When Scaling Your Start-Up, Don’t Lose What Makes It Special

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Okay, so you successfully scaled your start-up. You’re growing into a mature company, but have you thought about what you need to retain from those early start-up days? Harvard Business School professor Ranjay Gulati argues that the most successful organizations have one thing in common: a soul.

He says “soul” goes beyond culture, purpose, or even the founder. It’s about having three things: strategic business intent, a strong connection to customers, and a stellar employee experience. If you don’t preserve these elements as you scale, you’ll lose what makes your company special.

In this episode, you’ll learn how to define the specific problem your company solves – with plenty of real-world examples, like Netflix, Apple, and Warby Parker. You’ll also learn how to bring the voice of customers into your organization and ensure that your employees feel connected to them.

This episode originally aired on HBR IdeaCast in July 2019. Here it is.

ALISON BEARD: Welcome the HBR IdeaCast from Harvard Business Review. I’m Alison Beard. Three years ago, our magazine and website published an article that explained exactly what startups needed to do if they wanted to scale into larger, longer-lasting organizations. It talked about hiring functional experts, and adding management structure, and learning to plan and forecast in a disciplined way.

Today, the author of that piece is here to talk about the flipside of that idea. His most recent research delves into what startups have to retain as they grow, and what more mature companies might want to think about getting back. The answer is their soul; their essence; their energy. That thing that first made employees, customers, and investors so excited to give their talent, or money, or both to the cause.

Ranjay Gulati is a professor at Harvard Business School, and he’s the author of the HBR article “The Soul of a Start-Up” in the July-August 2019 issue of the magazine. Ranjay, thanks so much for coming in.

RANJAY GULATI: Thank you, Alison. My pleasure to be here with you.

ALISON BEARD: So, we hear a lot about startup culture, and how it changes as companies grow. Why did you choose the word soul?

RANJAY GULATI: Well, I think culture’s a very important construct, but I think it’s focused much more on understand manifest behavior – what are those implicit and explicit rules and assumptions that regulate our behavior? I found something deeper than just that. It was really about the core essence of why are we here, what are we trying to do, what gives us meaning and purpose, and where do we get our energy from? So, sure, culture could be a part of the story here, but I think what I was trying to get at was really the core essence of the organization.

ALISON BEARD: Now, you’ve studied lots of companies through this lens, what were some of the ones that you immediately looked at and thought now there’s a company with a soul, I want to investigate further?

RANJAY GULATI: My first, I would say, exposure to the idea was actually a video of Steve Jobs when he came back to Apple, and his talking about it wasn’t just that Apple needed to build better products, and redo their supply chain, and the redistribution channels, and figure all that out, but he said that we need to reconnect with our soul. And he said soul is something that we seem to have lost our connection to, and who we are, why do we exist.

And so, but it was left kind of high, high level, loose, open-ended. I then looked at Netflix, which I wrote a case on. And Netflix was one where I first saw a deliberate attempt to hold on to some kind of fundamental ideas. And so, as I looked at kind of life histories of companies, some of them, like these, held onto what they believed was valuable to them. Another one was Warby Parker.

ALISON BEARD: So, what did you find were the key components to this soul? Can we break it down at all?

RANJAY GULATI: Sure. There are three parts to the story, and this was the hard, the tough nut for me to crack. I think the first part is what I call “business intent”. And an intent is a very loaded word. Intent is not just defining your purpose, but what are the actions through which you’re going to try to achieve your purpose. This is not a vision statement, this is not a mission statement, this is not a strategy statement. It’s really about intent for why we are here, and what we are trying to do. Are we trying to change the way entertainment is consumed in the world? Are we trying to make flying fun again? Are we trying to bring people home safely? And into that is a business intent, it’s not just a save the world or the environment. And so, that’s the first pillar.

The second one is really around customer success. I found that some of these companies were really serious about injecting this sense that we exist to support and serve our customers and take that from a slogan to really making customers real, personifying them. What are they here, how do we make them successful? If we make them successful, then we are successful.

The third one was around this employee success idea. And the idea here was how do we make the experience of work meaningful, energizing? And it isn’t just having ping pong tables and, you know, foosball tables in the corridor, it was really about giving employees meaningful voice and choice. And when people experience that, work was energizing, they were willing to do extraordinary things at work.

ALISON BEARD: So, these three pillars are things that successful startups absolutely have to have to make it. How do companies lose it as they get bigger?

RANJAY GULATI: To me the fascinating thing was first of all, when I would ask many observers, they couldn’t pin it down. When you don’t know what you want to hold on to, it’s hard to hold on to it. The other part that was a little bit disconcerting to me, is there’s almost an acceptance of inevitability that scales means stale. Once we scale, we’re going to go stale. We’re going to have to be bureaucratic, we’re going to have to bring in system instructors, and then you would see pressure from external stakeholders, like the investor community who would say “time to bring in the grown-ups”.

