In recent years, spurred by the era of zero interest rate policies (ZIRP), startups have been on a hiring spree, scaling up their teams with little regard for the impending complexities and inefficiencies. This approach has often led to bloated organizations with layered hierarchies, slowing down innovation and decision-making processes. However, as we pivot away from ZIRP, startups must adopt a more sustainable model for growth. Rather than scale up, you can scale out product-engineering teams to enhance profitability without compromising agility or innovation.

The Death of the Scale-Up

Scaling up—increasing headcount to boost output—inevitably leads to a rapid increase in overhead and organizational complexity. Each new layer of management dilutes communication and slows down decision-making, hindering the organization’s ability to respond swiftly to market changes. The exponential growth in complexity not only strains resources but also stifles innovation and creativity.

It has been helpful when companies spent 50% of their senior staff’s time simply interviewing and onboarding to continue growing at breakneck speeds. It also made it easy to provide a feeling of momentum and progress for the employees: whoever wanted to could propel up the managerial ladder quite fast. It didn’t demonstrate too much value in creating viable businesses though. That’s not how one gets to profitable product-engineering organizations.

Scaling Out

In contrast, scaling out emphasizes retaining the agility and effectiveness of smaller, cross-functional teams. This model allows teams to own projects from end to end, directly aligning their efforts with business goals. Such a structure not only reduces overhead but also enhances transparency regarding resource allocation for each business initiative. Moreover, it offers a more diverse career progression path, where moving between units and expanding one’s breadth of experience is valued over climbing the traditional managerial ladder.

Scaling out inherently fosters a culture of efficiency and impact. Unlike the opaque nature of large, scaled-up organizations where waste can hide in the shadows, a scale-out structure makes each team’s contributions directly visible. This transparency creates a clear link between effort and business outcomes. Teams are leaner, more focused, and primed to deliver impactful results.

Real-World Examples: Companies like Spotify, 37Signals, and Buffer have exemplified the benefits of scaling out through their organizational structures. Spotify’s famed squad model allows small, autonomous teams to rapidly innovate and respond to user needs, fostering a strong sense of ownership and accountability. These companies demonstrate that scaling out can cultivate environments where creativity and productivity flourish, even as the organization expands.

Is scaling out as straightforward as scaling up? No way. The latter is about pushing for more of the same mindlessly. The former requires actually taking the time to consider business goals and creating a clear strategy that is then mirrored by the organizational structure. That’s actual leadership stuff, not just cargo culting things you happened to read online. If you need help creating such a strategy or creating a team worth leading, reach out.