[Guest article by Sanjay Anandaram, entrepreneur turned investor and a strong advocate of entrepreneurship in India. This is a must read article for startups who are in the growth curve.]
Startups thrive in an environment of chaos where multiple tasks are done, undone and re-done often times guided by just a leap of faith. Decisions are taken in quick time without long (boring?!) meetings typically by a small team of extremely committed and passionate people. Systems, processes and procedures are considered inhibitors to their competitive advantages of speed and innovation.
But as the startup grows, the lack of systems and processes start inhibiting growth; indeed, the company can implode before long without adequate attention and focus on having and implementing systems and processes. These processes and procedures relate to every functional area of the startup and these functional areas cannot scale, operate efficiently and effectively without the right systems. And the management team cannot manage the growth of the company if they cannot measure and track activities, people, money, time, contracts and documents among other things.
As the startup matures, expectations from various stakeholders only increase. For example::
- Does the CEO know the sales, receipts and payables position of the company on a daily basis? Does he have visibility into the cash-flows of the company for the foreseeable future? Are receivables being tracked age-wise and managed? And payables? Does he know what are all the deposits that the company has paid, to whom and when they’re due? What’s the policy for transferring money and issuing cheques?
- How are departmental and company performances tracked and discussed? How often?
- Does every employee have a job description with a clear position on the organization chart? Are employment contracts in place? Is there a hiring, firing, performance appraisal and management, promotion, training, compensation and benefits system in place? What is the system for dealing with employee travel and entertainment expenses? Is there a new employee induction programme – so important for ensuring the comfort of every new hire?
- How is customer service organized, tracked and measured? What’s the system for dealing with refunds and returns?
- What’s the effectiveness of marketing? ROI on campaigns?
- How’s sales organized and measured? What’s the incentive structure for direct and indirect sales?
- Are all the assets of the company documented (including intellectual property) and physically verified? Are maintenance contracts in place for say, the computers? What’s the inventory situation?
- Is there a system for authorizing travel, approving expenses, investments, payments and the like?
- Are there contracts governing partnerships and vendors or are just handshakes and phone calls substituting? Are these contracts still active or do they need reviving? Do the contracts need to be renegotiated keeping in mind the changed circumstances of the company?
- Are statutory requirements being complied with – board meetings and minutes, registrations and licenses, taxes, filings with various regulatory and statutory authorities?
All too often, startups do not pay attention to the need for creating the soft infrastructure within the company for growth. It is not surprising therefore to see most startups flounder after achieving initial success. The capabilities within the company need to be continuously enhanced if the company is to reach subsequent levels of growth with each level being built on a strong foundation.
Stronger the foundation, higher the levels.
The foundation in turn is determined by the company culture and the quality of the people. The culture must value discipline, diligence and data. Discipline to ensure that systems and procedures are implemented and followed; Diligence to ensure that the systems are continuously working as they should across the company; Data to ensure that the quality of decision making goes beyond pure leap of faith.
Making the transition is not easy. Juggling growth, investments, customers, partners and investors takes up time and energy – systems and processes therefore take a back seat. And then one day, there’s panic! The management has lost its grip on the business with no idea of the finances, customer, employee and partner issues. The company is ripe for an implosion.
However, as with all things, timing is critical. In addition, different systems are required for dealing with different stages of growth. But what is always required from day one is the realization that systems and processes are critical elements of soft infrastructure for the startup.
To realize and to act requires the startup CEO to start thinking like a grown up CEO.
What do you think?
[The article first appeared in FE. Reproduced with author's permission.]