Where is your business on the Start-Up J-Curve?
Feb 01, 2022Soon after the USSR unravelled in 1991, Francis Fukuyama famously declared ‘the end of history.’ The Western liberal democratic capitalist model had triumphed. This was, in hindsight, premature. Both Russia and China have since been resurgent, causing both shockwaves in and a permanent re-balancing of the international state system. Neither could be described as Western, liberal or democratic. Their authoritarian, oligarchical structures have been vital to their success, while Western nations have struggled.
Founders of later stage businesses will be familiar with this tension between authoritarian and democratic models. Every business begins on authoritarian principles. There is a single source of authority in the founder. They not only call all the shots, they do all the work. As the business grows, then so too does the staff. New starters need direction and the commands flow. All is well.
Until it isn’t. The limits of a centralised command and control model quickly become apparent with even modest headcount growth. The founder is too busy to make all the decisions. They may be spending all their time courting investors. There are now functional experts better placed to make decisions. In order to grow, the founder must relinquish control and empower the teams around them.
The quest becomes a search for as much devolution as the organisation can handle. A structure where decision-making power relocates not just to the periphery of the organisation, but within individual teams. General Stanley McChrystal described this approach as a ‘team of teams’: autonomous decision-making units, networked together, united by a common goal but with the means to act independently to achieve it. Let’s call this the business equivalent of a fully democratic model.
According to entrepreneurial theory, this organisational transition is one of the six key changes that businesses have to undergo in order to prosper. There are a few things you need to know about this organisational shift:
Every business is different. There is no one organisational model that is right for everyone. While too much centralisation can cause bottlenecks and stifle creativity, too much devolution can cause anarchy and demotivate teams ill prepared or unwilling to act autonomously. There is every shade of grey in between.
Authoritarian models can be made to work. If Russia and China can make it work, you can too. Hierarchical models built around functions can work if they are flexible and imaginative. Look at all the agency groups and consultancies with matrix organisations and lines of business that cut across traditional structures to make them more responsive.
The transition from an authoritarian to a democratic model is painful. For every Klarna, there are dozens of businesses who suffer agony. If you can get through it you will emerge stronger than ever. Many founders will delay for fear of the disruption. Sometimes you just have to take the plunge even if you’re not sure what lies on the other side. As Butch said (jokingly) to Sundance, ‘Why you crazy? The fall will probably kill ya!’ They survived the fall and you can too.
It helps to know what to expect. One of your best guides is the political scientist, Ian Bremmer, who identified a J Curve within international relations. The key measures are stability and openness. States like China and Russia are not open but they are stable because of their successful authoritarian models. Similarly, Western democracies are both open and stable. The fun occurs in the middle, when authoritarian states seek to become more open. Their stability dips alarmingly. Order breaks down and anarchy ensues. They have a simple choice: to retreat to authoritarian modes (as Russia did after Boris Yeltsin), or to persevere and establish a new, more enduring kind of stability based on greater openness.
This is the path your business will take during any transitional phase to a more devolved model. We have another free tool to help you map out your position. The Start-Up J-Curve breaks the transition into three phases:
1. Kingdom: the founder reigns supreme, making every decision in a centralised power structure.
2. Regency: the founder rules in theory but in practice power is shared with new players who are empowered to make decisions.
3. Republic: the founder remains ‘head of state’ but power has been successfully devolved to teams.
Get in touch and we will send it you. At a later date we’ll take you through the black arts of organisational design, how to manage the transition and the other five shifts you can expect. Until then, keep writing your history. It truly never ends. Well, not until the earth is sucked into the fiery ball of death we call the Sun. But we have a few billion years more time until that happens.
UP AND TO THE RIGHT.
Endnote: The J-Curve 11 years on:
