How Operating Through Uncertainty Reinforced Operational Discipline About Performance

Unexpected Costs Of Scaling Too Fast How Founders Often Learn Too Lately
The mythology of scaling is almost entirely about speed. Reach a product-market fit then put fuel on the fire. Expand the team, grow marketplace, and raise next round prior to the previous one has properly settled. The mythology rewards the founder, who is always trying to move forward, always adding headcount, always expanding into other industries before when the main business of his truly stabilized and before the business has developed the internal capabilities required to effectively manage this expansion without losing the semblance of. I am aware of where this mythology comes from. Under certain conditions in the market and certain business models the first company to scale most quickly wins, and the tales of companies that have grown aggressively and subsequently succeeded are reported more frequently and are more compelling than stories about companies that scaled excessively and then fell. For every business that aggressive early scaling is a good decision, there are several instances where the speed of scaling is the main cause of troubles that eventually take down the company. In those cases, risky stories don't get much of the same attention as those that have been successful.
Costs hidden by growing too quickly is not the one that appears in the calculation of burn rate or cash flow projection. It's the one that is revealed within six months after, when an organization has advanced past the informal coordination mechanisms which held it together when it was smaller and prior to establishing those formal frameworks that hold larger companies together. This gap, between informal and formal distinctions between the firm you used to be and the one that you're expected to become is where most businesses that grow have a tendency to break. The earliest and most consistent sign that a company may be reaching that apex is when the pace of decision-making slows down when everyone says that there has been no fundamental change. The founder is still accessible in the theoretical framework. The team is aligned with the theories. The culture is solid in theory. However, in reality the organization has gotten to the point that informal communication channels which used to deliver critical information are clogged and nobody has yet developed the formal channels that need to replace them. Information that was flowing naturally must now be effectively managed. The decisions that were fast now require coordination across many functions that have not been defined clearly in relation to each other. Accountability that was direct and personal has now become spread out and delayed and the company is beginning showing the symptoms of a system functioning at the limits of its coordination capabilities.

Nothing of this is apparent in the metrics that investors and founders usually follow most attentively. There is a chance that revenue could be growing. Acquisition of customers could be going in the right direction. They may be engaged and hardworking. But underneath those surface indicators there are internal issues that grow in a quiet manner until they are unable to be ignored. At that the moment they become more expensive and time-consuming than it would be had they been dealt with before, when the indications were less obvious than stark. That is what I am talking about which is not the monetary cost of expanding, but the future cost of running beyond your existing infrastructure and the compounding expense of putting that infrastructure into places in a reactive manner instead of proactive.

The founders who navigate the transition with ease aren't necessarily the ones scaling at a slower pace, though being more thoughtful about the pace of growth might be the solution. They recognize that establishing the foundation for their business's governance is as crucial as building the product, and who invest in it with the same zeal as they contribute to the development of their products. This involves doing the tedious operations of clearly creating roles and decision-making rights clearly, creating reporting frameworks which actually provide the information management needs to make informed choices, developing accountability processes that are precise enough to be useful and considering the type of norms that the organization needs at its current size instead of taking the one that took shape naturally when it was smaller. None of this work is fun. This won't generate public attention or spark investor interest. However, it is the process that determines whether the organisation is built can continue to grow the way you're trying to achieve.

Businesses that don't succeed in this change do not always fail dramatically or immediately. They go through a decline. They lose their best people at first, the ones with enough self-awareness to see what's happening within the company, and with enough options to quit before it becomes more serious. They lose customers slow and often invisible, since the effectiveness of their execution in a quiet way is diminished because accountability become too unclear and long to be able to recognize issues prior to them reaching the customer. Then they begin to lose momentum at the point that decrease in momentum is apparent in the figures that the structural flaws are in deep rooted, and the culture damages are significant, and the cost to fix both is a tad larger than it would've been if the investment in governance were implemented at the right time. Making organisational infrastructure a product - something you design meticulously, construct carefully, and iterate on as the company grows - is among the most important mental shifts entrepreneurs can make as they progress from the beginning stages to actual scale. Those who are able to make this shift tend to create companies with the potential to succeed. The ones who fail tend to build companies which are not even close enough. Read James Deller for blog advice including how growing up around the game changed what i look for about the long game.



