Ep. 18: OpenAI Sama-Saga: Davide Sola - Failing to Scale Governance as Startups Grow Rapidly Leads to Crisis

The stunning rise and fall of companies like OpenAI reveal what happens when governance fails to keep up with exponential growth, says Professor Davide Sola, an expert on scaling tech companies. ⬆ Sola points to OpenAI as a prime example. Just 18 months ago it was a small research project. Today, after unlocking ways to commercialize powerful AI, it has over 700 employees and has attracted over $1 billion in revenue. “But was the infrastructure, including the governance, built 18 months ago ready to be scaled at the same speed?” asks Sola. Clearly the answer was no. 👶 What typically happens with hyper-growth startups, explains Sola, is “the governance was still structured on the top with a research type model, not prepared for commercialization and billion-dollar investments.” The board was initially put together for a non-profit research organization, not a booming tech company. 🚤 When growth hits warp speed, upgrading governance is urgent but often put on the backburner. “As the speed picks up and the progress of the company accelerates, that’s one of the least priorities,” says Sola. Founders and investors alike tend to stick with what they know to avoid diluting control. But this failure to adapt and bring in more outside expertise leaves the company vulnerable, no matter how brilliant the founders. 🎯 Key Recommendations for Good Governance Sola lays out three main areas startups must scale up together with some urgency to avoid governance crisis: 👩‍⚕️ Human capital – Expand and diversify boards and management teams to match the size and complexity of the growing organization. 🏛 Legal oversight – Continually update corporate bylaws, legal oversight mechanisms and organizational structures to provide appropriate checks and balances. 👀 Oversight processes – Institute robust governance processes that empower the board to guide and restrain management as needed through exponential growth. 🇩🇪 Sola emphasizes that the smartest founders recognize their limitations in governing billion-dollar organizations requiring vast areas of specialized expertise. “It takes much longer and you tend to see much less big scandal” in countries like Germany where two-tier boards provide more oversight, notes Sola. 😎 “Really it was a very adult behavior of a very senior manager,” says Sola of Microsoft CEO Satya Nadella’s handling of the OpenAI controversy. The lesson is that with exponential growth, even the most brilliant founders and funders need to scale up governance just as urgently as the organization, or risk seeing their creation fall as fast as it rose.