How to Avoid the Sophomore Slump Once a startup tops 100 employees, things start to take off -- or fall apart. Here is how to ensure success while ramping up.

By Tim Chen

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Once a startup tops 100 employees, things start to take off -- or fall apart.

For instance, one of the founders of programming platform Github found out the hard way when he stepped down earlier this year after an employee brouhaha quickly spiraled out of control. A former designer complained of a "bizarre and abusive work environment" as the personal dispute between the ex-employee, cofounder Tom Preston-Werner and his wife played out on Twitter and the pages of The Wall Street Journal.

The company apologized and took steps to remedy the management failure. "It's certain that there were things we could have done differently," Github CEO and cofounder Chris Wanstrath said in a company post.

The Github fracas reads as a cautionary tale for avoiding what venture capitalist Marc Andreessen recently described as one of the top 10 ways startups hurt themselves: Not taking human resources seriously and allowing "terrible internal manager and employee behavior to catalyze into catastrophic ethical and legal crisis."

The problem comes down to the proper scaling of communications and company culture. The hyper-growth stage is an exciting but challenging time for startups: In a small organization, it's super easy to give feedback and celebrate wins, and it becomes very obvious when someone is not pulling his weight. That esprit de corps is more difficult to maintain when you crest 100 employees or more. Poor communication leads to employees feeling disempowered and disenfranchised right at the time when you need a strong, cohesive team the most.

Here are the keys to avoiding this sophomore slump when scaling your start-up.

Remember that innovation comes from the ground up.

I've been one of the biggest culprits of this going wrong, pushing forward on projects that were extremely ill-advised. After a string of successes, I thought I knew best and didn't solicit the advice from colleagues. For instance, I pushed to build a mutual fund comparison tool that proved to be too complicated and didn't align with the curiosities and needs of the customers.

Meanwhile, I initially looked askance at making a prepaid card comparison tool. I thought the market was too niche for us. But an employee sensed there was more demand than we thought and convinced us otherwise -- and that tool has been a huge success for us. The best ideas often come from the bottom up, not the top down. The key here is to make sure your culture and communications architecture allows that to happen.

Managers must model the culture.

If managers are shutting down complaints or ideas from employees, you're basically screwed as a startup. The behavior you want from all employees has to be modeled by the managers themselves. You have to make darn sure the managers are putting company first -- passing along employee wins to the rest of the team and promoting great achievers.

The challenge for a young company is many leaders are also first-time managers. They're going to make freshman mistakes. You need to invest in coaching to ensure they have the tools they need to do their jobs.

Have skip-level meetings.

How do you know if your managers are succeeding? How can you make sure great ideas and work challenges are bubbling their way to the top? The only way to know is regular contact with frontline employees.

Related: Growing Pains: How Expansion Causes Startups to Lose Customers

Meet one on one with employees at the coalface of the work your company is doing. Your job is not to set the agenda but to listen. When you're managing a lot of managers, it's incumbent to know when they need coaching or mediation. You can't do that in a vacuum.

Avoid the "talent death spiral.'

Every employee you hire determines not just the culture of your company today but three years down the line. That's a problem when you're in a hyper-growth stage because of the pressure to find someone -- anyone -- to fill the gaps you need to accelerate growth.

To speed up, however, sometimes you have to slow down, especially when selecting employees. One way we're fortunate as a bootstrapped company is we don't have the added pressure of investors looking to make financial goals, which often spurs hiring sprees. You don't want to fall into a "talent death spiral' -- making quick hires that are technically gifted but a bad cultural fit. Any short-term gain will be lost by long-term damage to the culture you're trying to grow.

Related: The Awkward Tween Stage: When a Company Isn't a Startup or a Big-Name Business

Wavy Line
Tim Chen

CEO of NerdWallet

Tim Chen is the CEO of NerdWallet, a company focused on offering price-comparison tools for financial products. Before starting NerdWallet in 2009, Tim was a hedge-fund analyst at Perry Capital investing in payment processing companies, credit card networks and technology companies. 

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