In large companies, the CEO has professional writers, a PR office, and lots of other skilled people on hand to help relay important messages to the right constituents. As a CEO of a start-up, you don't have this luxury. You are always the company's #1 Communicator.

Most important is to never underestimate this role. Silence isn't golden; it's dangerous. Even if there's no good news to share, say something! At first, employees and investors will fill your silence with their fondest hopes. But once you've missed a single deadline, or something hasn't gone according to plan, everyone will project their worst fears into the void.

Communication is even trickier now with social media. For example, one CEO stopped sending updates to investors, but chronicled his weeklong camping trips and conference excursions on Facebook, all while the company's cash reserves (paying his five-figure-a-month salary) dwindled. As you can imagine, his investors followed his adventures with, how shall I say it, avid interest.

But enough about how not to communicate; here's how a great entrepreneur CEO should communicate.

Communicate Vision, Strategy, and Direction...Often
As CEO, your primary duty is to set strategy and vision for the company, but it's not enough to simply do so in your own mind. You have to impart that vision to your employees so they can help carry it out.

At a new employee orientation in 1991 — when Intuit had just 120 employees and one product — then-CEO Scott Cook made sure each of the fledgling company's employees knew his plans for building the firm and what was needed to move the company toward the future he envisioned for it. It's no coincidence that 20 years later Intuit has grown into a billion-dollar company with thousands of employees and dozens of products.

Communicate with Your Investors
Of course, most CEOs of start-ups find themselves far richer with ideas than money, so they also have to communicate their vision to potential investors. Part of effectively communicating includes efficiently communicating. You never know when you'll need to give a quick pitch during an elevator ride, or be able to succinctly sell an investor on your idea's economic or social return.

That's how Tom Tuohy launched his non-profit, Dreams for Kids, in December 1989. A few weeks before Christmas, a friend told Tuohy of her grief that 54 children in the local homeless shelter wouldn't be receiving Christmas gifts. In under a month, Tuohy organized a dozen volunteers and delivered gifts and food to the shelter on Christmas Eve, and Dreams for Kids was born.

Two decades later, Dreams for Kids helps empower economically disadvantaged and physically challenged kids in all kinds of ways ("Extreme Recess" is my personal favorite). Having helped more than 28,000 children, Tuohy's ability to convince others to invest in Dream for Kids is crucial to its success.

Communicate with Your Customers
Customers also want to hear from the CEO. They want to know your product is better than your competitors'. They want to know you'll still be in business to service that product a year from now. And they want to know you're listening. Especially if you're in a B2B business where purchases are expensive and the product is critical to your customer's success.

The bottom line is that whether dealing with employees, investors, customers, partners, or even suppliers and vendors, a great entrepreneur CEO is always communicating. To master this job, you need to make sure you're sending the messages that keep everyone moving together to make the company a success.

Stever Robbins is a serial entrepreneur, top-10 iTunes business podcaster ("The Get-it-Done Guy"), and CEO of Stever Robbins, Inc., an entrepreneurial consulting and coaching firm. He teaches at Babson College on building social capital. His first book, The Get-it-Done Guy's 9 Steps to Work Less and Do More, is coming out this September.

But reality is much different. The journey has just begun. Many fledgling companies and many ventures within established companies fail to capitalise on successful prototypes because they make one strategic error: they do not understand scale-up. And failing to scale swiftly can be the difference between life and death of a product or company in a fast-moving world. Our research suggests three classic and common mistakes in trying to transition from promising start-up to full scale venture. Here's what they are and how to avoid them:

1. Realize that customers are not the same as users

Key to low cost airline Ryan Air's growth was the recognition that airports, not passengers, were the real customer. Ryan Air was the first company to realize that municipal airports represented a very large market that could be systematically tapped. So instead of focusing only on passengers, Ryan Air went to smaller, less known airports typically owned by a municipality that was hungry for business. Bringing lots of users to the airports stimulated side benefits: more spending in cafes, more taxis and buses, more store revenues and more business for the locality. These side benefits were so great to these municipally owned airport "customers" that in many cases, Ryan Air was able to persuade small airports to pay Ryan Air to land!

