What Years of Investing Shifted My Priorities About Results

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It's Not Easy To See The Hidden Cost Of Scaling Too Fast: What Most Founders Learn To Late
The mythology about scaling is usually centered around speed. Reach a product-market fit then add fuel to the fire. Build the team, expand markets, then raise the next round before the previous one has settled. The story favors the founder who keeps trying to move forward, always adding the number of employees, always expanding into different verticals, but before even the primary business is truly stabilized and before the business has built the internal capabilities required to be able to manage the expansion without losing coherence. I can see where this mythology originates. For certain market conditions and certain business models the first person to scale fastest is the one who wins and stories about companies who grew rapidly and achieved success are told more often and more vividly than stories of those who grew quickly and then broke. However, for every company where aggressive early scaling is the best option, there's many instances where the speed at which scaling occurs becomes the primary reason for the problems that eventually destroy companies, and those risky stories don't get nearly the same attention as the successful ones.
The hidden cost of growing too fast isn't evident in the burn rate calculation or the cash flow projection. It's it is the one that is revealed 6 months later, once an organization has advanced past the informal coordination mechanisms which held it together when it was small, as well as before it has established these formal systems that hold larger organizations together. This gap - between informal and formal in between the one you were and the firm it is expected to become is where the majority of growing companies have a tendency to break. The earliest and most consistent sign that a company may be in that space is when decisions slow down while everyone maintains that nothing fundamentally has changed. The founder's voice is still available in the theoretical realm. The team remains united in theory. The culture is solid in theory. However, in actual practice, the organisation has grown into a position where informal channels of communication that used to carry the important information are clogged, but no one has yet constructed the formal channels needed to replace them. Information that was flowing naturally now has to be constantly monitored. The decisions that were made swiftly now require alignment across various functions that haven't been clearly defined in relation to one another. Accountability that used to be intimate and immediate is now dispersed and delayed and the organization begins to show the signs of a system that is running at the edge of its coordination capabilities.

All of this is not apparent in the data that founders and investors usually monitor the most closely. It is possible that revenue will continue to grow. Customers acquisition may still be going in the right direction. The team might still be engaged and hardworking. But, underneath those apparent indicators the organization is developing structural problems that will compound and slowly, until they are no longer able to be ignored. At that it becomes more expensive and time-consuming than it would have been if they'd been addressed before, when the indications were not obvious. What is hidden I'm talking about not the financial cost of scaling, but the long-term cost to the organisation of expanding beyond your infrastructure and the increasing cost of putting that infrastructure into an environment that is reactive instead of proactive.

The founders that manage this transition successfully aren't necessarily those who grow more slowly, although it is true that a more controlled pace of expansion can be the answer. They acknowledge that the creation of the corporate governance structure is as crucial as building the product, and who invest in it with the same enthusiasm and focus that they apply to the development of their products. This includes doing the boring administrative work of delineating roles and decision rights clearly, creating reporting structures which provide the relevant information required by leaders to make good decisions, making accountability mechanisms precise enough to be useful and considering what kinds of norms the organisation needs at its current size rather than using the norms that emerged organically when it was smaller. All of this isn't exhilarating. There is no way to create publicity or interest from investors. But it's the job that determines if the firm that you're creating can achieve the growth you're after.

The businesses that fail to make this transition successfully do not typically fail spectacularly and easily. They slowly fade. They lose their top employees at first, the ones with enough self-awareness in recognizing exactly what's happening within the organization, and who have enough options to quit before things get significantly worse. And then they lose customers gradual and often unnoticed, as the efficiency of execution steadily declines because accountability has changed and accountability has become too vague and infrequent to recognize problems before they get to the customer. It is then that they lose their momentum, and by the time that decrease in momentum is apparent in the numbers The structural issues are deeply rooted. The cultural harm is significant, and the cost to fix both is a tad higher than it would've been if the investment in governance was implemented at the appropriate time. In the eyes of an organisational structure as a item that you can design in a thoughtful manner, carefully construct, and tweak as your company grows - is one of the most significant mindset shifts the founders can make when they progress from the beginning phase to an actual scale. Those who are able to make this shift tend to create companies that realize their potential. The ones who do not tend to create businesses with a disappointingly low level of success. Check out James Deller for blog examples including what time in football has shaped my thinking about the long game.