And it was almost an acceptance that once you bring in bureaucratic systems, the idea was to crowd out. And then there would be the early employees’ time for you to leave. You guys like to work in an unstructured environment, you know, maybe this is not for you now. And I found that interesting, and sometimes, you know, sad to see.

But then I would see large companies saying “oh, we want to become like a startup”. How do we have an entrepreneurial mindset in our organization? So, I was caught in this middle ground where large companies wanted to be more like small, and small companies are trying to emulate large, and can we have the best of both? Can we actually have scale while having the entrepreneurial energy in the organization?

ALISON BEARD: Yeah, how do you do things though like adding management structure, professionalizing, bringing in more seasoned executives, while still preserving these things, especially something like employee voice and choice?

RANJAY GULATI: I felt that the first part was to call it out and identify it. What is “it” that we want to hold on to? I then tried to document what these companies do, and I think they do it in a disciplined way. Just the way in a disciplined way you put in system structures and processes, in a disciplined way and a methodical way, you say what am I doing to hold on to our soul? Have we been very clear about what our intent is? Is it getting lost on new hires as we get bigger and bigger? Is the idea of intent, why we exist, getting internalized in the organization or not? So, how do we want to make sure that messaging is sinking in?

The second one around customer – how do we retain clarity on that as we have more heterogenous customers, you know, as we get bigger, right? How do we make sure that customer voice doesn’t get lost? There are symbolic things people do, you know, there’s a legendary old we have a red chair in the room, the customer’s sitting there. Another organization, Cisco, in the early days used to have something called the customer advocacy group. There would be a chief customer advocacy officer whose job it was to be an advocate for the customer in the organization.

On employee voice and choice, you know, there are companies which are, where the belief is that nobody can work in a pod more than 30 or 40 people. We want to make sure that we hold on to that smallness while we get big.

ALISON BEARD: So, how early should leaders start thinking about preserving these three pillars?

RANJAY GULATI: I think the earlier the better. I think every successful company that I looked at, the founders and the early leadership team is planning for scale. They plan to be big, they plan to grow. But I think the attention is so much focused on survival early days, it’s so much focused on getting business and getting customers in early days, somehow the internal climate is not that much of a point of attention. And I think the soul dies mostly with neglect.

ALISON BEARD: And how much is this tied to the founders sticking around?

RANJAY GULATI: So, in many instances, the founder is – sometimes – becomes the carrier of the soul, they personify the soul. It’s deeply embedded in them. Their persona is larger than life. People look to them for cues and signals. Founders serve themselves well when they are able to decouple, and make it not just about them.

I also think when there is founder succession, one needs to be really clear about who are you bringing in/do they understand the soul? Do they understand what they need to do? I’ve interviewed a number of people who are hired professionals who would say “I’m the professional who comes in when we kick out the founder, and my job is to clean house”. And some of them had no appreciation for this. They were like, we need to build a large company now. And I think there has to be a delicate hand off here if you’re going to hold on to that entrepreneurial energy that got them here in the first place.

ALISON BEARD: And what about those companies that have made the mistake of not focusing on the pillars, have botched the succession, and they want to go back to having a soul, or even find a new one, how do you go about that?

RANJAY GULATI: So, I think look at the revolving door of how many founders come back.

ALISON BEARD: Right.

RANJAY GULATI: To salvage, or sometimes, you know, Steve Jobs was just one of them, Howard Schultz came back, Phil Knight came back to Nike.

ALISON BEARD: I’m hoping there’s another solution though.

RANJAY GULATI: Yes. And I think that’s the question that we have to ask ourselves, you know? I think it’s on everybody there. The founder should have found a way to decouple themselves from the soul, if they have to be the carrier of the soul, and as they had managed that transition and succession, that, you know, whoever comes in should have a better representation of what that soul looks like.

And maybe there is a role for the founder to be played in that transitional period where they help carry along until the organization can carry on on its own. think we are very good and spending time and attention on strategy, markets, supply chain, understanding our financial situation, our cash flow. We need to bring that same discipline and rigor to how we are attending to the soul of the organization as we scale?

ALISON BEARD: I want to delve into each of the three pillars a little bit more deeply. Talk to me a little bit more about how business intent is different than purpose or mission, because I do think companies are doing a much better job of outlining that grand goal, that thing that everyone’s getting behind.