2. Recognize that first users are not the same as scaling users

In the computer games market, the first users are generally not the scaling users, namely the regular players that pay good money for the game. Critical for the success of the game is to get the early users to play the game for free and suggest improvements, but to blog it widely as being good. Quake, launched by John Carmack was an ideal example of how acceptance by this "first user" transformed the later market. id software launched an early version of Quake in February 1996, directed specifically at pioneer users who were encouraged to trial the product for free. The early users were highly proficient at games and provided many ideas for the game's evolution ("mods"), posting changes to the game on line, which encouraged others and started an upward spiral of sales, modifications and debugs. id software finally launched a pioneer user-redesigned Quake, with pioneer user "rave reviews" to an eager mass market of final customers users who paid for the product. Suggestions and even complaints by early users can be used to powerfully reshape the initial offering. In fact in our work with startups we encourage venture managers not to count early sales as revenues at all, but count them as market research inputs.

3. Anticipate that first products are not the same as scaling products

Early versions of products often feature different attributes than the mass markets users will want. Expect that your prototype product will need to evolve into a much simpler, but more robust, offering for the long-term mass market. It's a typical "beta tester" approach, frequently used in software development, but it applies to all types of companies and new ventures.

European software maker Baan, for example, effectively scaled up their pioneering enterprise resource planning (ERP) software, by creating an initial free rough and ready offering for Shell to use internally. With its user feedback, Baan was able to improve its product dramatically — and then offer the developed product to less sophisticated users who just wanted it to work well.

Similarly the early models of electronic equipment can get away with clunky and quirky features that initial users will tolerate, but mass market users will reject, and demanding user-friendly, robust attributes.

It's fun and important to celebrate your early success — but beware — make sure you have thought through whether your offering is ready for the big time and is poised for prime time customers, prime time users and prime time features

Bio: Charles Baden-Fuller is advisor and director to many high technology start-ups and has studied venture growth whilst being Centenary Professor of Strategy at Cass Business School, London. Ian MacMillan is the Dhirubhai Ambani Professor at The Wharton School, interested and active in innovation, technology and entrepreneurship

Being unencumbered by external opinions allows two critical entrepreneurial traits to thrive: creativity and conviction. The former is most important during the early think-big stages of a company, and the latter is vital to mobilizing the team to execute with excellence.

Better idea generation
There are two types of successful entrepreneurs — those who are aware of limitations and embrace constraints, becoming more creative as a result, and those who are unaware of their constraints and external realities, and therefore generate ideas freely. Those in the latter camp are especially capable of developing a fanatical passion for their ideas. If you can you free your mind from constraints and external opinions, new ideas will flow faster and you become more bold in your actions. Leading idea generation with unbridled optimism is what provides the chance for new thinking. (For more of my thoughts on this, see one of my prior blogs on leading with optimism.)

Better execution through conviction
A large part of successful execution is rational prioritization and careful planning. But the spirit of excellence in execution gets its energy from conviction. Rallying people behind the idea requires a resolute belief in one's vision. This conviction is obviously easier when you don't know the thousands of ways an idea could crash and burn. You don't lose sleep over something of which you are unaware. Ignorance promotes a fearless conviction that inspires and motivates the team members who are driving execution. Entrepreneurs know that they go into situations with the statistical odds stacked against them, but rationality is overwhelmed by conviction in the possibility of succeeding. Conviction is highly infectious, and people who catch it can and will execute with a greater intensity and sense of purpose in their roles.

Embracing one's ignorance does not suggest that one should remain ignorant forever. The key is recognizing the critical moments in a company's trajectory when the a clean-sheet approach is a net positive. At the conceptualization phase and certain growth inflection points, the right kind of ignorance is beneficial.

