Modern companies can achieve virtually unlimited, highly profitable growth, called scale. This article gives proven steps for achieving scale.
In the "old days", businesses grew, they did not scale. Businesses could only achieve stair-step growth by adding overhead and additional resources:
You can still see this growth barrier in place if we look at a professional services agency. There is a maximum number of hours you can bill each consultant. Beyond that, you need to add another resource before you can grow revenue. There is a chicken-and-mouse game between growing overhead and increasing sales.
In today's tech world, growing has been replaced by the ideology of scaling. This concept refers to growing revenue at a fast rate with a minimal increase in resources. Startups that are ready to scale startups can have found a repeatable customer acquisition model, often referred to as product/market fit. Rather than incremental growth, throttled by the need for additional long-term resources or assets, these firms can face virtually endless and accelerating growth for the foreseeable future.
Take the digital travel pioneer and giant Expedia as an example. Until the mid-1990s, if you wanted to book travel, you would generally buy through a travel agency. From the agency's standpoint, once their agents were busy, they could only grow by adding more personnel. Further, for an agent to research air or lodging options, they would call a provider or broker, who had the same human resource limitations.
Expedia eliminated those constraints. Using the Internet, buyers could help themselves - no agents. Through APIs, they could contact countless providers simultaneously reducing that wholesaler's barriers as well. With electronic delivery, even the distribution of their products could be sold endlessly with nearly zero marginal cost to Expedia. (The number of airline seats or hotel rooms, on the contrary, remains under the limitations of asset constraints.)
Forget opening another retail location, Amazon had revenue of $178 billion in 2017 with just a handful of physical outlets. Of course, they did this by eliminating the brick-and-mortar retail business. Plus the retail employees. Plus the delivery trucks, which have been outsourced to the United States Postal Service.
While Amazon does maintain there own warehouses, they have turned what was traditionally a cost center into a revenue generator. Anyone can sell their goods on Amazon without ever touching Amazon's physical assets. Or, for a fee, products can be fulfilled by Amazon. With an endless assortment of products and outsourced delivery, Amazon experiences few of the constraints that are currently decimating the traditional retail industry.
Let's say you ran a taxi service. You would attempt to have great marketing and efficient dispatch to best monetize your drivers and cabs. Regardless of how successful you were, your revenue is limited by the lessor of your number of vehicles and driver shifts.
There are no such limitations for Uber, the largest tech unicorn (or their biggest North American competitor, Lyft, valued at a not-too-shabby $15.1 billion). These companies, like Airbnb, have turned the general public and their hard assets into a ride service with infinite scale. Drivers purchase the car and gas and absorb the wear and tear while these sharing economy titans earn potentially unlimited commissions.
Here are the steps to scale like these tech industry icons:
Every marketing expert knows that "nothing kills a bad product faster than good advertising". For tech companies, the mantra shifts to "nothing wastes more money than scaling a business without product/market fit."
"74% of high growth Internet startups fail due to premature scaling," according to research by Startup Genome. What does that mean for your business? Before you invest resources in marketing, sales or infrastructure for scale, make sure you know:
Jim Collins wrote that "Good is the enemy of great". A business with modest growth goals can afford a few good people. A company that wishes to scale must be stocked with great employees. This is especially true of first hires and team leaders.
Building a world-class team has employees that are:
Do not think of these new employees as bloat, bureaucracy, or red tape. They are necessary, partially based on the amount of work that will need to be done. They are also important because the right-sized teams make managing a growing business, and solving a changeset of problems, feasible. A clear hierarchy and teams with a specific, known purpose give management and employees clear direction and reduce the cognitive load that can impede progress.
CFO asks CEO: What happens if we spend money training our people and then they leave?
CEO: What happens if we don't and they stay?
No matter how great your people are, there is always room for improvement. Promote within the organization that getting assistance is a sign of strength, not weakness. A mentor program is a great place to start. Encourage employees to find mentors in different functions, and even different organizations, so they can see issues from unique perspectives.