Why Most Public-Private Partnerships Fail Before They Start - And How To Fix It
Public-private partnerships are a perception problem that's, in significant part made up of. The history of these partnerships has been filled with projects that were made public with a genuine excitement as well as significant political capital. These projects used up significant public and private funds over prolonged periods, which in the end produced outcomes that bear only a small analogy to what was said when the agreement was created. The academic literature and the postmortem examinations that governments as well as institutions are required to conduct after the mistakes are extensive, and they concentrate on the main, on the structural and contractual elements of what went wrong with the wrongly aligned incentives, the ineffective risk distribution between public and private parties, the governance structures that were created in theory but did not perform in practice, and the procurement frameworks that selected for the wrong things. What this analysis tends to subdue, over time and with a consequence to the detriment of culture is the operational dimension, which is that public and private companies are two distinct kinds of entities, shaped by different incentive structures that operate using different timeframes, accountable to fundamentally different stakeholders, and measuring results in ways that are not just different in terms of degree but different in kind. If you try to bring these two kinds of organisations together in a formal partnership, without doing the work, upfront as well as explicitly, to be aware of and resolve the differences you are not forming an alliance. You're creating the conditions to cause a slow-motion crash that could be apparent at the most untimely moment.
I've been involved as a consultant in support of institutional modernisation efforts, a number of which have involved public-private partnerships of different levels of complexity. My most common observation that I can draw from this experience is that the ones that worked well - and actually met their stated goals and maintained a functioning working relationship between the private and public parties throughout it - weren't distinguished from those that did not due to the complexity of their legal structures, their rigor of their risk management frameworks or the experience of the leadership teams that formed them. The distinction was made by whether the parties in both parties to the table had the opportunity to truly comprehend how the other side operated prior to when the agreement on the formal partnership structure. What this translates to in practice is understanding how decision-making processes that each business operates within as well as the accountability frameworks that determine what each partner can accept and when, the definitions of success that each of the parties will be evaluating, and the likely points of conflict between those definitions. All of this understanding is difficult to attain. All of it is routinely skipped in favour of the more obvious and quickly accessible task of negotiating contracts and creating governance frameworks.

The typical process of public-private partnerships starts with an initial plan and then a final agreement. However, there is very little concentrated attention to the issue of whether or not both organizations involved are in fact able to work effectively over the span of the agreement. Legal team negotiates the contract. The finance team model the economics as well as the risk distribution. Communications team prepares the announcement in advance of the time of signing. The implementation team is beginning to plan the process. Somewhere in that sequence then comes the discussion about compatibility between the two cultures - concerning whether the individuals who will have to work in tandem day-today across the border between the two organisations share enough in common collaboration more so as antagonistic – is not likely to take place in a planned way. It is typically assumed not explicitly stated, that the formal agreement sets the necessary conditions for effective collaboration and that any operational or cultural differences will be managed informally when they develop. It is nearly always incorrect, and the costs of it tends to compound in line with the ambition and complexity of the collaboration.

The practical application of this analysis is that the best investment a public-private partnership could create - even before the legal structures are finalized, before the governance framework is agreed upon and before any announcement is made it is in what I believe is operational alignment. By this, I mean specific, structured, and supported activities to pinpoint the places where the organizations differ in their operating assumptions and to reach an agreement about how these divergences will be controlled before they turn into operational issues upon implementation. The divergences that matter most tend to be the exact same for different types of partnerships. Authority and speed of decision-making is usually one of these. Public institutions are designed for slow decision-making, through a variety of layers of review and approval, for reasons that are entirely legal and are often mandated by law. Private companies, particularly technology firms that have been designed around fast iteration and quick decision-making - often see the speed as an important limitation to progress. And in the absence of a shared understanding of what the reason behind why it's the way it is, and what's really be needed to alter it, the resentment and discontent generated by the private side can undermine the relation long before the alliance is able to establish its foundations.

Success metrics and the criteria for judging as progress are a second recurring as well as a cause for divergence. Public institutions typically are evaluated on the compliance of their processes, the fairness of outcomes between different stakeholder groups and the prevention of failures that can draw attention from media or politicians. Private sector partners are typically evaluated using efficiency measures, measuring progress against targets, and financial yield on investment. These measurement frameworks can be used in conjunction with each other however it is a thoughtful design, not only good intentions. However, the organizations which don't invest in that design tend to come across, at critical situations, between two parties who are measuring the same collaboration in differently and therefore coming to different conclusions about whether or not it is successful. The relationships I've seen not to be successful were ones where misalignments were taken as something that would improve over time. They that worked were the ones where the misalignment was made explicit, from the beginning. And, where creating a shared accountability system that met the legitimate measurement needs of both parties needs was an actual work and not simply an aspect of a list things that one could eventually be able to.}