[[Audio 1]] [[DownloadsSidebar]]

Imagine two talented entrepreneurs developing a groundbreaking, solar-powered flying car to revolutionize sustainable mobility. Propelled mainly by entrepreneurial spirit, charisma, and business savvy, their start-up builds a following as quickly as their electric vertical takeoff and landing (eVTOL) prototype grabs headlines and dazzles consumers. Orders pour in from across the globe.

Now comes a critical inflection point. Can our hypothetical company scale from building a handful of bespoke eVTOL prototypes to establishing a global assembly line without losing the innovative edge at the heart of its appeal? The founders cannot afford to wait, but start-ups (companies whose funding stage is pre-Series B) face obvious challenges, including securing capital, maintaining differentiation in an emerging market, and contending with competition from more prominent players. A less obvious challenge—but no less essential to success—is bringing new leaders into the ranks (potentially including professional managers from larger companies) and undertaking rapid, effective leadership development to avoid the pitfalls that keep 80 percent of start-ups from succeeding.[[footnote 1]]

Intentionally investing in leadership development can help hypergrowth companies[[footnote 2]] counter the forces that may otherwise stand in their way, such as limited management skill sets, less experienced talent, and relative inexperience leading larger teams. Once start-ups manage to emerge from the early stages in which many fail, they need sustainable leadership capabilities to give the organization the flex and muscle required to adapt as growth continues.

To be sure, this leadership transition will present challenges, especially because leadership development should be what we call “at pace, on purpose”—that is, enabling rapid transformation while preserving the entrepreneurial spirit and the core tenets of the organization’s culture. That’s a tricky balance, whether the CEO founded the company or stepped in during the growth phase. But it’s worth the effort. By recognizing the importance of leadership in the hypergrowth process and investing intentionally in its development, startups can not only make the transition to “scale-ups” (companies whose funding stage is from Series B to IPO) but widen their competitive advantage.

Leadership development is not optional

There are some things in business which, if done suboptimally, will not necessarily impose significant liabilities. Leadership is not one of these things. Well-developed, high-quality leadership has a profound positive impact on an organization and its operating model.[[footnote 3]] McKinsey research shows that the EBITDA of organizations performing in the top quartile of leadership is almost double that of others, while organizations are 1.9 times more likely to have above-median financial performance when the leadership team has a shared, meaningful, and engaging vision.

[[Sidebar 1]]

In the eyes of investors, leadership quality can affect a company’s market value by up to 30 percent.[[footnote 4]] In addition, savvy general partners in private equity know that founders and their top teams have an outsize effect on the culture and operations of a start-up—and they have a keen interest in evaluating leadership potential as they make investment decisions. This is because effective founder-led companies have the potential to outperform peers. For instance, S&P 500 companies in which the founder is still the CEO generate 31 percent more patents than the rest.[[footnote 5]]

Yet investors also know that leadership is not a static characteristic and that leaders must evolve for a company to grow. This is especially true for start-ups, in which the skill sets and approaches crucial to early success are often quite different from those required as an organization rapidly grows. Why? Because start-ups typically have less infrastructure and fewer processes, rapidly changing environments, a strong sense of culture, founder CEOs who are often also direct managers, and senior leaders who take on multiple roles. Start-ups can’t wait until the dust settles to acquire and develop the leadership capabilities they need. For hypergrowth companies and typical market disruptors, the dust does not settle, and founders may not want it to: the excitement of the start-up mentality is arguably part of the ride that appeals to visionary founders (see sidebar “Case study: Investing early in leadership development”).

Priorities in tension: Moving at pace while retaining purpose

[[MostPopularArticles 5]]

Two vital elements are essential for building leadership capabilities in a growing, founder-led organization: pace and purpose. Understanding each in the context of leadership development and capability building is crucial, as is understanding their interplay.

Pace is important because rapid growth often leads to instability, along with sizable gaps in leaders’ experience, skills, and capabilities. When it comes to purpose, the challenge lies in transforming leadership mindsets and skills targeted to the scaling ambitions of the organization, together with its vision. This is difficult, because the target is inherently a moving one: leaders need the stability to function with the size and scope of their existing teams but must also embrace the dynamism and ongoing growth that will match the organization’s evolution.[[footnote 6]] Moreover, CEOs must manage any tension created between leaders who have been there from the beginning and those who arrive during the growth stage—coming from different company cultures and with potentially different ideas for how to scale.