“What you got a dollar in your pocket
A twenty in your wallet?
See me I’m stacking money
Matter of fact, I’ll let you watch it
Get big
Get big
Get big
Get big”
—Dorrough

If you want to build an important company, then at some point you have to scale. People in startup land often talk about the magic of how few people built the original Google or the original Facebook, but today’s Google employs 20,000 people and today’s Facebook employs over 1,500 people. So, if you want to do something that matters, then you are going to have to learn the black art of scaling a human organization.

Often board members give entrepreneurs two bits of advice regarding scale:

1. Get a mentor
2. Find some “been there, done that” executives who already know how to scale

These answers, while fine as far as they go have some important limitations. First, if you don’t know anything about scaling an organization, then it will be very difficult for you to evaluate people for that job. Imagine trying to find a killer engineer if you’d never written a single program. Second, many investor-board members don’t know anything about scaling a company either and can be suckers for people who have the experience but not the skills. If you’ve ever worked in a large organization, you know that there are plenty of people with experience running them, but possess none of the requisite skills to run them well.

The above advice is still good, but the right way to pick both the best mentors and best employees is by first learning the basics.

In this post, I will discuss the basics of scaling an organization. In doing so, I will lay out the fundamentals, but not go as far as writing a how-to guide. Hopefully, this will give you the context to apply the myriad of scaling techniques in the management literature appropriately. I will save for later posts more advanced topics such as:

• Managing senior people
• Corporate politics and how to limit them
• Systemic incentives
• Incentive alignment
• Hiring function heads for functions that you’ve never done
• Re-organizing
• Software system implementation and adoption

The Basic Idea—Give Ground Grudgingly

When an organization grows in size, things that were previously easy become difficult. Specifically, the following things that cause no trouble when you are small become big challenges as you grow:

• Communication
• Common knowledge
• Decision making

In order to get a clear understanding of the problem, let’s start with the boundary condition. Imagine a company of one employee. That employee writes and tests all the code, does all the marketing and sales, and manages herself. She has complete knowledge of everything in the company, makes all the decisions, needn’t communicate with anyone and is totally aligned with herself. As the company grows, things will only get worse from here in each dimension.

Still, if the company doesn’t expand, then it will never be much of a company, so the challenge is to grow and degrade as slowly as possible.

There is a great analog to this concept in American Football. An offensive lineman’s job is to protect the quarterback from onrushing defensive linemen. If the offensive lineman attempts to do this by holding his ground, the defensive lineman will easily run around him and crush the quarterback. As a result, offensive linemen are taught to lose the battle slowly or to give ground grudgingly. They are taught to back up and allow the defensive lineman to advance, but just a little at a time.

When you scale an organization, you will also need to give ground grudgingly. Specialization, organizational structure, and process all complicate things quite a bit and implementing them will feel like you are moving away from common knowledge and quality communication. It is very much like the offensive lineman taking a step backwards. You will lose ground, but you will prevent your company from descending into chaos.

How to Do It

At the point when adding people into the company feels like more work than the work that you can offload to the new employees, the defensive lineman has run around you and you probably need to start giving ground grudgingly. The first scale technique to implement is specialization.

Specialization

In startups, everybody starts out as a jack-of-all-trades. For example, engineers write code, manage the build system, test the product, and, increasingly, deploy it and operate it. This works great in the beginning, because everybody knows everything and the need to communicate is minimized; there are no complicated hand-offs, because there is nobody to hand anything to. As the company grows, it becomes increasingly difficult to add new engineers, because the learning curve starts to get super steep. Getting a new engineer up-to-speed starts to become more difficult than doing the work yourself. At this point, you need to specialize.

By dedicating people and teams to such tasks as the build environment, the test environment, and operations, you will create some complexity—hand offs across groups, potentially conflicting agendas, and specialized rather than common knowledge. In order to mitigate these issues, you will need to consider other scale techniques like organizational design and process.

