One of the most critical lessons is that companies can’t efficiently scale without establishing, committing to, and communicating their mission, vision, and values (MVV) — and the earlier they do it, the better off they are.

A crystal clear MVV statement provides guideposts for the entire organization to follow, allowing employees to navigate around the common walls that often impede expansion-stage companies’ growth. More importantly, they can perform that navigation without their companies’ CEOs having to steer the ship for them.

When a company is in the startup phase, the CEO drives every decision, interviews every new employee, and sets the agenda for every planning session. But as a business moves to the expansion stage and begins to truly scale, that want for control and influence begins to cause friction.

CEOs are no longer able to touch, interact with, and impact every decision and person in their organization. If they try to, it significantly impedes the pace at which key decisions are made. And if the company lacks a clear mission, vision, and values statement, employees will inevitably lean towards analysis paralysis, resulting in one of two things (or both): ineffective processes or poor organizational alignment.

Ultimately, that lack of guidance fuels massive confusion and noise among the ranks as the resource game becomes more complex and daunting. Is the company focused on growth or profitability? Is the priority clients or capital efficiency? Where do we add sales people? How do we handle under performers? Where should marketing spend dollars? Should engineers be dedicating time to new products or improving existing products? Essentially, what does the company want to be when it grows up?

All of those questions could pretty easily be answered by establishing company-wide aspirations.

As one of my colleagues, George Roberts, wrote in a post earlier this year, the actual wording of your aspirations will likely be fluid as you grow. But the basic tenants never change. Here’s how George defines them:

• Mission: The fundamental purpose of an organization or an enterprise, or succinctly describing why it exists.
• Vision: The way an organization or enterprise will look in the future. For our purposes, we look for a Vision to be 3-4 years out.
• Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization’s culture and priorities and provide a framework through which decisions are made. They are crucial in helping a company hire personnel that match the its values, and support and build its desired culture.

The bottom line is that companies can grow without establishing their mission, vision, and values. But just because a ship has wind in its sails doesn’t mean it’s going somewhere meaningful — or in the right direction at all.

In that way, it’s the CEO’s job, with significant input from his crew, to clearly set the ship’s course with crystal clear mission, vision, and values. They need to give their team a North Star to navigate toward, lessening the likelihood that there will be any deviation from that path.

One really interesting example in our portfolio is Kareo. When we invested, the company had roughly 15 employees. By the end of 2012, it will be nearing 200.

Halfway through 2011, the CEO of Kareo, Dan Rodrigues, began to notice that the company was undergoing some significant growing pains.

Dan recognized that he was becoming an obstacle to Kareo’s ability to be nimble and move quickly. Dan was also becoming less efficient and effective because he was sucked into meetings and decisions that could have easily been handled by his direct reports. It became abundantly clear that Kareo was dependent on him for all critical decisions because he was the founder and initial guiding force.

At that point, Dan launched a 4-month process to solicit feedback from the entire company on what its MVV should be. This community-oriented approach was consistent with the culture he was building and the values he was about to establish. Because he approached this process by getting everyone’s buy-in, the aspirations bled into every daily activity and decision almost immediately. Today, the employees no longer depend on him, and Dan’s schedule has been freed up, enabling him to focus on critical CEO-related activities.

While Kareo’s situation was unique on some level, it’s actually quite common among expansion stage software companies. Some companies hit that inflection point at 30 employees, some at 50, some at 75. But they all hit it. And if you’re not prepared for it well in advance by establishing MVV, it can be a harsh and ugly reality when you slam into the wall.

Editor’s Note: To get more great tips on guiding your company through the expansion stage, sign up for the OpenView newsletter.

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You wouldn’t know it, but it’s only been four weeks since Jeremy Lin played his first NBA game.  His Cinderella story has overwhelmed the social media landscape and he has displaced Tebow as the new darling of Sportscenter.

If you don’t know Lin’s story already, you can catch up by reading this New York Times article. Here’s the Cliff’s Notes version: Lin wasn’t offered a scholarship out of high school, wasn’t drafted out of Harvard, and was cut by two different NBA teams before the Knicks made him their starting point guard in early February.

Since then, he’s helped a previously struggling New York team to an 8-3 record over its last 11 games, averaging 24 points and almost 10 assists in the process. And who could forget that, in just his fourth game as a starter, he also upstaged Kobe Bryant, making a future Hall-of-Famer look like a high school basketball player. In primetime no less, and on arguably the world’s greatest sports stage, Madison Square Garden.

Not bad for a kid that was sleeping on his teammate’s couch earlier this month.

But here’s the thing about Jeremy Lin’s dramatic rise to fame: Lin possessed the talent to make this kind of impact long before he was finally given the chance. For Lin, it was an issue of opportunity (and a kiss from Lady Luck). What kind of general manager, after all, would bench a proven veteran (even an underperforming or washed up one) in favor of an undrafted (but maybe undervalued or overlooked) nobody?

