How to scale the team efficiently?

The initial version of our Frugal Tech Startup’s product has been built, there are paying customers, maybe funding has been raised, and we are well on our way to growing 10x within the next year. There is only one problem – the team’s productivity seems to be going down. The team has grown 5x to 50 people from the initial 10, but the output of the team has not become 5x of what is was. The founders are still working 16+ hours a day, every day, just to keep up and prevent everything from falling apart.

Almost every entrepreneur goes through this phase of their company’s growth. It is extremely confusing and frustrating, yet completely logical and expected. Let’s look at some of the possible reasons for this.

Incorrect Managers for the Team

When the company is small, the founders run the show and micro-manage everything. As the company grows, it needs more managers. More often than not, the best worker becomes the manager of the tribe. For example, the best developer becomes the manager of all the developers. However, the best worker does not always make the best manager. There are multiple potential problems that arise when the best worker becomes the manager of the team.

• Loss of manager’s bandwidth for doing the work. Most teams have people with different skill and productivity levels. In a four person team, the best worker would typically be producing 40% of the output and not 25%. When we make him / her the Manager, then the most productive team member is no longer spending all his time getting the job done.
• Reduced productivity of all team members. A Team Lead needs to help team members become better at their job. The qualities which make somebody a good individual contributor may also result in him / her becoming a poor manager. A poor manager will actually demoralize the team and reduce productivity.

Here I would like to emphasize the new Manager was (and probably still is) a great worker. He was just not ready to become a manager.

Communications Overhead

The larger the team, the higher the communication overhead required to keep everybody aligned. What could be done with a simple 5 minute discussion in a 4 person team needs an hour of discussion in a 10 person team since there will be higher diversity in the points of view. This process may lead to better decisions and provide long term benefits, but it does slow down decision making and execution speed compared to what it was earlier.

Wrong Expectations

While some loss of productivity is expected as the team grows, the perception of founders and early employees generally tends to be worse than reality. The following two points should be kept in mind when comparing the old, smaller team with the new, larger team:

• Has the investment in the team really increased? Is the workload really the same? As the organization grows, the founders need to decide which teams need to work independently. Let’s assume that a new guy is also hired and added to the specific team. However, has the investment in the team really increased? Earlier, the founder was spending 2-3 days a week with the team but that time has now disappeared. The new guy may just be able to make up for that loss. In essence, the investment in the team has not increased but remained the same or even shrunk. Similarly, regular updates, reviews, documentation etc. will be expected now which the team was not spending time on earlier. So the workload has also increased and not remained the same. There is nothing wrong with these changes – they are part of growing the team. Being conscious of the actual investment in the team and the actual output will help create a clearer picture.
• Is the output worse, or just different? Every change in the leadership of a team will lead to changes in the team’s output. A new Finance head may create the quarterly budget using Excel instead of the beautiful PowerPoint template that was in use earlier. However, whether it is a change for the better should not be based on subjective opinions, but objective metrics. Is it faster to find the right data point? Is it easier for everybody to understand the data? Does it give us a clear picture of the company’s financial position? Different is not the same as worse.

Is there a solution?

Choosing the right people to become managers, mentoring them and having the right expectations helps address the problem to a large extent. Division of responsibilities and having clear decision makers for everything helps reduce the communication overhead significantly.

When making a decision about who will lead a team, do not automatically pick the best worker. S/he may or may not make the best Manager. Sometimes, s/he may not be interested, but takes it up because s/he was asked to. It will be very hard and expensive to revert this change in the future, hence we should think long and hard before we make a choice. In general, pay for output but promote for behavior.

There has to be absolute clarity in the mind of the new manager about what is expected. Most first time leads / managers are clueless about their exact role. Some of them believe that their job is to do whatever it takes to achieve the team’s goals. Others think of their job in terms of day-to-day work – assign tasks to team members, track status etc. Mentoring the new managers and helping them get clarity about their role will make them better at their jobs. I will try to do a separate post soon on what I believe is the role of a Manager.