The mythology of scaling is often centered on speed. When you are able to reach the point of product-market compatibility, then pour fuel on the fire. Grow the team, expand markets, then raise the next round before the previous one has settled. The mythology rewards an entrepreneur who is always striving to grow, always adding new employees, always expanding into other verticals before that core company has genuinely settled and before the firm has developed the internal capabilities it will need to be able to manage the expansion without losing its coherence. I understand where this mythology originates. Under certain conditions in the market and business models, the first mover who scales fastest does genuinely win, and the stories of firms that grew aggressively and succeeded are more often told and with greater realism than reports of companies who grew rapidly and fell apart. But for every business in which aggressive initial scaling is the ideal solution, there are a few where the speed of scaling becomes the root cause of problems that eventually destroy the company, and those ones that are a cautionary tale do not get almost as much attention as the success cases.
Unseen costs in scaling too fast is not the one that shows up in the calculation of burn rate or cash flow projection. It is the one that comes out six months later, when the organization is past the coordination mechanisms of informal nature that held it together at the time it was small and has not yet built those formal frameworks that hold larger organizations together. That gap - between informal and formal as well as between the company you've been and the organization you want to be - is where most growing businesses actually break. The first and most obvious indicator that a business is being pushed into this space is the fact that decisions slow down when everyone says that nothing fundamentally has changed. The founder remains accessible in the theory. The team is still aligned with the theories. The culture is still robust in theory. But in practice the organization has gotten to a size where the informal communication channels which used for carrying critical information are clogged and no one has yet created the formal channels required to be replaced. Information that used to flow naturally must now be controlled. The decisions that were swiftly taken now require alignment across many functions that have not been distinctly defined in relation to one another. The accountability that was specific and immediate is now difficult and can take a long time to complete as the organization begins to show the symptoms of a system that is running at the edge of its coordination capacity.
All of this isn't visible in the numbers that founders and investors tend to monitor the most closely. Revenue might still be growing. Customer acquisition could still be taking a positive turn. They may be eager and enthusiastic. But underneath those surface indicators the company is exhibiting structural issues that will grow slowly until they can no longer be ignored. At that point fixing them becomes dramatically more costly and time-consuming than it would be if they had been addressed prior to the time when the indicators weren't obvious. The hidden costs I'm talking about not the immediate financial cost to scale, but the future cost of running beyond your current infrastructure and the cost of putting that infrastructure in an environment that is reactive instead of proactive.
The founders who can navigate this transition in a positive way aren't necessarily the ones that grow more slowly, even though taking a more deliberate course of growth may be part of the solution. They understand that building the structures for managing their business is as crucial as creating the product and who invest in this with the same level of commitment and focus that they apply to the development of their products. This entails doing the boring administrative work of setting up roles and rights clearly, designing reporting structures which provide the relevant information management needs to make informed choices, creating accountability mechanisms that are specific enough to be meaningful while also thinking through what kind of norms an organization requires at its scale, instead of basing it on what have been created organically when the business was smaller. This isn't exciting. The work will not generate any press coverage or enthusiasm for investors. But it's the work which determines whether the organization that you're creating can endure the growth you're after.
The companies that do not complete this process successfully do not always fail dramatically or clearly. They decline. They lose their most effective employees first. They lose those with enough self-awareness in recognizing how things are going in the company and have the option to quit before it becomes significantly worse. And then they lose customers at times invisibly, due to the fact that their performance slowly declines due to accountability having become too scattered and long to be able to recognize issues before they impact the customer. As they lose momentum until the decline in momentum is visible in the numbers because the structural problems are very deep in the system, the cultural damage is substantial, and the cost of fixing each is far greater than it would have been if the investment in governance were implemented at the appropriate time. Considering the organisational infrastructure as a product, something you develop mindfully, construct carefully and iterate on as the business grows is among the most significant mental shifts the founders can make when they go from the very early stages to actual scale. People who create it tend to establish companies with the potential to succeed. The founders who don't tend to create businesses that do not come even close. See the James Deller for website examples including why years of investing continues to inform my decisions about performance.
