Leadership Challenges in Transitioning from Tech Startup to Tech Giant

One of the fastest growing industries in the business world is technology. The

competition among tech startups is high but the success rate is low. A crucial time in a startup's

life is the growth phase, when it undergoes a transition from a small team of founders to a rapidly

growing company. During this phase, the founders face several management and leadership

challenges. The startup environment is loosely structured because processes and procedures are

still in development. The founder is heavily involved in the day to day happenings and has total

managerial control. However, as the startup gains venture funding and begins to grow, it requires

more organizational structure and changes in managerial processes.

The way that the founder addresses these challenges decides the future of the company.

Most founders expertise are centered around the concept of their business. They simply do not

have the skills or knowledge to make a successful transition in their team during the growth

phase. This is one area that leads to the failure of so many startups. They need to have the ability

to adapt their managerial approaches to the changing environment.

In today's workplace, the traditional approaches to management are no longer sufficient

to sustain growth. Tech startups need to change along with the business environment which

means constantly reevaluating their managerial practices and adjusting them accordingly.

Sometimes this means changing the entire organizational structure of the company. A lot of

leaders are unwilling to make these drastic changes and thus their growth stalls. Todays business

environment requires managers to take risks and go out of their comfort zone in order to set

themselves apart from the competition. The startups that are able to do this are the ones that grow

into successful companies. This paper examines several studies focused on the managerial

approaches that are positively related to a company's success.

 Relevant Scholarly Articles

One managerial approach that was found in successful companies is to clearly define an

employees role so that they know how their job contributes to the companys overall success.

When workers feel that their role within a company has value, their motivation and productivity

increases. Management also needs to provide incentives for employees whose performance is

high. A recent study was done with the purpose of proving that this idea is pertinent to a

company's growth (Freeman, & Siegfried, 2015). In this study, the researchers offer a leadership-

based perspective on organizational changes needed to successfully transition the startup to its

growth stage. In the course of their research, they examined the life cycles of 3000 technology

companies to find which managerial approaches were used. They also surveyed executives from

70 companies to get a first-hand look at their management styles.

Their main finding is that employees need to feel their work is contributing to something

important or their performance suffers. In order to encourage growth within the company, leaders

must promote high performance in employees who are likely to contribute to the companys

success. The authors explain that one challenge startup companys face is that team member

responsibilities are unclear and tasks are often created on the spot as the need for them arises.

The authors found that management must prioritize and reflect on the work being done to ensure

that it is consistent with the company vision. In doing this, they must also articulate their findings

to the employees so that they understand how they are contributing to the company's success.

The authors conclude their study by emphasizing the importance of leadership education and

training programs to help the founders know how to motivate employees and ultimately grow

their company from the inside out.

 Another study found that managers in successful companies take a directive leadership

approach (Ensley, 2007). This approach is characterized by clear objectives being set and laid out

for employees to follow. It is especially important in the transition from startup to growth

company because it helps to form a routine set of procedures. The researchers examined the

relationship of leadership behavior, the diversity within upper management, and the growth

within a startup. They gathered data from leadership teams in the top 500 fastest growing

startups in America. Their hypothesis was that in a fast-growing industry, directive leadership in

a diverse upper management team will have a positive relationship with the startup's success.

They found that this approach helps create focus and direction for the team as they make the

transition from startup to a growing company. If they are not able to do this, it will create

unnecessary confusion and hinder the company's growth.

The decisions that they make will have an impact on their success. Since there are no

standard procedures and no clear organizational structure at the beginning of the startups life, a

directive leadership style will help to establish them. It is important that top management set the

standards correctly the first time since they will carry on through the growth of the business. The

authors also point out that it is important for entrepreneurs to set goals and put in place a reward

system for their workers. This will encourage employees to perform better and further the

businesses objectives. In turn the startup will grow towards becoming a successful company.

Another managerial approach that has been linked to startup success is being flexible and

open to change. A recent study showed the organizational growth of successful companies versus

unsuccessful companies (Wasserman, 2016). As a startup grows, the founder attracts resources

such as investors and human capital. In doing so, they lose some of their decision-making

control. The author calls this a control dilemma, which is the tradeoff between attracting
additional resources that are necessary for growth and maintaining control of decision making. If

the founder fails to attract the resources needed for growth, they increase the chance of failure.

