Breaking News:Scaling a startup: Why you must focus on the ‘who’ as well as the ‘what’– What Just Happened

Passion for the “what” – the product, the technology, or the market – is a critical asset for aspiring entrepreneurial leaders. Yet, during times of hyper-growth or scaling, this focus may become a serious liability. Take Derek Sivers, the founder of CD Baby. He told an interviewer that he set up the company to scratch an itch and to sell his own music CD because “there was just nowhere else to do it”. His passion turned CD Baby, at one point, into the largest online independent seller of music. Yet, this same passion and singular focus on the platform led Sivers to ignore growing “people” problems as the company scaled. “I let the culture get corrupted,” he said later. CD Baby survived, but Sivers did not. He stepped down as CEO and eventually sold the company. He was unable to transform his passion for the “what” into a focus on the “who”, which would have enabled him to scale up the business sustainably.

Entrepreneurs attempting to scale up their businesses must focus on the “who” because of the need to harness the collective wisdom of a rapidly growing C-suite and workforce. They must learn how to “scale up” their relationships as well as their products, which doesn’t always come easily to people who have had to relentlessly focus on their products to even reach this point.

In a 2022 Journal of Management and Organization study, David Sluss (with Danielle Cooper, Daniel Morrell, and Bryant Thompson) found that leaders approached their work relationships with one of two mindsets: exchange-based or belonging-based. In the former, the leader provides resources, and the follower (i.e., the employee) shows effort and commitment to their work. This simple and effective exchange drives a high-quality relationship – the follower knows where they stand with their leader. In the latter, the leader creates a shared sense of belonging and identity by getting to know the employee. As a result – as Sluss (with Rob Ployhart, Glenn Cobb, and Blake Ashforth) found in a 2012 Academy of Management Journal study – an employee’s work identity is largely formed by the relationship with the leader which, in turn, determines how much they connect and feel aligned with the organization. It guides their choice of performance goals and their persistence in striving to reach them. Entrepreneurs tend to focus – dare we say, over-focus – on being more exchange-based or transactional than belonging-based. For example, a 2020 study in Frontiers in Psychology by Yixu Tong found that entrepreneurs tend to engage in transactional leadership behaviors at the expense of transformational leadership behaviors. This is especially true of entrepreneurs with multiple startups under their belt. Given this tendency, we argue that focusing on fostering belonging-based relationships, not just exchange, is crucial for leaders as their organizations scale.