Startup Sinkholes: What they are and how to avoid them

The journey to building a successful business is daunted with different challenges that require a solid business structure to help navigate and ensure it makes it through each developmental stage. One way businesses try to accomplish this is by setting up the appropriate organizational structure.

Organizational structure is the way in which tasks are divided, grouped, and coordinated and a huge part of a startup’s success at each stage depends on the degree to which appropriate structures have been established.

To design an effective organizational structure, founders should consider the impact of their structure on these three major levels;
1. The startup as a Rational system — the startup together with its entire operations and activities viewed as a machine.

2. The startup as a Natural system — the human side of the startup including the interplay between different groups of people in the startup.

3. The startup as an Open system — the external environment and how it affects the startup.

Designing an organizational structure with the above perspectives in mind helps ensure a robust structure is developed.

However, there are four different stages of organizational development and associated sinkholes that every startup goes through as they grow;

1. Entrepreneurial stage: This is the genesis of the startup journey. Startups at this stage are usually at their pre-MVP or post-MVP stage, the majority of this category are at the idea stage.

Sinkhole: Need for leadership and vision.

In order to make it through the next stage, founders must have a clear cut vision and the leadership to steer the team towards that vision. If you’re a technical founder, having a cofounder with strong leadership and management skills will be an optimal choice.

2. Collectivity stage: At this stage, the startup has developed clear goals, has a clear direction, and has achieved some level of growth. This stage is usually characterized by an increased workforce/team size and oftentimes, has achieved product-market-fit.

Sinkhole: Need for delegation.

Reorganizing for optimal and efficient operations is necessary with a quality COO at the helm of operations.

3. Formalization stage: at this stage, the startup has transitioned to a formal organization and has lost the ability to operate as a closely-knit unit. This is a sensitive stage that accelerates the sinkhole dangers in the next stage. It is easy for founders to miss the signs which is no fault of their own but a necessary outcome as long as growth is taking place in the organization.

Sinkhole: Tendency to become overly bureaucratic and stifle innovation.

At this stage, organizations that have maintained a strong culture can easily reorganize with a structure that accommodates formality while limiting bureaucratic tendencies.

4. Elaboration stage: this is typically where the death curve begins. At this stage, organizations are forced to innovate or go home due to changing market climate and inability to keep up with industry trends. This usually originates from their failure to identify and correct the startup sinkhole in the Formalization stage.

Sinkhole: Need for revitalization to ensure organizations can successfully adapt to changing external environment.

Summary:
Entrepreneurial stage, Need for leadership and vision; Collectivity stage, Need for delegation; Formalization stage, Tendency to become overly bureaucratic and stifle innovation; Elaboration stage, Need for revitalization to ensure organizations can successfully adapt to changing external environment.

Keep building! Keep growing!

This article was first published at Climatr

Are you preparing to launch your business idea? We would love to talk to you. Contact us here