He also explains that at the beginning of the startups life, the founders often have the

basic knowledge and skills needed to create the foundation for the company. The transition from

a small start up to a large company requires a higher level of managerial and leadership skills

that most founders lack. This requires that they make significant changes to management and the

organizational structure within their company. They need to be willing to make these changes if

they expect to maintain their growth. The founders that resisted change and held on to their

original management style and structure were rarely able to maintain their growth. The author

found that the degree to which the founder maintains control is directly related to the success of

the startup as it grows. The founders who turned over their control to highly skilled management

teams were more successful in the long run.

Relevant Companies

The success of companies like LinkedIn, Salesforce, and Hewlett Packard can be credited

to the unique managerial approaches that they employed during their transition from startup to a

growth company. The founder of LinkedIn, Reid Hoffman, saw the importance of handing over

managerial power to someone more qualified. In the early days of LinkedIn, he hired a CEO to

handle the managerial side while he took over developing the product. This was crucial to the

sites success because it ensured that everyone's expertise and knowledge was used efficiently.

The managers skill set is very different from the founders skill set. If Reid Hoffman did not hire

a CEO and remained in control of the managerial side, the outcome would have been a less

successful company. The company grew quickly and maintained its growth by creating a

desirable company culture. Not only do the employees of LinkedIn receive competitive
compensation packages, they also understand the importance of the work that they do. LinkedIn

has applied these managerial practices to create a successful company that continues to be an

industry leader.

Hewlett Packard is another company that was successful in its transition from a startup to

a growth company. Their success is largely due to their use of a top-down managerial approach.

The company offers their employees tuition assistance, profit sharing, unlimited access to

supplies, etc. They were the first in their industry to have a company culture that centered around

the employees. As a result, most of the talent in Silicon Valley wants to work for Hewlett

Packard over its competitors. Their employees are some of the most skilled in the industry. They

are also provided with a positive work environment focused on keeping them happy, which in

turn boosts motivation and productivity. Hewlett Packard was able to grow rapidly because their

employees are highly skilled and motivated. Their managerial approach is what has allowed

them to maintain this growth and stay ahead of their competitors.

Salesforce is also a company that gained success because of their unique managerial

approach. When the companys growth began to slow, they did a complete overhaul of their

managerial practices throughout the entire company. They decided to implement a customer

driven and outcome oriented management process. Their managerial approach is highly

adaptable to change and they could implement the new processes in just three months. This was a

risk but it needed to be done in order to revamp their growth. In the end, it paid off and they are

now one of the top 25 companies in Silicon Valley. Their willingness to make such a big change

has kept them at the top of their market.

A key takeaway is that a startups success lies within itself. The way in which a founder

addresses the managerial challenges of transitioning from startup to company decides the future
of the company. They need to take a managerial approach that deviates from the traditional

business structure, which resists change and depends on a hierarchical management structure to

create stability. In today's business environment, things are always changing. Startups need to

look at what changes they can make internally, as well as externally, to successfully transition in

the growth phase. They also need to be willing to make those changes even if it means giving up

some control and stepping out of their comfort zones. It has been widely proven that a

companys managerial approach can directly impact their success. New startups that are making

the transition into the growth phase should look at the managerial approaches taken by successful

companies and follow their example.

The difference between the successful companys and the unsuccessful companys is their

managerial approach during the transition from startup to rapidly growing company. The growth

cannot be sustained unless it is tended to. This means that the managerial approaches need to also

grow with the company. The managerial approaches that were used in the startup will not work

in the growing company because of the different environments of each. In todays business

world, understanding and being willing to take different managerial approaches is the key to a

tech startups success.

 References

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Company Start-Up and Growth. Journal of Leadership Studies, 8(4), 35-39.

doi:10.1002/jls.21351

2. Ensley, M. D. (2007). A Contextual Examination of New Venture Performance:

Entrepreneur Leadership Behavior, Top Management Team Heterogeneity, and Environmental

Dynamism. Journal of Organizational Behavior, 28(7), 865-889. doi:10.1002/job.479

3. Wasserman, N. (2016). The throne vs. the kingdom: Founder control and value creation

in startups. Strategic Management Journal, 38(2), 255-277. doi:10.1002/smj.2478

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