The reason most companies fail to go from small start-up to large enterprise is the failure to understand what it takes to scale up. As mentioned in a previous blog, scaling up requires several key components woven into the fabric of the company. These components are the primary focus of company leaders, for without them, the company is sure to stagnate. Likewise, there are three barriers to scaling up. If you overcome these barriers, then growth becomes a thrill and an asset to the organization. Failure to overcome these barriers makes growth an anchor dragging your company down.
According to Verne Harnish, author of Scaling Up, there are three impediments to scaling up your organization. These barriers are as follows:
Leadership: the inability to staff/grow enough leaders throughout the organization who have capabilities to delegate and predict.
Scalable infrastructure: the lack of systems and structures (physical and organizational) to handle the complexities in communication and decisions coming with growth
Marketing: the failure to scale up an effective marketing function to both attract new relationships (customers, talent, etc.) to the business and address the increased competitive pressures (and eroded margins) as you scale.
As a company grows, complexity likewise grows. During the early stages of every business, the owner is able to handle key relationships, ensure financial stability and controls, interview and hire as needed, connect with each employee, ensure quality, etc. But with each stage of growth, complexity mounts exponentially. Using the example of communication channels, with two people there are two channels of communication. With three people there are six channels, and with four people there are twelve channels of communication. With less than 0.4% of all companies reaching $10,000,000 in revenue, we can see how these barriers are rarely tackled.
Elite leadership overcomes the complexity challenge by carrying out the company strategy through effective delegation and management. These leaders become business owners within the business, “owning” and integrating a certain piece of the whole. They understand and value the culture, purpose, and values and infuse their team and operation with those things. These men and women are not mere managers working within a set standard operating procedures, but influencers of people, driving them to accomplish the goals set before them.
Scalable infrastructures are the road we lay upon which our leadership and their teams will travel. They are the ways we do business that allow us to move from 10 customers to 100 or 1000. For instance, if you have a method of delivering your service that would not work in another city or with 10x the clients you currently have, then you are setting your company up to hit an inevitable wall. Just as the systems of the human body are designed to grow from a single cell in utero to a full-grown adult, so too must a company’s systems be ready for growth.
Finally, and perhaps surprisingly, marketing is key to “getting it right” in the long run. To quote Harnish: “To prevent margin erosion, marketing’s role (with lots of customer input) is to determine the right what we should be selling to the best who’s; and how best we should sell at the right price…if not, sales teams will chase any low hanging fruit they can find which is the quickest way to defocus the business and crush your margins.”
As a business owner, your job is to see these barriers and make steps to overcome them. Regardless of the growth phase you are in, I recommend the following as first steps to moving in the right direction:
Leadership: Identify the next critical, key leadership position in your company and create a position profile for it. Define exactly what you are looking for and begin looking “just before” you think you can afford it.
Scalable Infrastructure: Over the next 60 days, create a scalable process for each of the key functions of your organization (i.e. HR, finance, sales, and operations).
Marketing: Define your ideal client, identify their deepest needs, and develop a plan to target those prospects.
Elite Business Coaching