John Knotts | President and Owner of Crosscutter Enterprises — Your Success Incubator.
I often hear people using the terms “grow” and “scale” interchangeably in business. They are not the same.
Growing your business is just that — you are increasing sales and revenue, and you are bringing on new customers and adding complexity to your business. The typical business response to growth is to simply add more people and systems to the team. Scale, on the other hand, is how you respond to that growth. Many people define scale as “controlled growth,” but growth and scale are separate activities.
When growing your business, the way you normally operate does not work anymore. Thus, you have to make changes to how you operate, or things will start to break, and expenses will rise uncontrollably (i.e., scale your business growth). Many business owners do not realize that they have these problems until it is too late.
Essentially, scaling your business means to adjust the way your business operates in order to continue to effectively and efficiently operate as you grow. There are five major things that a business should consider adjusting in order to scale to meet growth demands.
The first major consideration is what I refer to as “business organizational design.” When a business starts out, at most it has a business plan — typically built from a template and saved on a computer. When a business starts to significantly grow, there are several things that it needs to examine, create or adjust.
The first is its strategic plan. A business’s strategy becomes very important as the business adds employees. Otherwise, everyone starts working on their own agenda. Linked closely to the strategy, culture also becomes a very important focus for a growing business. Leadership should consider if their mission, purpose, vision and values are still valid as the business grows. Leaders can use scenario planning to tabletop test different growth plans to determine if the strategy needs to change or still holds true.
Next, a business needs to examine and adjust its operating model and operating system. An operating model outlines how the business segments its market (e.g., by industry, geography, etc.) and the end-to-end high-level process or value chain the business follows to deliver its products and services. Two common approaches for operating systems are 4DX and EOS. Both of these systems provide repeatable ways of setting, reviewing and meeting operational goals and making decisions. As an organization grows, the need for a strong and robust operating system becomes critical to navigate through business silos. A famous industry example of an operating model and system is the Toyota Production System and The Toyota Way.
The last component of design is its organizational structure or hierarchy. A business’s structure should be designed to support the strategy, operating model and operating system. “Form follows function” is a principle of design associated with late 19th and early 20th-century architecture and industrial design. This concept states that “The shape of a building or object should primarily relate to its intended function or purpose.” The same is true of an organization’s hierarchy.
All of these items should be examined and adjusted when a business is growing significantly.
Once all the above design items are finalized, the next step is to review your personnel. There are several decisions that you need to make as the business grows.
When starting out, a business tends to bring on people for various reasons, such as they believe in the business, they are inexpensive, they are willing and able, etc. These reasons falter as a business grows. Now, you need to examine if you have people with the right skills to actually do the work required.
In some cases, the business needs to look for ways to outsource certain aspects of the work. Or perhaps it needs to insource previously outsourced work. The founder of the business may determine that they are not the right person to actually lead the business anymore. Leadership begins to mean something different as a business grows. You need to evaluate what type of leadership is needed today.
The third consideration is to look at all your technology, tools and equipment. When a business starts out, leaders often buy things that are needed to solve a specific problem or meet a specific demand. However, as the business grows, these systems can fail to meet the needs of the growing business.
Technology might not be integrated, and some parts of the business might need better automation. The mismatched computers and fleet vehicles that you have today probably need to be standardized for effectiveness and efficiency.
Basically, the things you leverage every day in business need to be examined to ensure they can meet the new needs of the business’s organizational design.
People, technology, tools and equipment come at a cost. The costs to meet the new design requirements might be much higher than the business can currently afford. So, it is important that you look at ways to fund the growth.
There are many ways to find funding in a successful and growing business. The first way is to bootstrap it out of the business’s own coffers by reinvesting profits. In my experience, a strong and growing business can get loans much easier than new businesses, and it can find investors much easier as well. Also, with a solid organizational design plan, it is a lot easier to find financial support.
The last consideration when scaling a business is to review all of your processes and look for opportunities for improvements. These improvements might result in better service and support to the customer but also might save the business wasted expenses. Efficiencies found in processes can be reinvested into people and systems.
Although scaling a business can be a complex activity, it is necessary for the successful growth of the business. Simply adding people to a growing business, without taking these five things into consideration, can result in costly challenges down the road.