Organizational Design

The first rule of organizational design is that all organizational designs are bad. With any design, you will optimize communication among some parts of the organization at the expense of other parts. For example, if you put product management in the engineering organization, you will optimize communication between product management and engineering at the expense of communication between product management and marketing. As a result, as soon as you roll out the new organization, people will find fault with it and they will be right.

Still, at some point, the monolithic design of one huge organization runs out of gas and you will need to split things into smaller sub-groups. At the most basic level, you’ll want to consider giving groups that you’ve specialized their own managers as they grow. You may want a QA manager for example. After that, things become more complex. Do client engineering and server engineering have their own groups or do you organize by use cases and include all technical components? When you get really big, you’ll need to decide whether to organize the entire company around functions (e.g. sales, marketing, product management, engineering) or around missions—self-contained business units that contain multiple functions.

Your goal is to choose the least of all evils. Think of the organizational design as the communications architecture for your company. If you want people to communicate, the best way to accomplish that is to make them report to the same manager. By contrast, the further away people are in the organizational chart, the less they will communicate. The organizational design is also the architecture for how the company communicates with the outside world. For example, you might want to organize your sales force by product to maximize communication with the relevant product groups and maximize the product competency of the sales force. If you do that, then you will do so at the expense of simplicity for customers who buy multiple products and will now have to deal with multiple sales people.

With this in mind, here are the basic steps to organizational design:

1. Figure out what needs to be communicated – Start by listing the most important knowledge and who needs to have it. For example, knowledge of the product architecture must be understood by engineering, QA, product management, marketing and sales.
2. Figure out what needs to be decided – Consider the types of decisions that must get made on a frequent basis: feature selection, architectural decisions, how to resolve support issues, etc. How can you design the organization to put the maximum number of decisions under the domain of a designated manager?
3. Prioritize the most important communication and decision paths – Is it more important for product managers to understand the product architecture or the market? Is it more important for engineers to understand the customer or the architecture? Keep in mind that these priorities will be based on today’s situation. If the situation changes, then you can re-organize.
4. Decide who’s going to run each group – Notice that this is the fourth step not the first step. You want to optimize the organization for the people—for the people doing the work—not for the managers. Most large mistakes in organizational design come from putting the individual ambitions of the people at the top of the organization ahead of the communication paths for the people at the bottom of the organization. Making this step 4 will upset your managers, but they will get over it.
5. Identify the paths that you did not optimize – As important as picking the communication paths that you will optimize is identifying the ones that you will not. Just because you de-prioritized them doesn’t mean that they are unimportant. If you ignore them entirely, they will surely come back to bite you.
6. Build a plan for mitigating the issues identified in step 5 – Once you’ve identified the likely issues, you will know the processes that you will need to build to patch the impending cross-organizational challenges.

These six steps should get you pretty far. When we examine advanced organizational design, we’ll also need to consider trade-offs such as speed vs. cost, how to roll out organizational changes, and how often one should re-organize.

Process

The purpose of process is communication. If there are five people in your company, you don’t need process, because you can just talk to each other. You can hand off tasks with a perfect understanding of what’s expected, you pass important information from one person to another, and you can maintain high quality transactions with no bureaucratic overhead. With 4,000 people, communication becomes more difficult. Ad hoc, point-to-point communication no longer works. You need something more robust—a communication bus or, the conventional term for human communication buses, a process.

A process is a formal, well-structured communication vehicle. It can be a heavily engineered six-sigma process or it can be a well-structured regular meeting. The size of the process should be scaled up or down to meet the needs of the communication challenge that it facilitates.

When communication in an organization spans across organizational boundaries, processes will help ensure that a) the communication happens and b) that it happens with quality. If you are looking for the first process to implement in your company, consider the interview process. It usually runs across organizational boundaries (the hiring group, human resources—or wherever the recruiter lives, and supporting groups), involves people from outside the company (the candidate), and is critically important to the success of the company.

Who should design a process? The people who are already doing the work in an ad hoc manner. They know what needs to be communicated and to whom. Naturally, they will be the right group to formalize the existing process and make it scalable.