The trick is determining how to keep the ongoing transformation occurring at a tempo that maximizes performance and aligns disparate units of the fast-growing organization while staying true to the company’s purpose. This means leadership development has to be “at pace, on purpose” to enable rapid transformation while preserving the entrepreneurial spirit and the core tenets of the organization’s culture.

Four essential questions to guide leadership development

As the founders of our imaginary eVTOL start-up grapple with the challenges of growing their successful enterprise, they often ponder big questions that get to the heart of the company’s present and future:

Who leads? Expand focus beyond the early few leaders to the top 40 to 50 critical roles and build capabilities early.
How do we empower leaders? Give leaders authority as a way to expand their strengths and confidence.
How do we keep the entrepreneurial spirit alive? Create a “founder mentality” throughout the organization and infuse the energy of the early days throughout all layers.
What’s needed from us? Founders and top leaders need to shift priorities from building to managing relationships with shareholders and investors and preparing for a potential IPO or challenging times ahead.

1. Who leads?

As an organization expands beyond the start-up phase, it’s vital to understand what its leadership entails and demands. This requires a fundamental shift in how leadership is conceptualized: for example, from focusing on founders and a handful of senior leaders to a broader scope, shaping a few dozen critical top roles into one connected leadership team.

As leadership grows in structure and scope, the vital task becomes clarifying and articulating the company’s culture—the values and behaviors essential to the next generation of leaders. This is a delicate task involving some tension: founding teams must simultaneously embrace adaptation while doubling down on core values (see sidebar “Case study: The top-team leadership journey at an e-commerce platform”).

[[Sidebar 2]]

Specific roles may change even as the founders and top team are charged with stewardship of the company and its culture. While leaders may wear multiple hats in the early stages, organizational growth will likely call for more structure and clearer roles. Moreover, the small circle of early leaders must acknowledge that the expanding enterprise will demand leadership and people skills that may be outside of their current knowledge and experience. As the company expands, it becomes crucial to enhance the matching of roles and profiles within the organization. This requires a thoughtful evaluation to “match the A players to the A jobs.” It may require hiring new people with different skills or investing in upskilling current employees to ensure the right individuals are in the right roles.

2. How do we empower leaders?

As start-ups grow exponentially, new hires are rapidly brought on, mostly for expertise. This often results in a wide range of leadership experience and leaders facing an ever-changing and expanding scope.

[[Sidebar 3]]

Maximizing leadership growth across a growing company hinges on creating highly customized programs that focus on the development of specific leadership skills and enabling leaders to understand their roles within the company’s big picture. Leaders at every level need to see how they contribute to the strategic evolution of the organization and have a shared understanding of the full company context in order to act as enterprise leaders beyond their functional scope. To do so, they need the opportunity and support to rise above daily firefighting. This is particularly relevant for younger talent with less experience leading others. A fast-growing consumer tech and media company implemented this by sharing internal data, such as subscription evolutions, with all employees to ensure organizational focus went in the right direction.

In addition, it’s common for leaders to feel overwhelmed or even burned out due to the execution pace. Companies can get ahead of this by building resilience through nuanced exposure to high-stress situations with the opportunity for reflection and debriefs (see sidebar “Case study: How tailoring leadership development built capabilities at a new joint venture”).

3. How do we keep the entrepreneurial spirit alive?

To ensure the continuity of a start-up’s original energy and spirit throughout its growth, it is vital to infuse the core “founder mentality” across all layers of the organization. This can be especially crucial at the stage when the company has grown such that core leaders feel more removed from employees. That’s when it can be particularly powerful to ensure all individuals—regardless of level or function—feel empowered to take ownership of the company’s culture, while also embracing the dynamism and agility that fuel growth (see sidebar “Case study: How a hypergrowth tech company cascaded its culture”).