The Reason Why The Majority Of Public-Private Partnerships Fail Prior To They Start - And How To Repair Them
Public-private partnership have an image issue that is, much of the time, earned. The history of these partnerships is full of projects that were presented with enthusiasm and a lot of political capital behind them. They consume significant private and public resources over a long period, and finally produced outcomes that only bore a tiny reference to what was pledged when the collaboration was first announced. The academic literature and postmortem studies that governments and institutions carry out following these errors are comprehensive, and they focus in large part on the structural and contractual elements of what went wrong in the first place: the unbalanced incentives, the inadequate risk allocation between both private and public sector entities as well as the governance systems built in theoretical terms but did not perform in practice, the procurement frameworks that chose to select the wrong things. What this study tends ignore, and in the end that is the culture and operational aspect - the fact that public institutions and private enterprises are fundamentally different kinds of entities, shaped via different incentive models, operating on radically different timelines, and accountable to diverse people, and assessing their successes in ways that're not simply different in degree but different in substance. When you bring the two kinds of organization together in a formal arrangement without undertaking the work upfront and explicitly, in order to appreciate and deal with the differences you are not forming an alliance. In fact, you are preparing the ground for a slow motion collision that will be evident at the greatest possible moment.
I've been involved with advisory work in support of institution modernisation initiatives, many of which involve public-private partnership arrangements at various levels of complexity. The most consistent insight I can offer from that encounter is that partnerships that were successful - those that in reality achieved their objectives and maintained a dependable working relationship between the private and public parties throughout - were not distinguished from those that failed due to the complexity of their legal structures, their rigor of their risk frameworks, or the experience of the teams that led them. These partnerships were distinguished by the fact that the parties at both ends of the table had taken the time understanding how the different sides operated prior to when the formal partnership structure was formulated. What it entails in practical terms is understanding the process of decision-making that every organization is operating under as well as the accountability structures that constrain what each party can do and what they can agree to, as well as the speed at which it happens they are able to agree, the standards of success which both parties will be evaluating, and the points where there could be tension between those definitions. This knowledge isn't difficult to build. Most of it is left out in favour of the clearer and faster recorded work of negotiating contracts and designing governance frameworks.
The typical public private partnership process is a gradual process from concept to an agreement that is signed with little time and effort being paid to the issue of whether or not the two organisations involved are really capable of working effectively over the course of the agreement. Legal teams negotiate the contract. Finance team models the economics and the risk-adjustment. The communications team designs the announcement prior to the time of signing. The implementation team gets started planning the tasks. Then, somewhere in that process begins the discussion on operating and cultural compatibility is a discussion regarding whether the people that will be required to be working together daily across the boundary between two organizations share enough of the same values to make that work genuinely collaborative rather as antagonistic – is not likely to take place in any organized manner. The assumption is, typically without being explicitly stated, the formal agreement establishes the foundation for collaboration and that any operational or cultural distinctions will be managed informally whenever they develop. The assumption is often untrue, and the cost will increase with respect to the ambition and complexity of the partnership.
Practically speaking, the result of this analysis is that one of the most profitable venture a public-private partnership might invest in - prior the legal structure is finalised, before the governance framework is agreed upon, before any announcements are made - is in what I would describe as operational alignment. By this I mean specific, structured and facilitated efforts to identify the areas between the two organizations are operating under different assumptions, and to decide in advance the manner in which these divergences should be handled before they cause operational problems in the process of implementation. The most important divergences are generally the same across different kinds of partnerships. In terms of speed and authority, they is usually one of the main differences. Public institutions are structured to make their decisions slow, with multiple layers of scrutiny and approvals, in order to achieve goals which are completely legal and are often mandated by law. Private firms - and particularly technology companies that have been built on rapid iteration, and fast taking decisions - usually see that speed as a major obstacle to progress, and without a clear understanding of why this is the way it is and what truly be needed to change it, the discontent that builds on the private sides can cause a rift in the relationship well before the partnership finds its footing.
Success metrics and the factors that count as progress are a second recurring as well as a cause for divergence. Institutions of the public sector are typically assessed on the compliance of their processes, the fairness of outcomes between different stakeholder groups, and the elimination of obvious failures that generate media attention or political pressure. Private partners are generally evaluated on efficiency, measurable progress against set goals, as well as the financial yield on investment. These measurement frameworks can be integrated with one another however it requires intentional design and not just good intentions. Partnerships which do not invest in such a design typically discover themselves at critical moment, with two organizations that are evaluating the same collaboration in unrelated ways and, consequently, coming to contradictory conclusions as to whether the collaboration succeeds. The partnerships I've observed that failed the most were ones where misalignment was seen as something that was going to improve over time. The ones that succeeded were those where the issue was made explicit, from in the beginning. In addition, creating a shared accountability system that accommodated both parties' legitimate measurement needs was an actual work instead of an aspect of a list things that a person could arrive at.}