When should you start implementing processes? While that varies depending on your situation, keep in mind that it’s much easier to add new people to old processes than new processes to old people. Formalize what you are doing to make it easy to onboard new people.

There is much written about process design, so I won’t repeat that here. I have found Chapter 1: The Basics of Production from Andy Grove’s High Output Management to be particularly helpful. For new companies, here are a few things to keep in mind:

• Focus on the output first – What should the process produce? In the case of the interview process, an outstanding employee. If that’s the goal, what’s the process to get there?
• Figure out how you’ll know if you are getting what you want at each step – Are you getting enough candidates? Are you getting the right candidates? Will your interview process find the right person for the job? Once you select the person, will they accept the job? Once they accept the job, will they become productive? Once they become productive, will they stay with your company? How will you measure each step?
• Engineer accountability into the system – Which organization and which individual is responsible for each step? What can you do to increase the visibility of their performance?

Final Thought

The process of scaling a company is not unlike the process of scaling a product. Different sizes of company impose different requirements on the company’s architecture. If you address those requirements too early, your company will seem heavy and sluggish. If you address those requirements too late, your company may melt down under the pressure. Be mindful of your company’s true growth rate as you add architectural components. It’s good to anticipate growth, but it’s bad to over-anticipate growth.

Culture determines who will work for you, who stays, and who quits. Once formed, culture is nearly impossible to change. People who work well within the culture quickly self-select. And those who don't fit leave.

In growing companies more than anywhere else, culture is tightly tied to the CEO.

The CEO Sets the Culture.
In a hierarchy, people look up for approval. When a frontline store clerk sneezes, people hand him a tissue. When a CEO sneezes, people rush to the water cooler. "What did that sneeze mean? Was she bored, and sneezing to cover it up?" Deliberately or not, the CEOs actions send constant signals that begin shaping everyone's behavior.

"Walking the talk" is critical for a CEO because people imitate the CEO. If they say one thing and do another, people will follow their actions, not their words. They need to be a living example of the culture they want to create. In a start-up, since everyone has regular contact with the CEO, everything she does signals what is and isn't OK.

Good CEOs Attend to Visible Culture
CEOs also influence culture with visual cues, for example, the design of the office. Take a home products company that started life in an extremely nice space. It became easy for employees to think they were already successful, and to rather cavalierly burn through their seed money. In contrast, LA-based Evolution Robotics's CEO stocked the warehouse office with desks made from doors atop filing cabinets. The space itself said "lean and mean," better than any lecture about cash flow.

Dress codes also shape culture. Scott Cook, co-founder of Intuit (makers of Quicken) set a casual tone by wearing jeans and a windbreaker, while tech pioneer Charlie Bachman wore a suit every day at his company. Clothing choices visibly signal attitudes toward formality and conduct.

Other visible signs of culture include work-hour flexibility, telecommuting ability, and so on. In entrepreneurial companies, all policies comprising the visible culture are created with the CEO's involvement.

Great CEOs Attend to Invisible Culture
Much of culture is invisible, however, in the form of the processes the company uses to get things done. These aspects of culture can be shaped only with deliberate attention. Great CEOs shape the invisible culture.

Decision making. Decision making is where a company's values come to life (or death, depending). When a company is forced to choose between two alternatives, that choice sends everyone a powerful signal about how to behave. It's easy to say, "we care about quality and we care about profit." But when forced to choose between shipping a low-quality product to make profit numbers and slipping a ship date until a product is ready for prime time, what actually happens will speak volumes about what this company values most. The CEO is almost always party to such difficult decisions, and can shape them to help shape the culture.

Who participates in decisions also sends a signal. If one function (marketing, finance, customer service) regularly gets their way, the others gradually take second place. If one person speaks just loudly enough to shut everyone else down, you get a culture that values heat over light.