RANJAY GULATI: So, first of all, they are related constructs. I wouldn’t disagree with you on that. I think my idea was to have clarity around the notion that this is about my business intent, why we exist as a business. What is happening with some of these other adjacent terms, is they’re either going 50,000 feet into the sky, in the clouds, or we’re going super tactical.

And there’s nothing in that mid-space where we’re trying to articular why do we exist to serve customers of any kind, or what is the problem we are here to solve? So, Netflix could have said we are here to rent DVDs and mail them to people, right? But they defined their intent around trying to change the way entertainment is consumed in the world.

ALISON BEARD: And that allowed, and that allowed them to pivot from mailing DVDs to producing content now.

RANJAY GULATI: Exactly. But there was a sensibility, what was my true north, if you will, you know, where are we here, what problem are we here to solve? Or if we cease to exist, you know, what will the gap we will leave behind? And it forces you to think strategically, it forces you to think existentially. You can use this to convince your customers, to convince your investors, but I think we should not forget that this statement is as important for the people you bring onboard, that if you do it right, A, in a startup you’re trying to sell to hire, to get people to come and work for you, because they’re better off getting a real job than coming to a startup with high risk. We know that.

But I think all of us deep down want to have this idea of being part of something exciting. It doesn’t have to be a noble cause necessarily, a social cause, but something that is energizing and exciting that, do you know where do I work? I work at a company that is changing the way blank gets done.

This an even older story, that you know, way back in Italy a bricklayer is laying bricks and somebody says, what are you doing? Are you laying bricks or are you building a cathedral?

ALISON BEARD: Right. And let’s talk a little bit more about customers. So, lots of large organizations are very good at serving their customers. How do companies with a soul do it differently or better?

RANJAY GULATI: So, once again, the idea of customer success is, it can be a marketing message for your customers. But it’s as important for your employees. That was the ah-ha to me, that employees care and are energized when they feel that they are actually making a material difference in somebody else’s life. It’s not only that “oh, they’ll pay me for it now,” – that is also very much a big driver, I’m not disagreeing with that, but that it also gives inner meaning when I feel that I’m, and I understand whose life I am making a difference in, and how I’m making a difference.

So, how do you bring that voice of customer into the organization when each of us is doing our own part of the job? You know, how do I bring customer stories into the organization? How do I bring customers into the organization? How do I take my employees out into the customer organization? How do retain that customer connection that people viscerally feel that what they do has a material impact on somebody else’s life?

ALISON BEARD: And what are some specific ways that organizations you’ve studied give their employees when you’re one of 10,000 maybe, that same level of voice and choice that they felt when it was start-up days?

RANJAY GULATI: So, let’s look at this third pillar from the employee standpoint. So, I belong to an organization first that has clarity of intent, I know what we are here for, I know who I’m here to serve, and now how is that experience meaningful to me as an employee in the organization. What I’ve learned from my interviews is people want to have impact, and people want to feel they’re productive, they’re getting something done. So, how do I create the space for them to have impact, and feel that they’re part of a productive enterprise, and making a difference in that job, in what they do?

In my mind there are two clusters of things, there is voice and there’s choice. Voice is about them feeling heard, that they have access to people who may be making decisions, that their voice, it may not be taking their advice, but they feel they’ve been heard.

The other one is choice, that I have some discretion in what I am doing. That I’m not encumbered by administrative rules and systems only. I had a previous HBR article where I talked about freedom within a framework. And what I’m saying here is not that this is completely open-ended freedom, you know, go do whatever, whatever needs to be done, it’s really saying freedom within a framework. And how do I create a context within which you are free?

ALISON BEARD: You talk in the article about Warby Parker being an example of a company that almost, you know, went off the rails, was maybe losing some of its engineers’ enthusiasm, and then managed to reel it back. So, tell me a little bit about how they did that.

RANJAY GULATI: So, Warby’s a great example where a company kind of caught itself, I think, probably at the right time. Growing really fast, and as you grow you need to put in place all of the expected system structures and processes, and what they discovered was that they had in the process taken away most discretion from their engineers.

Not the engineers weren’t doing their job anymore, they were still working, but they had lost or were losing that entrepreneurial spirit. They didn’t feel that it was the same old Warby Parker. And I think the management realized that, and then they decided to put in place some systems where they could have voice.

And they call it Warbles, where, you know, each, before they pick on a project, they actually get to vote in. And they have kind of a crowd-sourcing of prioritizing the ideas. Which lets everybody feel that they have a – that what they work on is not just top down imposed on them, but their voice was part of the decision-making process. And I think it’s important to understand from that, the whole idea that it’s really easy to feel really busy, and we crowd out the soul.

ALISON BEARD: So, how much time should leaders be spending thinking about this, making sure the soul is being preserved, while they’re trying to grow and be better managers, and put in processes and policies? It’s a really tense situation.