Training is another factor in helping strong people help your company scale. As people move into new positions, you want to overcome the Peter Principle. Training employees today to succeed in their next position is one of the best tactics.
Just like the "city so nice they had to name it twice", no, this is not a typo. Supporting your team's people skills is just one aspect of supporting great employees.
Your use of technology is another. Don't waste strong talent with menial tasks. Rather, create a smart office and automate everything. Office automation makes direct financial sense - if you can spend $1,000 per year on a visitor management system that allows your admin staff to work on higher-value projects, the system will pay for itself in a week.
Becoming a digital office also has indirect financial benefits - your best people are not going to stick around when they learn they are doing administrative tasks their counterparts at other firms are not. Automation will allow you to access data faster, make decisions faster, hire candidates before competitors can, and move everything that impedes scale away.
Here are the tasks to automate before you try to scale:
This is the crux of success. While we have listed the various channels and tactics below, ultimately, you should already know your most effective communication channels and have a repeatable sales process. At this stage, success is all about efficient execution.
Here are the marketing and sales tactics your organization should be used to scale. Perhaps a few are not required based on the specific attributes of your business and target market. Most growth companies though will have most of these in operation.
Know your metrics (or KPIs, key performance indicators) and have targets. Monitor the results of your efforts regularly. Leadership should know and be thinking about this information often. Actively discuss what is driving variances - whether positive or negative - so you can swiftly develop action plans to course-correct them.
Everyone in the organization should know why their role is important and how it ultimately supports the organization's ongoing sales and marketing efforts.
For a low overhead, high margin business, it is easy to fool yourself into believing that scale will solve your cash flow issues. On paper, it seems like all of that incremental margin will go directly into the bank. In most scenarios, however, growth deepens cash problems. Rather than eliminate problems, growth just introduces a different set of problems - and costs.
Little hampers growth more than a cash crisis. Your growth efforts stop. You lost people. Customers and key vendors lose confidence in you. If you are planning on growth, be prepared to make it a continuous process without gaps.
The solution is to hire a strategic CFO who has experience working with scaling firms. By hiring, it could be in-house or outsourced depending on your exact need. This person should be tasked with measuring financial results against the plan and optimizing the use of cash. They should also have an ongoing effort to network and make the firm attractive to potential sources of future capital - venture capitalists (VCs), private equity (PE) firms, banks, and alternative sources of cash.
The goal, of course, is to beat your growth plan. Doing so limits how often you need fresh cash to support your growth efforts. When you raise equity, you dilute all current owners (including employees who are calculating an existing as part of their compensation). Raising debt adds risk, compliance, and general complexity. Your CFO should also present alternative ways to meet your cash needs: rewards or investment-based crowdfunding, selling invoices (often called factoring), reducing outstanding accounts receivable (becoming more efficient at collecting customer payments), increasing days outstanding on vendor payments, and carefully monitoring overhead expenditures.
"And knowing is half the battle"
Thanks to G.I. Joe we know that as you grow, existing and even new competitors are going to adapt. The best brands know their customer and are able to maintain focus on serving them well.
Customer needs and competitive offerings change regularly though. These can have a major impact on the success of your go-to-market efforts. Your ROI might decrease in one channel, or the appeal of a product might be diminished by competitive activity. You must be aware and ready to adapt yourself to maintain accelerating growth rates.
Here are some ways to regularly take the pulse on market changes that might affect your firm:
Not only do most startups fail, but very few entrepreneurs have also built more than one unicorn, defined as a startup valued at $1 billion or greater. So while you might feel that the success will never end as you prep for a period of scaling, and while everyone wants to affiliate themselves with your firm, "success can be fleeting".
To achieve the scale you need to work hard. At the same time, it is important to recognize this might be the most successful period in your career. Enjoy it. Your team around you will take notice and similarly put the organization and their work in perspective too. When they are focused on scale, they will be more productive than if they are stressed about scaling the company around the clock.
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