In my opinion, a pretty smart one. There are numerous cases in sports where a coach or an owner’s loyalty to a long-time player ultimately hindered an organization’s ability to perform in the present and prepare for the future. The best teams, on the other hand, routinely recognize the value of young talent and make room for potentially transcendent players – even if it comes at the expense of a future Hall-of-Famer (see: Brett Favre and Aaron Rodgers, or Billy Beane and Moneyball). Now, whether Lin’s opportunity was the result of good management or circumstance, the point is that he was given a chance and he’s certainly made the most of it.

For expansion stage founders and CEOs, Lin’s story provides a valuable business lesson in talent management.

Let’s say you started your company with some trusted friends or former business partners. At the time, those founding team members possessed the capabilities necessary to get the company off the ground. But now, at the expansion stage, you’ve found yourself in a peculiar and often uncomfortable situation: those same dedicated and loyal employees are not scaling with the business. And, worst of all, those employees are probably some of your closest friends.

So, what should you do?

One way to tackle this often complicated and emotional decision is to write up a job description for the role that those individuals currently serve. Next, do your best to take that job description and match it to each employee’s current capabilities. Once you’re able to identify a mismatch, it should make it easier to communicate and justify any changes you make to your employees.

The harsh reality is that you need to objectively separate loyalty and emotion, and remove any bias about your pre-revenue employees’ core competencies. If you’re truly honest with yourself, you’ll realize that the best thing for the business is to move underperforming or incapable employees into another role or out of the company completely.

Ultimately, there’s a big difference between managing a $20 million business and a pre-product business. It is a natural evolution and as CEO you need to recognize the talent gap and make an adjustment. All too often loyalty in this situation can slow growth or, even worse, kill a business.

The key lesson here is to avoid confusing the superstar of your pre-revenue business with the superstar of your expansion stage business. You might be surprised with the talent sitting on your bench.

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Last night I was watching Boardwalk Empire and realized there are a handful of management principles to be learned from Nucky’s current predicament.  The past few years have been very lucrative for Nucky, and he has become a bit enamored with his success.  As his empire has grown, Nucky has been left with less time and energy to spend with his associates. At the same time has maintained control over most of day-to-day decision making. This has left many, including Jimmy (his #2) and Eli (brother), disillusioned.

Unfortunately, Nucky’s situation is all too familiar to expansion stage CEOs. As your company grows and becomes “lucrative,” your most precious commodity — time — becomes almost non-existent. As CEO you end up having to manage way too many constituents — investors, board of directors, employees, customers, all while your company is experiencing explosive growth. It ain’t easy.

Given this time pressure, CEOs often spend too little time understanding how their management teams and employees perceive them and their performance. To make matters worse, they also end up having a hard time letting go of the reins. In Nucky’s case, these two challenges led to the unrest. Considering this is not an uncommon problem, I thought I would pass along a few suggestions on how to improve communication and create a feedback loop. While these three concepts might seem very basic; very rarely do we actually see all three implemented.

Establish and encourage open communication across the entire organization

“I’m prepared to hear your side,” Nucky says to his brother Eli. “Because in a minute it’s going to be too late.” Clearly this is not the right way to establish a open line of communication.  One of the most common mistakes we see  CEO’s make is his/her tendency to manage up and not down.  They spend entirely too much time keeping their BOD members happy. While we certainly appreciate the constant communication, that is not how you build a lasting company and happy employee base.  Keeping your finger on the pulse of what’s happening at every level of the organization is essential for effective leadership. Some of our most successful CEOs actually make this a physical initiative, setting up an open cube environment where they sit in the middle of the entire company. It sets an egalitarian tone and gives them the opportunity to hear and feel the company, as well as increased approachability.

Another productive way to approach this is to schedule regular feedback sessions with different levels of the organization. Set up a weekly lunch with a diverse set of team members to get a true schematic view of the different departments and issues they are confronting. At a minimum, dedicate a portion of your time every week to walk around the office and talk to people in all levels and departments of the organization. Jack Welch once said he learned more walking around the office then he ever did from management or board meetings.

Implement a 360-degree review policy

It’s rare that any of us see ourselves as others do. You review everyone in your company, but who reviews you? To get a true sense of your abilities as a leader, you need to implement a once-a-year 360-degree review process, in which both your board and your team  are giving you honest feedback on your performance. (For an in-depth post about this review process, check out our podcast and transcript.)

Conducting the review is the easy part. Actually implementing change is quite difficult. Once you have collected the data synthesize it into a digestible format and share it with the broader management team. Then spend time discussing that summary with each member of the team and ask them for suggestions on how to improve. That process should result in a clear development plan with achievable quarterly goals. Make sure you are measuring your progress each quarter by soliciting feedback from all of the invested parties.

For more tips on getting effective employee feedback, check out this post.

Transparency is critical for empowered and productive teams

Transparency starts at the top. Set up an all-hands meeting at least once a quarter, possibly once a month depending on your company. Be open and honest about the company’s performance and challenges.  This helps get everyone aligned and establishing priorities. Most importantly, invite feedback and encourage questions during these sessions. By creating engagement and buy-in from you employees it will feel like everyone is rowing together.