RANJAY GULATI: I think that’s the balancing act. But I think the question to ask ourselves is how important is my employees’ energy, and drive, and enthusiasm, and commitment, to my enterprise? And if it’s really important to me, and I want to look for ways to preserve that, then I think they should be acting on that very early on.

I think it’s just we take it for granted, we assume it, and then later on we assume that “oh, it’s inevitable it’s going to die.” Do we have to just presume to is something that only exists when we’re young? It’s sort of like saying, you know, “you can only have fun when you’re a teenager, and then you’ve got to grow up”. And I think is that how do we retain that youthful spirit?

ALISON BEARD: Right. So, most of the examples that we’ve talked about so far are from the United States, but this is a global phenomenon, right? So, what are some countries, what are some companies from different countries that you’ve studied where you’ve seen this soul develop and be preserved, or get lost and come back?

RANJAY GULATI: So, I’ve been looking at companies around the world now. And I’d written a previous case also on a company called Micromax that went through many trials and tribulations, and they got caught in this yin and yang between putting in place administrative systems and the soul.

And the two – and reconciling the two was something they couldn’t really get done. You know, they bring in more administrative systems, and their soul would fight it back, and it was a tug of war between two, I would say, ideas, of how the organization should be run. The case I’m writing right now is a couple a hundred employees, and it’s fascinating to see the founders who are, you know, in their late 20s I think, are very deliberate about this idea that the organization has an essence. They’re not calling it a soul. And I haven’t discussed the article with them yet.

ALISON BEARD: They will soon.

RANJAY GULATI: But they understand that there’s an essence that is something special about the energy that they want to bring into the organization. And they want to hold on to it. And they’ve been very thoughtful about it from the time they were very young.

ALISON BEARD: How does this happen in companies that are in more staid industries? You know, tech companies obviously are very focused on their mission, and giving employees a great experience, and customer service, where else has it worked?

RANJAY GULATI: Well, a great example actually is BlackRock. And I was fortunate to write a case series with my colleague Jan Rivkin, on the entire arch and sequence of BlackRock’s history. In this story, what I learned from the very get go, you have some committed founders, you have a CEO who is deeply committed to a clear business intent, right?

And the business intent was defined around a key set of ideas. One was we’re fiduciary to the client, which means we’re not going to trade our own account, you know, we’re always going to have no conflict of interest over there. And we’re going to use technology to understand, quantify, and manage risk.

And once they did that I think that was the first piece of the puzzle. And in this process was also woven this idea of customer success, because we are here to serve clients, right? So, the business intent and customer intent were kind of blended into each other. And then you have a deliberate effort to create employee success. How do we make sure that as we scale, we have voice and choice.

So, here you have an organization that has thousands of employees, it’s managing, you know, assets under management of over several trillion dollars, and at scale is thoughtful about what is their soul. Even as some of the founders have transitioned out. You know, there’s a very deliberate effort to make sure that we don’t lose what is it that made us unique in the first place.

ALISON BEARD: Either when you’re defining your soul in the very beginning, when you’re in startup stages, or if you’re trying to figure out exactly what it is, if your organization has become very big and it’s unclear anymore, how much should the leaders of the organization talk to the employees when they’re defining these three pillars?

RANJAY GULATI: So, the usual answer is these things are both top-down, bottom-up, right? There is definitely some bottom-up elements to this way you are engaging with them in a dialog. But at some point, you know, you have to come up with an architecture, and a frame, and then you’ve got to go into sell mode. You’ve got to get them to buy into it. And it has to be real and authentic. You can’t fake it. You can’t do soul washing.

You know, we call it kind of like, okay, we’re going to do a little washing and call it check box, and have a communication PR messaging out there, then the cynics will kick in. So, people are cynical about these things. So, how do we make it meaningful and real?

And that’s the piece I think where leadership really has to come through. Leaders need to understand that this has to go from cheap slogans, to being real and internalized behavior. And to do this at scale gets challenging.

But I think we have to be very rigorous and disciplined about saying “I don’t want to lose that”. I don’t want to have people in this organization who don’t understand why we’re here. I don’t want them to not have the sense of voice and choice. We’re getting bigger, we want to be very methodical about making sure customer voice, and who we’re here to serve, comes through loud and clear. Bringing that rigor the way we do to other parts of our business I think is really important, because once you lose it, you can try to regain it, and companies do do it, but it gets much harder.

ALISON BEARD: Great. Well, thank you so much for joining us.

RANJAY GULATI: Thank you.

HANNAH BATES: That was Harvard Business School professor Ranjay Gulati – in conversation with Alison Beard on the HBR IdeaCast.

We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

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