When a company regularly preaches one set of values, and the CEO condones decisions that trumpet a different set of values, you'll create a cynical culture. One high-tech CEO preached quality but knowingly released defective products and simply budgeted for the subsequent recall. Employees circulated articles extolling the company's commitment to customers, with handwritten margin comments tallying up the lies.

Compensation. People do what you pay them for, which makes money, titles, and responsibility powerful shapers of culture. A CEO who promotes friends and family member sends a clear message: if you're a high performer, great. But family comes first, regardless. Young companies are just forming compensation systems. Thoughtful design is important. Tying customer service bonuses to number of calls per hour can cause reps to shortchange customers just to make call quotas. A culture will develop that's time oriented, rather than customer oriented.

One way compensation warps a culture is by rewarding outcomes over process. For several years in the early 2000s, mortgage lenders's compensation was tied to outcomes — mortgages written — rather than process (quality underwriting). Oops. Compensation has huge cultural implications, and the CEO has final say on compensation.

Mistake Management. The final piece of invisible culture is how mistakes are handled. If mistakes are punished, you'll build a risk-averse, sycophantic culture that plays it safe rather than thinking outside the box. If mistakes are treated as learning and supported by the reward systems, you'll grow a culture that is willing and eager to experiment and innovate.

Stever Robbins is a serial entrepreneur, top-10 iTunes business podcaster ("The Get-it-Done Guy"), and CEO of Stever Robbins, Inc., an entrepreneurial consulting and coaching firm. He teaches at Babson College on building social capital. His first book, The Get-it-Done Guy's 9 Steps to Work Less and Do More, is coming out this September.

A major part of a CEO's job is building and keeping the team together. Mastering this skill is especially important for CEOs of start-ups. When resources are scarce, you need to make sure everyone's working together, to avoid wasted effort or scattered focus. For example, several college friends founded a tech start-up their senior year, but they paid no attention to learning to work as a team. As a result, the marketing VP simply did what she thought made sense. Too bad it didn't correspond to what the product developer was creating. As team members executed independently what they considered best, they began to butt heads. Ultimately, while they fought and squandered the company's resources, their competitor came out with a strongly marketed, tightly developed product — one that put them in the market-leading position previously held by the start-up.

Good entrepreneurs focus first on building a strong executive team. This process begins with hiring. CEOs of start-ups must find the right people with the right skills and get them excited enough to sign on, despite not being able to offer them much money and the uncertainty of success. Recruiting under these circumstances has the happy side effect of building a team that’s emotionally committed to the job.

Of course, emotional commitment brings with it strong opinions, and sometimes these opinions clash. As team leader, the CEO is charged with ensuring that personalities among the senior team members mesh and is responsible for mediating any conflicts that arise.

It also falls on the CEO to keep the senior team motivated. Team members were hired for their intrinsic motivation, so this largely means pointing them in the right direction (or letting them help set that direction) and getting out of their way.

In addition, one simple way the CEO can motivate employees is to recognize their achievements. If a CEO doesn't seize this easy and inexpensive opportunity, there could be consequences. For instance, when one member of a four-person start-up was returning to school in the fall, the CEO decided not to include him in their company photo because "he'll be leaving soon and isn't part of the company going forward." That team member — who had worked his butt off with the rest of the team — lost all motivation in one fell swoop.

In start-ups, each person is a big part of the company. One unhappy person can bring down the whole team. For that reason, on top of keeping star performers happy, entrepreneur CEOs must also be willing to fire those who don’t perform. For example, my client Tom was good at hiring but wouldn’t fire nonperformer Ashley to save his life. Even though her complaints and bad behavior were affecting everyone’s morale, he insisted that “I did the hiring. It’s my mistake and my responsibility to find a way to make it work.”

I sympathized with him, and in a 2,000-person company there might have been a better fit for Ashley in another department. In a 24-person company, though, the luxury of being able to move her around did not exist, and continuing to pay her salary was throwing money away, not to mention sparking resentment in the rest of the team. Eventually, Tom did fire Ashley, and although it was hard, her departure freed up time and energy to keep the company running. (And was also better for Ashley’s career, by the way!)