Ultimately to become a great leader and build a lasting company, a CEO needs to establish a feedback loop, create transparency and maintain an open line of communication. Otherwise you run the risk of ending up in Nucky’s predicament. “You know the funny thing?” Eli asks Nucky. “Nobody takes power. Somebody else has to give it to them.”

I don’t know if there is a bubble or not, but at OpenView we have seen an increase in investor outreach at many of our companies. However, raising growth equity in this “climate” isn’t so straightforward. With that capital comes a long list of potential issues and questions for the board and the management teams.

Here are a few of the issues we have struggled with:

The misalignment problem
If you bring in a new investor, the cost basis for that new investor will presumably be higher than existing investors and founders. In many cases, orders of magnitude higher. A healthy valuation, while gratifying, represents some challenging questions for not only the new VC, but also the management and board. For the new investors, they wonder if they can invest enough capital at a valuation that they believe will yield VC like returns. Will that return be meaningful to their fund (this is especially acute for larger VC funds, $500mm plus)? The entrepreneurs on the other hand are trying to optimize around minimizing dilution (read highest valuation). This is no different than any traditional fundraise process, but can be way more impactful in later stages at high valuations. Another key concern for the management team is producing a venture like return for the new investor. For example, if you raise at a $50mm valuation can you sell the company for $250mm-$300mm (it’s important to note that according to new NVCA data the average exit last year was $150mm, so probability-wise things just got harder)? Early investors and the team should ask themselves a key question- if they can generate a great return at a much lower level, is this capital worth the risk associated with higher valuation? To put it more plainly, if a new investor invests at $100mm post and a year later someone comes along and tries to buy the company at $150mm, what do you do? At $150mm the founders presumably do well and the early investors do well but the last capital in does not. What happens then? Who makes the decision? Who can block the transaction? In addition, in many ways a new financing round resets the clock. If you are part of the team that has been cranking for five years and built a nice size company, do you really want to sign up for another five years? Clearly if you bring on a new investor, it’s very important to make sure there is alignment.

The control problemWho are you to tell me when the company can sell or when we can raise more money??? In a nutshell that is the control problem. New investors want to protect their investment and existing investors don’t want to cede control when they took most of the risk. This is a major friction point and there is no easy answer. These days new investors are more commonly asked to concede control to the board. But what if the board is primarily made up of folks who have a very different cost basis and motivation than the new investor? For example, the existing investor has a $50mm fund and this is his/her biggest winner. They want to make sure they capture that profit. If the new investor has a $500mm fund and they just put $15mm in, they need at least 3x to make it worth their time. That’s tricky.

The kumbaya problem
The one issue that I think many times gets overlooked in favor of great terms or brand is likability. Most companies that are performing well tend to have a productive board, and in many cases very complimentary people. When you bring in a new investor, that individual wants to immediately show their “value add”. Too often that results in a distraction for the team, and in some cases the board. Sometimes in an effort to be helpful, the new board member rubs existing board members or the management team the wrong way. It’s very hard to predict this, but think of the new investment as a marriage and spend a lot of time with your prospective new board member. Meet them in different settings, expose them to different folks within the organization and make sure that at every touch point people come away feeling positive. Ultimately, I think the best advice I have heard is to go to dinner with the potential new board member and have three drinks with them. At the end of dinner you will either want to hug them or punch them, but you will have an answer.

Clearly raising a high priced round from a great VC is validation that your business is compelling. However, I would urge management teams and boards to think through some of the issues/complications that this new round of funding brings. Lots of capital and high valuations isn’t the end to the means; in many cases it can be the start to a long road that isn’t all peaches and cream.

Over the past few years we have seen numerous industries get turned upside down and in some cases completely disappear. In the technology sector specifically we have seen companies like Yahoo and EBay completely flounder and essentially become experts in Active Inertia. They were replaced with more innovative commerce and content models (i.e. Groupon, Gilt, Facebook etc).

This year was essentially a healing year where everyone was focused on getting the ship settled and keeping an eye out for any rough seas ahead.

As we prepare for 2011, expansion stage companies need to migrate away from this defensive strategy and start thinking about how they will generate separation between their company and the competition. If you aren’t, you better believe your competition will be.

At OpenView, we encourage the management teams we work with to reflect on the year (a retrospective) before they set out to create goals for the following year. In particular we think it’s helpful to answer some of these basic questions.

- Did you meet your annual and quarterly goals this year? If not, why and what was the impediment? How do you remove that impediment?
- Did you improve the quality of the team this year? Where did you make team building mistakes?
- How has the market changed since the beginning of the year? What assumptions did you make going into the year that you now realize are wrong? What opportunity exists today that didn’t exist when you started the year?

As you head into 2011, I would encourage you to test every assumption you started with in 2010 and flip the calendar with a fresh perspective. Active Inertia is a real risk and something growth companies need to work hard to avoid. Just ask Carol Bartz when she is working for Tim Armstrong in Q1.