500

As the company’s reach expands across multiple geographies and/or products, matrix management structures will be needed. (This is where individuals report to more than one boss.) People processes will extend to include career progression frameworks and ongoing people analytics. Human resources business partners (HRBPs) will be appointed to support functional leadership. You’ll appoint an additional two to three executive roles, establishing a solid executive bench. This will probably include a Chief People Officer. This is also the most likely phase where you will see a shift from a co-founding CTO to an outside engineering leader. You’ll need to establish a remuneration committee (Remco) as a subcommittee of your mainboard to monitor and approve decisions around compensation, succession and talent management.

501–1,000

With continued expansion across geographies and new product and revenue lines, you’ll embark on a deeper focus on unit economics and automation. This entails paying down the “debt” built up during earlier growth phases, when you overhired to get critical stuff done. Automation will go hand-in-hand with periodic reorganizations across different parts of the business to optimize efficiency and effectiveness. As you prepare internally for a potential IPO, you’ll need robust and documented processes related to financial, legal, commercial and people aspects of the business.

You’ll have a solid People and Talent team in place, with People processes following a regular rhythm. You’ll introduce systems and processes for talent pipelining, career development, internal mobility, graduate recruitment and succession planning.

Internal promotion will overtake external hiring as your primary means of filling senior individual contributor (IC) and first-line manager roles.

Your high-growth company will now be ready for an IPO. It will still feel like a rollercoaster ride on the inside, but you’ll feel a deep sense of parental pride. You will have brought something extraordinary and unique into the world, nurturing its development into a confident and healthy “teenager” ready to make its mark on the wider world!

Plastic fantastic - neuron network visualisation

Plastic fantastic

The brain’s extraordinary adaptability, known as neuroplasticity, is greatest when we’re young. Based on feedback and self-organization, the brain’s architecture continually rewires itself based on our environment and what we’re learning about it. During certain developmental windows, neural networks form new connections while pruning away weak ones. A child more easily picks up languages or rebounds after trauma compared to an adult, thanks to this enhanced capacity to flex and change.

However, plasticity and learning ability tend to decline with age. Neurons become less dynamic and connections ossify. It becomes harder to acquire skills or recover from brain injuries.

Yet emerging research suggests we can combat this loss by staying socially, physically and cognitively active. Both athletic and mental fitness turn out to be “use it or lose it” abilities. Regular exercise, learning new things, finding meaningful work and maintaining close ties to communities and loved ones all preserve neuroplasticity. Consequently, these factors build cognitive resilience and executive function while lowering the risks of strokes and dementia. Embracing change and striving for purpose, it seems, are antidotes to calcification.

Stories of Chaos

Foundations of success
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Foundations of success
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