Editor’s note: This is a series of stories brought to you by Julius Bachmann, a Berlin-based founder coach, and Joyce Mackenzie Liu at Pegafund, providing hands-on advice for how to build and define a startup’s operating model — feel free to reach out to them if that’s something you need. The articles are written exclusively for Tech.eu and edited independently by our team
There’s been a noticeable shift in venture capital and financial markets more broadly. Earlier this year, we’d talked to investors across Europe and the US and noticed an important trend. Investors are shifting focus away from big vision, highly experimental, capital-intensive startups in favour of businesses that demonstrate proven economics and more predictable growth.
Today’s increasingly uncertain, time-poor, and resource-constrained environment forces businesses to transition from high experimentation to measurable growth. Whether it’s people strategy, core tools and systems, or metrics and reporting, companies need to be nimble and adapt quickly in order to survive and be competitive in 2020 and beyond.
What is the key differentiation between European startups that survive and those that thrive to become global growth companies? Very simple: the strength and agility of a company’s operating model.
In early July, David Sacks published his article “The Cadence: How to Operate a SaaS Startup” which shed light on operating models and showed how pivotal they are for scaling from 50 to 500 employees.
In this article, we’ll break down the concept of startup operating models, and show you what they mean for Europe’s leading growth companies. In later pieces, we’ll feature interviews with experts across the continent who uncover what these operating models entail in practise, and how they create value for founders, customers, investors, and most importantly, the teams and individuals driving company success.
Let’s get started with a fundamental question.
What is a growth operating model?
In order to successfully scale and achieve predictable growth, the operating model is a core concept for companies to get right early on, ideally before raising significant external capital. Despite this importance, operating models remain one of the least frequently discussed topics within our ecosystem.
Even amongst growth leaders, the term ‘operating model’ is used in different contexts, which can make the concept confusing. A key reason is that every business’s operating model is unique, and reflects its fundamental purpose: why and how does this business create value?
So, how should we define a startup operating model?
An operating model is the underlying system that enables the cadence or rhythm of your business. It is the framework for planning, executing, and learning, so that the organisation grows bigger at a consistent pace yet remains lean, becoming more efficient over time as it achieves economies of scale.
This combination of growth and agility in turn makes the business more resilient and valuable to all stakeholders — customers, talent, and investors. In fact, a sound operating model provides a sense of certainty and security amidst the chaos within many high-growth organisations.
Best practises shared by growth experts
We believe the best learning comes from asking the right people the right questions. That’s why we interviewed a range of business leaders to understand how they live and breathe their operating model within their business.
In this series, Julius and Joyce explore growth operating model best practices, and what they mean for the best European growth companies. These articles showcase how each business has built their operating model, and why it forms the backbone for the successful execution of company strategy.
- How should you design and strengthen your company’s operating model? How should company leadership define this operating model in line with company values?
- Which best practices can you use to give your teams certainty around your operating model? How can you show what your operating model means when executing tasks?
- How can an operating model help you attract the right talent during different stages of growth? How should your operating model change as your staff grows?
- What are the best tools & systems for leading startups as companies grow?
- For growing companies with a presence in multiple markets, how can an operating model help you to prioritize your growth strategies?
Along with answering these questions, these experts explained one key concept: the best operating models center on business leadership and business agility.
The best operating models center on business agility and leadership
Far too often, people talk about high-growth businesses like machines. There are inputs and outputs, resources and tools, and market needs and solutions used to create value.
Operating models revolve around the most important ingredient for scaling success — people. A robust operating model is fundamentally a leadership practice. It centers around empowering talent and cultivating a culture enabling continuous communication and transfer of knowledge; in other words, a modus operandi which governs a company’s existence.
Because of this, the operating model requires strong alignment amongst executive team and core company values. It is not an out-of-the-box solution that can be replicated and implemented across a company. Instead, it must be designed, built, tested, and measured. Then, this cycle must be repeated and the operating model refined over and over again.
A growth operating model goes beyond simple organisational elements like meeting cadence, performance metrics, budgeting templates, and funding events. These details are the rituals and artifacts that demonstrate how the organisation operates. A solid framework requires much more for a company to plan, execute, measure, learn, and continuously improve its design. This way, it supports scaling and predictable growth.
Wherever you choose to define and document your operating model, the important thing is that the design process is actively guided by company leadership. This process should be interactive and collaborative, and should give teams the opportunity to contribute. Equally, the operating only model comes to life through clear communication and repeatable habits designed to align business strategy with day-to-day execution.
As businesses look for ways to adapt and adjust to stay competitive in the current market, it’s crucial to look at how the best growth leaders put their values into practice. That’s why we’re thrilled to be bringing you our expert series on best practices for operating models.
Stay tuned for the first of our in-depth expert interviews!