On Growth and Job Creation in the Entrepreneurial Frontier

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May 22, 2013 by michaelchanrubio

I am not a thought leader on the matter, but this is a question that latched on to me persistently, even as I took time away from this blog to attend to professional responsibilities. I practice HR in the entrepreneurial space; am employed in a startup, and I providing advisory services to startups.

I don’t think I can competently discuss the entirety of the topic here, but in this post I attempt at least to organize some the factors to consider.

The first thing that comes to my mind is how entrepreneurial companies are almost always both overstaffed and understaffed. At the onset, the work is primarily done by the founders, wearing multiple hats. It’s when there are more than 7 people in the firm when functional (non-)silos are organized and responsibilities are handed out.

Depending on the founder mix, the group is almost always either overqualified for their roles, or way over their heads. But if the product or service is a hit, the business will grow (even if only in sales/revenues).

When that happens, the growth (particularly in high-growth industries or environments) will outstrip the competencies of almost everyone in the organization, unless the founders are all overqualified to begin with. People start failing, or worse, the cash allows the organization to create expensive workarounds to mitigate the lack of competence of the team.

Is this a kill point for some of the employees?

If it is, they’re seldom exercised. The founders are loyal to the team and nobody gets fired. The founders will see the low-level work as punishments and demotions for the failing employees and so they keep their roles. At most, someone outside is hired, but the incumbents keep some of their authority and function, despite the lack of competency. This becomes a very expensive mistake later on.

If for some reason the business enters another growth stage (in excess of 50 employees up to about 150), this behavior persists, and the founders/leadership are insulated from the costly mistakes by growth.

At some point, either the business fails because the bad processes and practices will catch up with it (and they will, oh they will), or external financiers (equity partners, VCs, etc.) will engineer a management turnover. Jobs will be lost and created, but a lot of value and waste will occur, and/or be found.

I think this can be mitigated by a strong board of directors and/or advisers who meet with the management team regularly. But I don’t know how often this is the case. I don’t see it happening enough.

Instead I see a lot of wasted potential among startups, but perhaps it’s all in the game. Who gets better, wins, and not necessarily who grows larger faster.

In the larger scheme of things, startups often provide 1-3 years of employment from perhaps 3-150 employees on a per business basis. Turnover is quite volatile, but a significant amount is due to companies bellying up. I’ll leave it to the economists to figure out what that means for a national economy.

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One thought on “On Growth and Job Creation in the Entrepreneurial Frontier

  1. […] mentioned in a previous post how in many entrepreneurial companies, the first growth phase can be a kill point for some of the incumbent employees. This is because the company that the entrepreneurial organization is becoming (and needs to […]

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