Great entrepreneurs build and extend the team. Like good entrepreneurs, great entrepreneurs hire, motivate, and fire. But they also go beyond the walls of the company, building a team that includes their suppliers, distributors, customers, and investors.

A large company can treat most business relationships as transactions: If you want me to distribute your goods, here are the terms. Meet them and we’ll deal. Businesses will transact with anyone whom they believe will uphold the other side of the transaction.

And therein lies the rub. Small companies often have little track record and an uncertain future. They need their business partners to be true partners, not just transaction counter-parties. By treating business partners as team members and engaging them emotionally, great entrepreneur CEOs can get commitments they could never get on purely transactional terms.

The most dramatic example of this is in the high-tech industry, where Apple and Microsoft have long understood that their chip suppliers, customers, and distributors all have valuable input into the development of the other groups' products: They design their operating systems to use the capabilities of certain chips — thus enhancing the sales of their chip suppliers. Intel and AMD likewise design their chips to provide attractive capabilities to the programmers at Apple and Microsoft.

When a great entrepreneur extends her team beyond the bounds of her business, she doesn’t just begin to build a business. She begins to build a new industry.

Stever Robbins is a serial entrepreneur, top-10 iTunes business podcaster (“The Get-it-Done Guy”), and CEO of Stever Robbins, Inc., an entrepreneurial consulting and coaching firm. He teaches at Babson College on building social capital. His first book, The Get-it-Done Guy’s 9 Steps to Work Less and Do More, is coming out this September.

One such technique is called Five Whys, which has its origins in the Toyota Production System, and posits that behind every supposedly technical problem is actually a human problem. Applied to a start-up, here’s how it works:

1. A new release broke a key feature for customers. Why? Because a particular server failed.
2. Why did the server fail? Because an obscure subsystem was used in the wrong way.
3. Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly.
4. Why didn’t he know? Because he was never trained.
5. Why wasn’t he trained? Because his manager doesn’t believe in training new engineers, because they are “too busy.”

What began as a purely technical fault is quickly revealed to be a very human managerial issue. Traditional TPS would emphasize fixing the root cause, but I advocate a slightly different approach. It calls for making a proportional investment at each of the five levels of the hierarchy. In other words, fix the server, change the subsystem to make it less error-prone, educate the engineer, and yes, have a conversation with their manager.

That conversation is always hard, especially in a start-up. When I was a manager, if you'd told me I needed to invest in a training process, I would have told you that it would be a waste of time. In order to avoid it, I'd probably have said something like "sure, I'd be happy to do that — if you can spare my time for the eight weeks it'll take to set up."

That’s where the proportional investment tactic is so important. If this outage was a minor problem, it’s essential that we make only a minor investment. Perhaps a skeptical manager could do the first hour of the eight-week plan? That doesn’t sound like much, but it’s a start. If the problem recurs, five why’s will keep insisting we make progress on it. And, if not, the hour isn’t a big loss.

I used the engineering training example because that’s, in fact, the thing I was reluctant to invest in at my last start-up. At the outset of that venture, I would’ve laughed at the idea that a startup could afford it. And yet, after countless five whys turned up problems in training, we eventually created a rigorous training program. It was so good, we could get a new engineer productive on their very first day of work. At no point did we stop everything and invest in training. Instead, we constantly made incremental improvements to our process, each time reaping incremental benefit. Over time, these changes compound, freeing up substantial time and energy that was previously being lost to fire-fighting and crisis management.

This is especially important in a start-up, because the constant chaos and confrontation of unknowns leads to plenty of fire-fighting. If the overhead of dealing with those unknowns grows proportionally, it can drain an innovative team of the time and energy necessary to make those courageous changes in direction known as pivots. Lean start-up techniques like the Five Whys prevent entrepreneurial teams from going too fast. Yes, start-ups are all about speed. And startups that act without discipline can go faster, just like a driver can go faster with eyes closed and a maxed-out accelerator. Being in motion is not intrinsically worthwhile. Start-ups need to maximize their speed measured in validated learning and not just tasks accomplished or energy expended.

