UAE has over 57,954 start-ups across its territory including 10 unicorns.
Funded companies have attracted $ 105B in venture capital and private equity from local companies as well as organisations in a range of regions such as Europe and Vietnam. More related numbers include 706 acquisitions and 441 IPOs.
Having been a party to conversations across the Region about acquisitions and IPOs, I’ve frequently heard discussions about “scaling” although often there are differing ideas about what that actually means.
But what often does not get discussed is that the lack of scale is usually not because of a poor strategy, weak investment programme or ill-chosen acquisitions.
The pattern we see repeatedly in many firms at the growth stage (in the UAE and elsewhere) is that people attempt to scale the company without investing in scaling the leaders.
Sometimes it is called the Founder’s Trap or “The Boss as Bottleneck”.
How does it happen?
The Founder with their long history and emotional entanglement with the firm is the best relationship manager in the building. S/he also approves every significant decision, mediates every team conflict, handles the most sensitive client conversations, and somehow finds time to think about where the firm is going. S/he is indispensable – and that is precisely the problem.
To be fair, the passion and commitment of the founder is critical to success but also is the critical phase in which the founder must be helped to let go.
When a business depends on one person’s judgment for almost everything, it does not scale. It clones the founder’s workload rather than distributing it. The velocity of execution slows dramatically and research suggests that mid-sized businesses could generate an added $ 18.4 billion if key decisions were made more quickly. It is mooted that:
* uncertainty over options
* time spent gathering information and
* the existence of unclear but competing priorities soak up time and energy. They probably do so even more if decision-making is centralised.
There are other predictable outcomes:
- Senior advisors who could be running client teams are instead waiting for directions.
- Associates who should be developing into the next generation of leaders are watching and waiting rather than <a href="https://jordangazette.com/ge-healthcare-and-rsna-bring-leading-cancer-imaging-expertise-to-africa-to-improve-access-to-cancer-care/”>leading.
- High performers leave because they cannot see a path forward.
- New hires are expensive and underutilised.
- The Founder works longer hours for diminishing returns.
- Employees ~#1 and #2 decide to get out of this “management stuff” and “go back to the lab” – their original loves in technology or finance
And the start-up, despite real talent and perhaps even a strong client base, cannot quite break through to the next level.
The fix is rarely about hiring. It is almost always about developing the people you already have.
Apparently that shift from “taking action” to “waiting for certainty” should be a warning sign. How many of the 5,843 start-ups that have wrapped up operations in the UAE were suffering from these negative trends? Why take such risks in running a start-up?
For people who launch their own business, there can be a mindset around taking risks, being optimistic and leaving behind the traditional ways of doing business. I have observed that this mentality is even more pronounced in people who have left the corporate world. Having worked in a major institution with its “risk appetite framework” and “standard operating procedures”, I was not minded to recreate such constraints in any company I started.
In addition, that optimistic, urgent feeling plus one’s emotional entanglement and a shortage of people tends to focus the Founder and his/her colleagues on the here and now, the next target. Everything to an entrepreneur is an opportunity, not a risk. So, developing leaders is something for the future and “we’ll know when we get there”.
We can all understand therefore how scaling the company becomes the call to action and less urgent issues like leadership can be left behind.
However, it is important to build that internal capacity and capability in leadership, here are some low cost, practical steps prevent your company joining the 5,843 ones that have wrapped up operations.
- Founders need honest, external sounding boards who can “speak truth to power” – people not caught up in the daily excitement of your start-up, not following that unwritten script of “how we do things around here”. They can see the blind spots which founders often miss.
- Look at new joiners carefully to ensure you don’t hire people in your own image.
- Encourage AMA (“Ask Me Anything”) sessions in which the Founder answers questions from anyone
- …..as part of building a culture in which we think ahead, confront issues and express concerns without being worried about retribution.
- As your start-up grows, staying agile might become more difficult but it was the North Star for quite a while so finding ways to keep it relevant by reviewing how we work together is worth the effort.
In many ways my experience suggests that only an influential outsider such as a trusted coach can facilitate driving such changes because those close to the founder usually have a misplaced sense of loyalty and will not confront the elephant in the room.
So, the next time you hear somebody talking about “scaling the business”, offer them this quote from a colleague of mine
“…
when the business scales but the leadership doesn’t, that’s exactly where the ‘Valuation Ceiling’ sits……..” and that is why people also talk about the Founder’s Trap.
