We have talked in this space before about the fact that many companies hit a plateau when they get to around 50 employees. There are a lot of reasons for that, but today I want to focus on one of the most common.


They plateau – or worse, they go backward – because at that level the company fails at DNA transfer.


Just so we’re understanding terms, DNA transfer is when the vision and fundamental drive of the company founder is passed on to another level of management. This tends to go fairly well the first time it happens – usually when the company hits 10 or 15 employees. That’s because the founder himself or herself trains and equips the first level of management below him or her.


It makes sense that it would go well at this point. No one knows or embodies the vision of the company like the founder. No one can do a better job of both teaching and exemplifying how leadership in the company should work.


But when the company hits 50 or so employees, now it’s time for that level of managers to appoint the next group, and this is where the process so often breaks down.


It’s not that the new group of managers is trained improperly. It’s that, most of the time, new managers are not trained at all. People are simply promoted, and responsibility is delegated to them, without any effective DNA transfer to show them how to do what they’re being asked to do.


Now you have people in charge of managing others, but without the knowledge or the direction for how to do it effectively. Even worse is that upper management often has no idea it’s a problem until it’s already set the company back. After all, they think they did their jobs by delegating. They probably can tell themselves with a straight face that they “empowered” this new level of management.


But the new managers don’t have real authority. They don’t know how to make sure the company’s vision and core values are being honored. They don’t understand what the company’s core priorities are, or why.


Also working against this group is the fact that, by virtue of their positions and experience levels, they’re simply not going to be as good at management as the group above them. That’s the group that was trained by the founder – the group that can manage competently but had no idea how to train the next group, or make up for the next group’s lack of experience.


Imagine being a manager under these conditions. You’re poorly trained. You have limited experience. And the manager above you keeps butting into what you were told was going to be your job. How can you possibly succeed under these conditions?


Few could. And this is where backward momentum is a real threat to the company. The culture the founder nurtured can disappear. Drama becomes common. And the small company that the founder used to be able to lead so effectively becomes an out-of-control entity, because there are too many pockets and situations in which it’s not clear who’s in charge.


And those who do try to manage can’t do so effectively. It’s a mess.


Too many entrepreneurs misdiagnose the problem at this point. They’ll identify a few people who are doing well and lament that they can’t find more people like that.


But the truth is they’re not building people like that. Building leaders requires training, re-training, reviews, check-ins and a constant process of learning and accountability. The top leadership of the company has to work hard at it.


Yet too many companies think they’re succeeding just because they’ve grown big enough to need more leaders. They’re at 50 employees and they decide they need another 20.


But it’s not long before one of the newly minted managers comes to the boss and says, “Look, I can maybe lead eight or 10 people. I can’t lead the 20 you’ve given me.”


Over the long term, the result of this mistake is very predictable. We’ve all seen companies that were known for great service at a certain point in time. But you come back 10 years later – or maybe 20 or 30 years later – and now they have the worst service in their industry.


How did that happen? Because they promoted leaders without teaching them how to lead. They didn’t do the DNA transfer. It worked great the first time it was done, because the founder was able to personally train the next level of leaders. But over time that gets lost, and you walk in one day and wonder what happened to your company.


DNA is not easy to transfer, and it certainly doesn’t transfer itself. The failure to do that is one of the biggest reasons so many companies can’t successfully get past the $10 million or 50-employee level.


Invest in the training, and in the development of leaders, and your company will stand a good chance of being one of the exceptions.


Written by: Wade Wyant

Red Wagon Advisors & West Michigan Scaling Up Coach