Lean start-up techniques like the Five Whys act as a natural speed regulator. If teams are going too fast to maintain their discipline, regular root cause analysis meetings force the team to automatically invest in some prevention. The more problems, the more prevention. As these prevention investments pay off, the rate of crises goes down, and the team can speed up again. And to tie the rate of progress to learning, not just execution, startup teams can do Five Whys whenever they encounter any kind of failure — including failures to achieve business results, change customer behavior, or even the failure of a proposed business model.

In fact, it’s this last case that is truly fundamental to building a lean start-up. Every business plan is provisional. When reality doesn’t seem willing to accommodate the founders’ vision, it’s time for the most important decision a start-up can face: pivot or persevere? Figuring out when to do which is the subject of the next post in this series.

Eric Ries is the author of StartupLessonsLearned.com and is an adviser to many startups, companies and venture capital firms.

Still, startups develop some kind of process — whether it's disciplined, haphazard, bureaucratic or empowering — because building a great product depends on it.

They just need to balance process with innovation. Companies that insist on building a world-class infrastructure before shipping a product are doomed to “achieve failure,” because they’re starved of feedback for too long. I learned this lesson first hand in a previous company (read the sad story here). On the other hand, companies that take a “just do it” attitude without any process at all are also taking a major gamble. High-profile startup Friendster had first-mover advantage in the social networking space, but created openings for competitors when it could not scale to meet demand.

Finding the right balance requires an understanding of the fundamental feedback loop that powers all startups. It begins with an idea, which is translated into a product via the “build stage.” When customers interact with that product, they create data, which startups harvest in the “measure stage.” And, with any luck, that data will inform the company in the “learn stage,” and that learning will influence the next set of ideas. This three-stage feedback loop sounds simple, but it’s powerful nonetheless. It gives rise to this heuristic for evaluating any process or infrastructure change in the context of a startup:

Always choose the option that minimizes the total time through the feedback loop.

In other words, any change that accelerates learning is a win, and everything else is waste. This is very different from the trade-offs that need to be made in situations where the goal is to optimize for profit, margin, or growth.

The lean movement has been preaching waste reduction for many years, and anyone familiar with those ideas will understand how it applies here. The only difference here is that instead of measuring the creation of value by our ability to produce tangible high-quality artifacts, startups measure value by validated learning about customers.

This approach clashes with classic product management and product development. The detailed specification documents that PMs demand go stale too quickly to keep up with a fast-learning team. Massive data warehousing reports used in product dev do what warehosues do well, store data. They don’t promote learning, because people learn best when presented with a small number of actionable metrics. And engineers who build heavyweight architectures may design a technical triumph, but lack the agility to adapt when the goal of the system changes radically.

Every process a startup uses operates at one stage of the feedback loop. But lean startup practices have the effect of optimizing the total time through the loop. Practices that are harmful are the ones that optimize our ability to do just one of the three stages well. For example, you can build much faster if you don’t “waste time” measuring. That’s like suggesting you can drive faster if you close your eyes and hit the accelerator. It’s true, but dangerous. The same is true for departmental structures that work like silos. They may work in large companies, but in startups they’re dangerous because they encourage people to improve at their specialized job rather than maximizing learning.

Using just the right amount of process can help startups accelerate. But, for the entrepreneur starting from scratch, investments in process and infrastructure are expensive, and take time and energy away from work that directly benefits customers. Even worse, process investments can quickly become obsolete as a company grows, and management challenges evolve. Adapting a process to this ever-changing reality requires a commitment to continuous improvement and incremental investment, which will be the subject of the next post in this series.

Eric Ries is the author of StartupLessonsLearned.com and is an adviser to many startups, companies, and venture capital firms.