It’s difficult to overplay the tech industry’s impact on re-thinking organisational strategy. While “people are our greatest asset” might have been a trite corporate poster in the ‘90s, the emergence of Chief People Officers, talent wars, and sky-high engineering salaries has validated the view that technical innovation is predicated on a skilled and high-functioning team.
And now the tech industry is experiencing a second People revolution. It’s not enough to have great individuals as the company scales. They need to operate within an effective system – one with a clear vision reinforced through aligned design, ways of working, and culture – to thrive. But this is easier said than done, and often doesn’t emerge as a priority for founders until things go wrong.
While VCs are well ahead of the curve on valuing talent, increasing the focus on organisational strategy in due diligence is an opportunity for both investors and management teams. Discussing organisational design, organisational effectiveness and culture can help uncover strategic dependencies and risks that VCs should consider carefully before making an investment. But it also helps founders reflect on where they’re heading and align with investors on an organisational roadmap to get there – an important starting point for an effective long-term partnership.
Organisational Strategy – The Missing Link in Due Diligence
Before looking at how to incorporate organisational strategy into due diligence, it’s vital to understand what it is and why it matters. Organisational strategy consists of the core strategic choices a company makes to align their organisation, people, and culture to their strategic objectives. Because every company will have unique strategic objectives, it follows that their organisational strategy should also be bespoke.
Unfortunately, these choices often aren’t made consciously to enable the broader strategy. Rather, decisions around how to organise the company or who to hire are a result of convenience, personal preference, or the desire to replicate what’s worked elsewhere. But this misses a fundamental point. The goal of organisational strategy is to define the core systems and capabilities needed to support the other strategic choices – commercial, technological, and operational. Lack of organisational strategy should raise a red flag, as it highlights the risk that the company won’t have the internal capabilities it needs to deliver externally.
This is particularly true in high-growth tech where scale, pace of change, and investment far outstrip other industries. An organisational strategy creates the scaffolding for the company to grow quickly by making it clear what the company will and will not do. Not only does this support the executive team when they’re forced to make difficult tradeoffs quickly, but it ensures managers understand what success looks like. Aligning on an organisational strategy that supports hypergrowth is easier to do before the company doubles in size and can save considerable time and effort in needing to overhaul structures, processes, or teams that won’t scale.
How to Incorporate Organisational Strategy into Due Diligence
While it shouldn’t be an expectation that every founder is an organisational strategy expert, it’s helpful for VCs to understand if this is a priority or blind spot in a management team so they can be appropriately supportive after an investment.
VCs can ask the questions below in the due diligence process to uncover how a leader thinks about organisational strategy. It can be helpful to run these questions by several members of the management team to get an understanding of how widely shared they are.
- “What experience, capabilities, and systems do you need to achieve your goals?” Typically, leaders are aware of the commercial, technical, and operational needs they have, but organisational needs beyond headcount aren’t often raised. Before they invest a considerable proportion of funding on hiring, it’s useful to understand how clear the company is on how they should be organised, what skills and competencies to be hiring for, and how they will ensure they’re operating effectively to achieve their goals.
- “How does your org design support your strategy?” This question drives at the philosophy (or lack thereof) that underpins org design. Some CEOs believe having a very small leadership team promotes higher performance and trust, while others have huge leadership teams to increase functional representation. Some believe autonomous squad structures are crucial to fast decision-making, while others prefer a functional system because it forces collaboration and decision-making from the top. And some don’t have a good reason for their org design– it just evolved that way. No matter the answer, it’s telling and can be a helpful starting point for designing the optimal organisation for the future.
- “How will you evolve your ways of working for the next stage?” There are two goals with this question. The first is to understand how aware a leader is of the challenges ahead, and the second is to ascertain what steps he or she is taking to address them. It’s well known that experienced founders tend to de-risk the business, and a critical part of that is their ability to anticipate what lies around the corner. If a founder isn’t experienced or thinks their current playbook will work for the next stage, it’s often a sign they could benefit from a mentor or coach who has gone through the journey before. Organisational effectiveness initiatives like re-thinking communication, decision-making, or prioritisation should feature prominently here.
- “What type of culture is essential to achieving your mission? Is there anything in your current culture that won’t serve you in the next phase?” The definition of culture is historically fraught, but in this context, it encompasses company artifacts (e.g., values on the wall, dress code, office space), shared assumptions (e.g., what is/is not funny, what good looks like), and behaviors (e.g., how decisions are made, how conflict is handled). Culture forms in the early days of an organisation and becomes increasingly difficult to change as the company grows. But oftentimes shared assumptions and ways of working that may have served the company in an earlier stage of growth may no longer be fit for purpose – think Facebook’s early motto “move fast and break things”. These questions should tease out the behaviours and beliefs necessary to achieve the company’s goals, and what they might consider evolving to better serve them in the next phase of growth.
- “What do you not do as an organisation?” Strategy is all about decisions, and founders choosing what not to do is just as important as choosing what they will do, particularly after raising a large investment round with few strings attached. It can be hard to say no to lavish office spaces and endless employee perks when it seems like everyone else is doing it unless there is conviction on how it will support the mission. And there are also crucial decisions to be made around ways of working and hiring (e.g., will the company permit brilliant jerks?). Saying no explicitly creates guardrails that define what is and isn’t permitted. Doing this early on will keep the company focused financially, culturally, and strategically on what matters.
The answers to these five questions will outline the principles (or lack thereof) guiding the organisation, how prepared they are for the next stage, and to what extent leadership feels comfortable discussing the organisational strategy. This latter point should not be taken lightly – most founders will be quick to talk about their go-to-market strategy or growth targets, but being able to articulate their vision for how the company will evolve is just as important to long-term success.
With this knowledge, VCs are better positioned to effectively assess management teams against the organisation’s future needs. But equally important is the opening to work side-by-side with the management team after investment on their organisational roadmap, which will lay out a timeline for making critical hires and introducing new design and/or ways of working to support the organisational strategy. Through this type of support, VCs cement their role as helpful and experienced thought partners in the organisational strategy space, which will only continue to grow in importance within tech.
Read about our recent Organisational Strategy projects here, or get in touch to book a 30 minute consultation and discover how we can support you or your portfolio companies.
