Scaling
I have been quite fortunate to be in the right circumstances to become a student of growth and scaling. I have made quite a few mistakes and watched others make a few more. My first experiences were in an unlikely setting, a subsidiary to a Fortune 100 company, where I was part of a team that sustained over 150% Compound Annual Growth Rate (CAGR) in revenue for five years. Then a start-in in a small publicly traded software company grew from concept to $10M/year in less than a year. Next, a privately held software company growing at 300%, then a PE backed turnaround where growth had stalled with cash losses so severe the survival of the company was in question. Then, I managed the launch of an international joint venture driving explosive growth from concept to over $80M/year, and then a turnaround of a publicly traded but still largely venture held company whose growth had exposed serious performance issues. In pure venture, I launched a software company that experienced strong initial growth and then ran the turnaround of a 4x Inc. 5000 company. I also was part of a national level growth partnership that sustained its tenth year on the Inc. 5000 in 2018. Along the way, I have learned a great deal about what does and does not work.
In my experience, the key to successful scaling is a combination of many factors, all of which have to be present and coherent. Those factors include:
Leadership and stakeholders around them that all can evolve as the company evolves
A product or service that is in demand and stays in demand; in other words a well-constructed product / service management method
A guide or plan to how the products, services, and company will evolve in order to prevent the company from doing the right thing at the wrong time
Alignment of the investors, leadership, team, and other stakeholder
The vast majority of companies that make the Inc. 5000 list only stay there for a two to three years and then drop off. There are a number of systemic reasons for this, the qualifying criteria looks at 3-year CAGR, growth as a percentage drops as the revenue base increases, and some companies who make the Inc. 5000 realize the effort to be qualified may not be worth it for them. The biggest reason, however, that sustained growth is not achieved is because the company never actually had all of these in place or they fell out of place. This phenomenon is true of all high-growth companies.
There is a great deal written about leadership; the key to leadership in a scaling environment is in the evolution and flexibility required to demonstrate that leadership. It is true that the core to all phases of leadership is setting a vision, developing a plan to get there, aligning the people and resources required to perform that plan, creating the proper environment for the journey, and then measuring and adjusting. That core is present in all phases of growth, but how it is done evolves. It is also true that setting a vision, developing a plan, and aligning are often done in an iterative coherent way due to the simple truth of human nature that we all tend to be much more aligned to what we help create. In the early days of launching and scaling any enterprise, leadership means getting in there and doing it yourself while also providing the core. As the company grows, it attains the ability to hire more great people and the act of providing the core leadership functions becomes more complex. Scaling leadership requires the ability to delegate more and more of the non-core functions as growth occurs and focus more and more energies on ensuring the core functions translate through direct reports to the entire company. Those transitions require an evolution of skills, focus, perspective, trust, knowledge, tools, and processes. That evolution can also require that we recognize the limitations of those we have brought into the company and ourselves. That recognition can lead to some painful decisions. For most of us, these challenges are significant.
Having a great product or service that stays in demand requires a well-constructed product/service management methodology. The truth is that great products and services are created by a discovery and development process that requires an inward (who you are) as well as outward (who the market is and what they need) process. That process must shift methods during the evolution of the product or service and then run in multiple parallel streams, at different stages, as the company grows. The method to initially discover a product or service that is in demand and prove it is more flexible and dynamic than the more methodical process to explore the right combinations of features, pricing, and target market. Then, once product / market fit is achieved, the method shifts again to develop and prove out the models for marketing, sales, onboarding, development, deployment, support, and sustainment. Once these are proven, the method shifts again to utilize and optimize these models while continuing to explore the feature and pricing space as well as identify additional markets and product / service potentials. Having this proper evolution of process and having it highly coordinated with the performing elements of the company (marketing, sales, development, etc.) as well as the finance, people, and technology infrastructure is absolutely critical to successful growth.
Many high growth companies I have worked with, including many turnarounds, have gotten themselves into tremendous trouble because they did not have a plan to guide the product / service and company evolution, or that plan was not appropriate for stage and stakeholder interest. The truth is that rapid short term growth is very possible without all the elements in place; I have worked with many companies that found a great product for a well-defined market and realized 1000% CAGR for a year or two and then fizzled. A corporate development plan has to follow a process to ensure that all of the elements are in place before rapid growth is realized, that those elements mature and evolve while rapid growth is occurring, and then that rapid growth is sustained by evolution of existing products and introduction of new products. That requires a plan that recognizes the proper order of evolution, the impacts of resource limitations, the process for evolving those resource limitations, and also aligns the interests of all stakeholders for risk, growth, investment, control, earnings, and timing.
Finally, alignment is a key element. Many companies I work with see alignment as the most important. In my experience, I have seen well-aligned teams be driven off a business cliff to the detriment of everyone involved. It is key but not the only issue. Alignment is achieved in three ways. First, by the leadership team of the company understanding and planning (not merely accommodating) for the interests of all key stakeholders which includes, customers, employees, investors, partners, and the community. A second powerful way of driving alignment is to involve stakeholders in the planning. We buy into what we help create. The ever-constant way of driving alignment is by driving the messaging home to the entire team through leadership behavior. This adds another element to the evolution requirement for good leadership.
If you are entering the scaling phase or well into scaling, you might see some of these issues in your company. The symptoms usually start with friction between functions of the company. Sales trying to design the product instead of sell it. Marketing confused over what market to target or the value proposition. Customer management or field services receiving many complaints. Technology teams challenged by far too many priority ones and many unhappy about tools, culture, direction, and confidence. The symptoms will then generally show up in metrics including revenue, revenue growth, customer complaints then churn, profit, employee complaints then churn, and the more detailed metrics around process underlying these numbers to the extent they are measured.
If you are seeing any of these symptoms or just want to get your company better focused for sustainable growth, we can help with ensuring all of these elements are present in your company, please contact us.