Why Is Proper Management Vital for IT Startups?

Nine out of ten startups fail. These gloomy figures contravene the glamorous idea that anyone can succeed with a brilliant idea. In reality, there are many aspects of founding and running a business that many entrepreneurs overlook.

The most cited reasons why startups fail include running out of cash, wrong marketing strategies, and no market need. However, there’s another reason — poor management. Today, Failory lists 48 startups that didn’t make it due to bad management. The real number is much higher.

We analyzed the most significant industry insights and explained why management is important in an organization and how to avoid many mistakes.

The Duality of Running a Startup

Most entrepreneurs and CEOs evaluate businesses by performance. Some even turn the KPI chase into a cult. It’s especially relevant for young companies: many startups are convinced that their project will survive only by showing impressive results. They postpone developing the management systems and setting up operations until “maturity”.

Boundless faith in results is one of the main reasons for a dismissive approach to processes. Some even believe they might be seen as the enemy of productivity. Certainly, any business is about making money. However, a plethora of real-life examples show that the “making money” part is not achievable without a steady operations plan for your startup.

Launching and managing a tech startup is essentially two businesses in one. It starts with the investment approach that involves everything related to the money you need to get your startup up and running. It’s mostly a mystical treasure hunt that includes market research, product idea validation, hypothesis testing, creating and launching an MVP, and looking for the first investments. But here’s what many founders don’t expect.

By the time you get the coveted money, the investors will expect you to have already established operations and understand the meaning of startup management.

The essential first step is delegation as the cornerstone of proper management. Many new founders choose to be Jacks of all trades and miss the window of the most important investment — the professionals who will take over the company administration and create the structural backbone. That’s when you need to switch your mindset to the operational approach.

The ultimate goal here is streamlining and automating all internal processes, from startup financial management to HR operations and employee training. All further scaling eventually depends on how well you build this structure. Carefully thought-through management techniques count as another part of the equation.

Vertical Hierarchies vs Holacracy

Give or take a decade ago, several large and influential companies joined the flat-hierarchy management trend. It was a logical response to the need to change the standard and often obsolete multi-level management structures. This approach revolutionized the way people saw hierarchies and productivity focusing on the idea that individuals can successfully manage themselves under the right conditions.

In 2014, the online retail company Zappos announced adopting a more radical approach (holacracy) to its internal operations. It eliminated typical corporate hierarchy, traditional manager roles, and official job titles. It was to prevent the company from going too bureaucratic and rigid.

Holacracy is a way of decentralising power that allows constructing a hierarchy so that every employee can influence the company life and has full power within their role and expectations. The authority and responsibility are distributed within a self-organising team.

However, after the 2015 ultimatum for the employees to either fully commit to the new approach or leave, Zappos “has been quietly moving away from holacracy”. While their system is still decentralized and encourages high levels of self-management, it’s no longer pure holacracy.

Following this example, another early holacracy adopter Medium also confessed that the model “was getting in the way of the work”. The publishing platform, however, defined its main management and organization principles, including ownership over control, encouragement for change instigated by individuals, alignment in decision-making, authority distribution, and transparency.

In 2021, Wharton management professor Saerom (Ronnie) Lee published a 35-page paper alleging that a lack of structured management and planning will ultimately kill most businesses. Lee found that most successful companies that start with a flat organization do develop management levels once reaching between 20 and 30 employees. 

“While a flat hierarchy can foster experimentation and creativity at the early stage, it can lead to dysfunctional conflicts and coordination failure among employees, result in employee turnover, and ultimately lead to commercial failure,” Lee said.

Supervision appears vital for employees not to lose direction. At this milestone, skillful executives prevent organizations from descending into the chaos of unfinished projects, ambiguous objectives, and conflicts.

Is There a Winner?

Neither approach will work if followed blindly. At Rocketech, we believe that every business is unique. Simply because there are too many factors that come into play, and founders should “feel” what works for their business. The main challenge is to strike a balance between control and employees’ free run. 

If you’re set to grow and scale, you must focus on building a proper startup management structure as part of your journey to the middle ground between investment and operational approaches. This strategic step lays the foundation for future scaling at a much faster pace. And delaying it until the startup is “mature” may hinder the possibility of becoming one.

The Benefits of Doing It Right

Many startups associate “business process building” with something big, complex, and intrinsic to corporations and large enterprises. In reality, it’s an effective tool to identify weaknesses and eliminate them. Constructing the structure and splitting it into separate yet linked operations allow you to see how the system will behave at different stages and plan more precisely.

Seamless HR Operations

It’s where the people management operations start. Experienced recruiters and HR managers cost a lot. But they are essential: they are responsible for shaping your team and the company’s mental climate. Corporate culture and team building are not just hype terms. After all, we spend 1/3 of our lives at work.

Besides, streamlining routine processes like on- and off-boarding, employee training, and performance management helps significantly reduce the cost and time of the operations. Imagine inventing the same procedure whenever your company hits a 1000-employee milestone.

Employee Wellbeing

Management is first about people. It’s hard to believe, but employee well-being is still a huge issue today. The 2020 study, conducted by the Aalborg University Business School and Olin Business School professors, linked the pay-for-performance model to “long-term and serious mental health problems in employees”. The research concluded that performance-based pay led to anxiety and depression.

Scared employees may perform well for a while. But how far will your startup go if the developers are only assessed by the number of code lines? While proper management is vital, it should encourage initiative, idea generation, and personal growth. It’s the employees who are responsible for the quality. And happy workers are more productive.

Quick Adaptation and Increase Productivity

Most successful startups involve the community of practice, knowledge-sharing, and mentoring activities. A clear understanding of the roles and responsibilities also boosts productivity, as employees (including the new ones) don’t have to spend time looking for information or colleagues who have that information. Well-established communication and a lead-by-example management style ensure team continuity and effective collaboration.

The Rocketech Approach 

At Rocketech, we believe that wise management and internal processes are much more than a chain of actions described in a document that no employee reads. It’s a roadmap that provides stability, business scalability, and a consistently high level of product or service quality.

By combining the two approaches, startups can avoid making mistakes that often become fatal. A business is a powerful machine that needs direction. That’s why startup management is important. We specialize in process building and micro-processes perfection and apply our balanced management approach to every project and activity.