[[Sidebar 4]]

As companies expand, senior leaders can recognize their essential roles as coaches, mentors, and champions of the company empowering the next cohort of leaders. From a leadership development standpoint, it is valuable to work with individuals who excel at handling challenges and help shape them into purposeful leaders who grasp the bigger picture. In our experience, founders who adhere to proper delegation also tend to see empowered employees in response.

As organizations become more complex, there is merit to functions implementing their own objectives and key results (OKRs) to imbue structure and accountability in a more scaled environment. However, there is a risk of functions becoming overly focused on those OKRs, which is where leaders can benefit from fostering a “one organization” mindset and identifying early on what sets the company apart.[[footnote 7]]

Embracing creative disruption is critical in maintaining the entrepreneurial spirit. But the founding company culture itself must change so that the company may scale. Gone are the days when growth was the only metric that mattered; investors want returns, which can incite companies to take actions that go against the founding culture, such as eliminating perks and cutting the workforce. A healthy culture can keep company spirit alive while also adapting to new realities.

4. What is needed from us?

All CEOs overseeing a growing organization—regardless of whether they founded it—are not leading the same organization in the scaling-growth stage as they were at the start-up stage. This may sound obvious, but, in practice, it is no small feat for founders and early-stage CEOs to acknowledge they need to grow and adapt to the same extent as their organizations—let alone take action to do so.

Complexity multiplies as companies grow. This necessitates, of course, increased delegation so leaders and top teams can prioritize what will become their most important role: the management of relationships with key stakeholders, including shareholders and investors (especially in turbulent times or in preparation for an IPO). If this results in a compounding number of granular daily tasks and decisions flowing to top leadership for vetting, it spells trouble: the speed of decisions will no longer match the organization’s speed.

[[Sidebar 5]]

CEOs of growing firms must discern what is needed from them as the company evolves. How do they want to show up? Instead of trying to do everything—as they may have during the early days—leaders need to ascertain what they can and should do, delegating the rest to a top-quality team. But they also need to marry this distance from everyday tasks with keeping the needs of customers at the forefront of their minds. Managing this simultaneous awareness and delegation is at the core of how founders can drive business value as the company grows (see sidebar “Case study: Scaling a food pioneer in North America”).

Engage the questions to drive growth

While every company is unique, all must adapt as they grow. We recommend leaders take these four questions to heart, reflect on them, and discuss them in depth within the organization. It’s worth investing time and space to dig in because leaders who discern and articulate meaningful answers to all four may derive tremendous value for their organizations. This simple checklist provides founders with an effective way to assess their own leadership health, as well as that of their top teams:

1. Who leads?

What have we done to focus closely on our top 15–20 critical roles that drive strategic value, understanding what they are and what they do?
Beyond existing leadership skills, which additional skills are needed to scale to the next level?
Which efforts help us define the values and behavioral characteristics of a shaper-leader?

2. How do we empower leaders?

What crucial learning experiences have we developed with ongoing development pushes and apprenticeship opportunities?
What highly customized programs, including comprehensive class options for different topics, do we have for learners?
What pilot projects are creating resilience to prepare leaders in advance?

3. How do we keep the entrepreneurial spirit alive?

How are we developing purposeful leaders with a strong understanding of why they are leaders?
How have we developed a unified organization with a culture of “whatever it takes” for customer impact?
How do we continually ask how we can make it better, disrupt, and create “business insurgency”?

4. What is needed from founders?

How effectively am I delegating, spending less time with day-to-day operations and more time on big moves to drive enterprise strategy, such as M&A or product expansion?
What can we let go of so we can stop trying to do everything and work on things we care about instead?
How are we staying in touch with customers to ensure we maintain a deep “frontline obsession”?

Like our imaginary sustainable-mobility founders who hit on something revolutionary, today’s hyperscalers often have the potential to disrupt life as we know it with new ideas and the energy, discipline, teamwork, and persistence it takes to turn those ideas into reality. That opportunity is a compelling call to leadership. But achieving it requires a steadfast growth mindset, a tremendous dose of self-awareness, a commitment to ongoing adaptation, and a clear understanding that in the ranks of the world’s best organizations, leadership development is never finished.