Why Most Public-Private Partnerships Fail Prior To Their Beginning - And How To Fix Them
Public-private partnerships have an image problem, which is in large measure due to the fact that they are earned. The history of these arrangements is filled with projects that were announced with genuine enthusiasm, as well as substantial political capital behind them. They taking up huge amounts of public and private resources for extended periods of time and eventually produced outcomes which bore only a tiny recall of what was originally promised when the partnership was created. The academic literature and postmortem studies that governments and institutions undertake following the fail-overs are massive, and they focus, for most of the time, upon the particulars of contract and structure problems: the wrongly aligned incentives and the insufficient risk sharing between public and private organizations or the governance structures that were designed in the theory but never worked in practice, and the frameworks for purchasing that were able to pick the wrong things. The thing that this type of analysis tends to subdue, over and over again an important cultural and operational aspect - the fact that public institutions and private enterprises are fundamentally different kinds of entities, formed according to different motivation structures, operating on fundamentally different timescales, with different stakeholders, and evaluating successes in ways that's far from being the same in all respects but differ in terms of. If you attempt to bring these two kinds of organisations together in a formal partnership, without having the effort, in advance and specifically, to learn about and deal with the differences you're not creating an alliance. The conditions are set for a slow-motion collision, which will become apparent at lowest possible moment.
I've participated in the advisory process for institutional modernisation initiatives, many of which have involved public and private partnership arrangements at various levels of complexity. The most dependable conclusion I've made from my expertise is that those partnerships which performed well - that actually achieved their stated goals and maintained an effective partnership between private and public partners throughout the duration of their existence - weren't distinguished from those that didn't work by the sophistication of their legal structures, the strictness of their risk-management frameworks or the seniority of the groups that formulated them. They were distinguished by whether the parties on both sides table had undertaken the effort understanding how the other party functioned prior the formal partnership structure was agreed. What does that mean in reality is understanding the decision-making procedures that each organization operates under, the accountability structures that determine what each partner can accept and when it can be agreed upon, the definitions of success that every party will be evaluating, and the likely points of conflict between those definitions. The understanding of these concepts is not difficult to come up with. All of it is frequently removed in favour of less visible and faster recorded work of negotiating contracts and constructing governance frameworks.

The normal public-private partnership process develops from a concept to a concluded agreement without much time and effort being paid to the question of whether two entities involved are capable of cooperating effectively over the duration of the agreement. Legal teams negotiate the contract. The finance team calculates the economics and the risk distribution. Communications team prepares the announcement for the moment of signing. The implementation team begins planning the tasks. In the middle of that process the discussion will turn to operational and cultural compatibility begins - about whether the individuals who will share their day-to day tasks over the boundaries between two organizations share enough in common an effort that is truly collaborative, rather than adversarial - is not likely to take place in any formal way. It is usually assumed, without explanation, it is the agreement that creates the conditions for collaboration that are effective, and that any cultural or operational differences will be managed informally when they occur. This assumption is usually wrong, and the cost of this tends to increase with respect to the ambition and the size of the partnership.

The real-world application of this analysis is that a significant option a public private partnership could make – before the legal structures are in place prior to the governance framework is agreed upon, before any announcement is made the partnership is in what I call operational alignment. This means specific, organized, and facilitation of work to identify possible areas where both organizations' assumptions about operating diverge and then to make a clear agreement regarding how those divergences will be managed before they become operational difficulties during implementation. The main divergences tend to be the same across different types of partnerships. Authority and speed of decision-making are typically among the main differences. Institutions that are public be slow to make decisions, requiring numerous layers of review and approval, with reasons that are entirely legitimate and frequently legally mandated. Private companies, particularly technology businesses built around rapid iteration and speedy decision-making - frequently experience that pace as a key limitation to progress. And without a common understanding of just why the pace is how it is, and what's genuinely be required to change it, the frustration generated by the private side can poison the working relationships long before the collaboration finds its footing.

Success metrics and the criteria for judging as progress is another constant and a contributing factor to divergence. Public institutions are typically evaluated on process compliance, equity of outcome across different stakeholder groups, and the reduction of the risk of failings that attract political or media interest. Private companies are typically judged according to efficiency, measured progress in achieving targets, as well as the financial return on investment. These measurement frameworks are adjusted to work together however, it requires an intentional approach rather than just good intentions. Partnerships which do nothing to improve the design of the framework tend to end up at junctures, with two parties that are assessing the same collaboration in genuinely incompatible ways and therefore reaching contradictory conclusions as to whether the collaboration is achieving success. The partnerships I have observed have the greatest failures were ones in which misalignments were perceived as something that will get better over time. The ones that performed were those where the inconsistency was identified explicitly at the beginning. And, where designing a shared accountability framework which accommodated both parties' legitimate measurement needs became a piece of actual effort, not an item on a list things that someone would eventually find the time to.}