Achieving scalability continues to be one of the biggest challenges facing companies today. Many companies successful startup and then grow revenue, only to stall in the dreaded $2M – $5M revenue range. Several factors account for this stalling, including: initially addressing a small market segment (often regional or a niche), poor initial business models, inexperienced leadership and lack of growth capital. If a business stalls here, it can descend into a ground war of tough slogging, gasping for capital and unable to execute on the strategic initiatives necessary to scale, or adopt a growth strategy, scale and then dominate the sector. It is truly a fork in the road!
In some ways the scale up is more difficult than a startup phase of a company. For instance, a scale up requires a constant supply of working capital not just initial capital, it needs to fend off established competitors that come with larger market segments, it requires management that is experienced and positioned for the next level (usually 10x), and ultimately it needs a business model that works across multiples of revenue. Exceptional execution, leadership courage and the will to win, never hurt either!
There is hope! As Eric Ries pointed out in his 2011 book, The Lean Start Up, where the principles of Lean Thinking were applied to help get a new enterprise off the ground, these same Lean Thinking principles can be applied to help a company already operating to scale up.
The key principles of lean are: a disciplined focus on activities that create value for the customer, a market pull strategy not product/technology push, a business systems mindset that can scale, and a culture of continuous improvement infused through all levels of the organizations.
In the specific case of a scale up, I would apply this principles as follows:
• Become an expert in your market, and continuously test market fit by being in constant communication with your customers. If you are the CEO, you should dedicate at least 50% of your time to being in direct communication with current customers or future prospects. This will enable you to serve and hold your current customers better, while being agile to market changes so you can scale more quickly.
• Identify and map the value stream that creates value for your customers, and aggressively remove all non-value added activities. Either do (and do it well), outsource or eliminate. This will preserve cash that can be reinvested for future growth. Ignore the naysayers and focus on working capital accumulation and reinvestment.
• Take your new product and service offer cues from a core customer group and ensure that each new feature or product creates value for the customer in the form of decreased cost, decreased risk or improved revenue. Your constant contact with your customers will ensure you do this cost effectively.
• Invest heavily in training and development for your staff, particularly with critical thinking, leadership and problem solving skills, so the culture becomes focused outwards on the customer not inwards on politics and turf wars.
• Say no to any activity that does not ultimately create more value for your company. Many leaders get bogged down in distractions and minutiae that may be interesting, but does nothing to create value for the customer. If you want to scale fast, say Yes to what is important to your customers, and No to almost everything else.
Eamonn has a B. Eng. (Electrical) from Lakehead University, MBA (Finance) from University of Toronto, and has completed Executive Education at Stanford University Graduate School of Business. He lives in Vancouver, Canada. Follow him on twitter @EamonnPercy