Sample frameDay 335·Entrepreneurship · Growth

Good morning. The way you've been running this is exactly why it's about to stop working.

Entrepreneurship.

The Crisis of Leadership

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The question

The way this business runs today — everyone talking to everyone, decisions made in the moment, all of it passing through you — was chosen when there were four of you and has never once been reviewed since: at what headcount does it stop working, and how far past that number are you already?

The idea

In 1972 Larry Greiner, then an associate professor of organisational behaviour at Harvard Business School, published a piece in the Harvard Business Review arguing that companies don't grow smoothly. They grow in long calm stretches he called evolution, each ending in a short violent one he called revolution — and the revolution is always caused by the management practices that produced the calm before it. Five phases, five crises, in a fixed order; skipping one is tempting and, he warned, doesn't work. Growth through creativity ends in a crisis of leadership; direction ends in a crisis of autonomy; delegation ends in a crisis of control; coordination ends in a crisis of red tape; and collaboration ends in a crisis Greiner left as a question mark, guessing at people worn out by permanent teamwork. His summary of the pattern is the line to keep: a major solution in one period becomes a major problem at a later one. The first crisis is the founder's own. A company gets built by people who make the product, know every customer and coordinate entirely by talking to each other — which is exactly what works at eight and exactly what fails at forty, because employees in growing numbers can't be managed through informal communication alone. Greiner's argument is that this isn't a failure of effort, so effort can't repair it. Repeating the practices that built the company is precisely what stops the next phase arriving.

The framework

01
Diagnose the phase, not the person.
When things start jamming, the instinct is to find whoever's underperforming, and there's nearly always a plausible candidate because everybody is stretched. Greiner's phrase for that is pinning the blame on a current development, and his instruction was the opposite: know where you are in the developmental sequence, or you'll impose the wrong solution. The question isn't who is slow. It's which management practice you've been running, and whether the company has outgrown it. Get that wrong and you replace a good person, run the identical system, and hit the same wall four months later with less goodwill in the building.
02
The arithmetic that ends the informal phase.
Coordinating by everyone talking to everyone has a hard ceiling, and it's arithmetic rather than attitude: with eight people there are twenty-eight two-way channels to keep warm, with twenty there are a hundred and ninety, with forty there are seven hundred and eighty. No amount of effort scales like that. So count the people, count the channels, and name the method you're actually running — informal all-to-all, one person directing everything, or managers deciding their own patch. The phase you're in is the method, not the headcount, and the crisis arrives when the method stops carrying the load.
03
What are you willing to be worse at?
Greiner's remedy for this first crisis is blunt — locate and install a strong business manager the founders can genuinely live with — and founders stall on it for a reason that isn't sentiment. It's standards, and the standards are usually real. You do write the proposals better, price the deals better, handle the difficult client better. Installing management means those things get done less well for a while, by somebody still learning, while you watch. That isn't a side effect to minimise; it's the price of the phase, and refusing to pay it is how a company gets permanently stuck at the size one person can personally hold.
04
The crisis after this one already has a name.
Greiner's other warning is that solutions breed problems: a decision to delegate eventually causes a problem of control. Install the manager and you buy a stretch of growth through direction — which ends, in his sequence, in a crisis of autonomy, when the people below that manager know more about markets and machinery than the top does and find themselves torn between following procedure and using their own judgement. Days 49 and 128 hold the mechanics of handing authority over. What this morning asks is smaller: name now the person who'll be first to feel over-managed, because that's the next revolution and it's already scheduled.

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