For those looking at “Scaling Up”, a business-growth manual written by Verne Harnish, it can be easy to get lost in lofty predictions and unrealistic targets, especially during periods of hyper growth.
So, what’s the one thing this book fails to mention when it comes to system usage during scaling operations?
In Scaling Up, the book itself explains that most businesses follow an S shaped life cycle and uses animals as an example.
A company starts out small like a mouse, scurrying around for scraps in the hope of pulling together enough to get by. A small percentage graduate to a gazelle running across the savannah – they successfully scale up rapidly in a short period of hypergrowth, eventually being worth millions and sometimes billions.
After the crescendo of this growth period, the curve flattens off again and starts to decline – growth has ceased and the business has slowed down to an elephant’s pace. The company either withers and dies, or gets sold off to the highest bidder.
The grim reality is that 20% of small businesses fail in the first year. By the second year, that number swells to 30%. By the 5-year mark, half will have failed, and after a decade only 30% of businesses will still be up and running. The sad fact is that most can’t get past the mouse phase, and into the gazelle phase.
So, what does hypergrowth look like? Generally, in the period after the initial product or service offerings are defined, and before the business has truly matured, there is an opportunity for an extremely steep growth curve. Something like the company having a compound annual growth rate that is in excess of 40% - for reference, a fast-growing business would generally have somewhere between 15-20%.
BREAKING DOWN THE BARRIERS
There are a few roadblocks along the way that can pump the brakes on hypergrowth before it gets a chance to really kick into high gear. The way a business operates changes dramatically as soon as you need to hire more staff and organise a team more efficiently.
LEAD BY EXAMPLE
Hiring leaders or developing those with management potential from your team helps you put the right people in the right seats. There has to be a system in place to hierarchy of command, as well as how you can measure success, breed an environment of accountability, as well as have a feedback and rewards scheme in place to drive a motivation for excellence.
Everyone has to be moving in the same direction to achieve the company’s goals, by staying in touch with customers, the marketplace, and frontline staff to keep a finger on the pulse of current trends and where improvements can be made.
The systems you put into place have to be able to grow and scale with your business. These could be physical systems like customer databases and accounting software or an organisational system like re-jigging team structure.
The more redundancy you build into a system at the time it’s implemented, the smoother the communication and decision-making processes are as your business starts to evolve.
It’s safe to assume that the competitive pressures from rivals differ dramatically comparing companies’ worth under a million bucks, to companies worth $1-10m, and those well beyond that value.
The bigger your business gets, the more it has to run like clockwork and find efficiencies in systems and operations – however small. The aim here is to use your success to attract and keep talented staff, leave the customer with a positive experience they would recommend to others, and all the while generate the profits needed to fuel hypergrowth.
READY FOR 10X GROWTH:
There are 4 simple steps that when executed correctly, will lead to hypergrowth. Get the right people, put thought into your strategy and systems, execute the strategy to the letter, and make sure you have the cash to fuel the hypergrowth because it’ll burn it as fast as you can make it.
It takes 2-3 years to fully incorporate all the systems to support a company’s hypergrowth, so focus on one thing at a time and not everything at once or else all will be for nought. It then takes another 2-3 years to fully master the systems, and for them to become second nature and part of the company’s culture.
The big takeaway is to direct your attention on one area at a time, while considering the 4 things needed to fuel such a rapid growth cycle. It will payoff in the long run!
IT’S A TRAP:
Though this hypergrowth can be a good thing for your business, the process can leave you knocked down frame over apex, lying in the dust wondering what happened. During this hypergrowth, the business can self-destruct and implode if you let it.
A company has to sustain hypergrowth for at least a few years, and requires a constant stream of investment and re-investment to keep the business from folding. This means investors that may not see a return on their investment for years.
There are a few things to watch out for and to plan solutions for, or else your company will swell and pop like a balloon filled with too much air.
THE BUBBLE BURSTS:
At some point in time, your systems and daily operations will break down. Learn to accept this fact, and plan to deal with it when it rears its ugly head. This means having a think about problems with system redundancy.
For example, what happens with your IT infrastructure composing of mainframes and servers reaches its scalable limit and won’t support further growth. Do you switch from a traditional monolithic system to a more flexible and infinitely scalable microservices system? The answer is the latter, which can grow as you grow regardless of the rate.
A system built to support 10 employees will be stressed out to the max with 50 employees, let along 1,000. Money spent on decided on the right system from the get-go prevents spending even more money upgrading it later, not to mention the downtime being offline entails.
Whatever the system, always be mindful of capacity when deciding on which route to take. If hypergrowth is your goal, then it’s a no brainer to go with incorporating a cleverer system that will scale with your company – even if it means a larger potential outlay of funds to get it up and running.
The attitude “just work harder” is great to initiate hypergrowth, but eventually there is a tipping point balanced on a knife’s edge. There is a thin line between motivated and productive team, and a team that has become jaded and toxic after pulling constant big hours with no reprieve of acknowledge of their efforts.
Burnout breeds discontent like nothing else. You want to retain valuable staff, not chew them up and spit them out – driving them away to go work for a competitor.
Stress and anxiety lead to silly mistakes being made. There’s nothing wrong with working hard, but sometimes throwing more man hours at something doesn’t mean it gets done any better or faster.
Obviously as the business grows, there is a need to reach a wider and wider market in order to continuously drive sales which translate into much needed cash to feed to the machine.
You’ll need to funnel more money into marketing, hire staff and build a team dedicated solely to it. Be mindful that if your marketing costs start to grow faster than the increase in revenue they bring in, it’s time to chat to the marketing team about some more budget friendly options.
Marketing is a system that gets forgotten about and fall by the wayside, but is important to maintain and drive momentum in sales and in turn, hypergrowth.
So, there you have it, the little titbits that Scaling Up omitted from its pages. So long as you plan to the hypergrowth and have the correct systems in place, you should have a pretty good time.
Likewise, these systems will fail at some point, so constant re-assessment of where your capacities are versus where they need to be in order to cope with such a period of hypergrowth will allow you to keep on top of things before they run away from you – making your progress grind to a halt.
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