If there’s such a thing as an anti-linkbait title this post is a canonical example, but this topic keeps coming up in conversation so it’s time to take a swing at writing it down.
The concept of the power law distribution is a common one in startup-land, whether you’re talking about venture capital outcomes, app store downloads or income inequality: many markets exhibit “winner take most” characteristics, where a small number of entities at the “head” of the distribution capture a majority of the gains, while the many in the “long tail” squabble over the scraps.
A log scale distribution is a graphing technique that allows those kinds of extreme variations in outcome to be mapped linearly, so the rate of transition from very low to very high outcomes can be visualized more easily. For example, it can be hard to see the relationship between an early stage startup (1-10 people, zero or sub-million-dollar revenue); a growth stage company (10-100 people, millions or tens of millions of dollars in revenue); and Google (tens of thousands of employees and tens of billions in revenue).
As it turns out, many aspects of the venture capital (or high-growth) business landscape map much more closely to log-scale progressions than to traditional linear ones. For people who live and work in this ecosystem — including founders, investors, board members and other key influencers — a useful thought experiment is to ask yourself: “what log scale interval am I?”
Every high growth business passes through a series of fundamental “state changes” on its way from startup to big company. At these inflection points, the needs of the business become so different that entirely new ways of thinking and acting are required for the company to continue to progress up the curve. Leaders and influencers who either don’t recognize the change, or resist it when it comes, are one of the main reasons why promising young companies fail to break through to the next level.
Are there extraordinary founders and leaders who gracefully scale through multiple log-scale stages? Absolutely. Some of the most admired leaders in tech — Bezos, Gates, Zuckerberg + Page — are revered exactly for this reason: they began with nothing more than talent and an idea, and went on to lead some of the most important companies in the world. But the story that doesn’t often get told is the cast of supporting characters — investors, board members, early hires and growth stage leaders — who surrounded and supported these founders along the way.
The venture capital market is probably the most visible side of this story, with each tier of the market corresponding (roughly) to a log-scale stage of company development: Seed Stage (where I spend most of my time) is 0-1; Series A is 1-10; Series B is 10-100, and so on up the stack through late-stage / crossover investors and on to the public markets. Good investors at each stage are specialists, expert in managing the risks and challenges that present themselves at each stage. They are familiar enough with the conditions above and below their position in the stack to know when a state change is coming, and which upstream or downstream partners are the right ones to help the company through the (often difficult) transition.
Less obvious, but equally important to the company’s chances of success, is the “stage tiering” of key leadership roles. Different business functions (sales, product, engineering, finance) need different kinds of leadership and execution at different stages of the company’s growth. The perfect VP Sales for a Series B company looks and acts very differently from the kind of leader needed after a $100M growth raise. And that doesn’t mean the Series B hire isn’t amazing for that stage, but that different types of people are needed at different scales of operation.
Because it touches the core of people’s professional lives — their sense of identity, career prospects, relationships and reputation — the “stage fit” question is one of the most difficult and emotionally fraught aspects of growth-company culture. It’s hard for high-performers at one stage to hear that they aren’t the right guy or gal for the next stage of the company’s growth. Even when delivered with integrity, that message often lands on the recipient as a back-handed judgment of performance or capacity rather than an assessment of stage fit.
One way to get in front of this issue is to have a frank conversation with your team members and co-founders about what log-scale interval (or intervals) they feel the strongest affinity for. If they’re new to startup life they may not understand the question, but if they’ve been through the process a few times — and especially if they’ve been part of a successful growth trajectory before — they’ll probably have an intuitive sense of what stages of growth brought out the best in them, and which drove them crazy (and why). Understanding your preferences for company stage doesn’t mean you’re forever stuck there, but it’s often a very helpful and liberating way of framing your professional “fit” not in terms of functional role, but rather in the temporal needs of a high-performing company passing through a certain, stage-dependent set of challenges.
This topic matters a lot to me personally because I came to understand my own log-scale preferences only through a painful (for me, at least) series of experiences at companies high on the scale curve. I tried different industries and company cultures, but finally figured out that the determining variable for me wasn’t content or culture, but stage and scale.
The joke I tell on myself now is that I’ve found a way to arrest my professional development at the bottom of the stack. Between Techstars and Founders’ Co-op I spend almost all my professional time with very early stage companies (those trying to get from zero to 1). Inevitably, this work carries me to higher stages as the companies I start out with progress up the stack, but I understand that my ability to add value decays rapidly as the company scales, and a big part of my job is to help the founders I work with find reliable guides and partners for their next stage of growth.