We have now covered all the main areas in previous posts to tackle in order to successfully navigate through the startup phase. We will now move to the next stage of your business growth – scaling up! (This assumes that you have customers, employees and are at least near or at break even if not making some profit.)
That is the good news! Here is the not so good news:
Now you have to unlearn almost everything you have learned in the start-up phase (please see my companion post). In order to make sure you scale in a healthy and thriving fashion, you must identify all major business decisions you made along the way, revisit them as a team, and re-make them in a deliberate and thoughtful fashion.
You will keep some, discard others and modify the rest.
Until now, most of your progress was made by making decisions on the fly. Some may be correct but others may hurt you down the road. Some of those can be deadly as they may lack warning signs until it is possibly too late.
DO I WORK HERE?
Speaking of warning signs – for example, what if one of the founding or early managers hires poorly. That lack of skill can have enormous repercussions as you scale. Those poorly hired people may turn into managers who will then hire other people. Over time, this cascading practice could have an insidious effect on culture and performance. You could find, as founder, a few years down the road, that you come in one day and do not recognize your company anymore. The well-oiled machine that took your blood. sweat and tears over many years to build is now dysfunctional, moving at glacial speed and the competition is crushing you. Worst of all, you don’t like coming to work anymore at your own company!
Over the next several posts, including this one, we are going to cover why most businesses fail. We will then work through the four critical decisions you have to get right to build a company of steady growth and high value.
The decisions we will cover are the following:
- People – How do you create a harmonious culture of accountability?
- Strategy – How do you create a strategy that is simply stated (by everyone in the organization) and one that drives sustainable and predictable revenue?
- Execution – How do you optimize your profit in a drama-free workplace?
- Cash – How do you create sustainable sources of cash to fund your growth?
Here is a list of companies that made these four decisions right:
- Red Hat
Now let’s pivot to why, arguably, most businesses fail.
GROWTH – THE SILENT KILLER
Growth is one of the major reasons (if not the main reason) why businesses fail. It is the silent killer of business.
Here is a great example of a company that grew too fast but survived – remarkably, by slowing down.
I just heard a great podcast with Yvon Chouinard, founder of Patagonia. He talked about his experience re: the growth of his now $750M business over its fifty-year life of the company. He mentioned how he lived through two main growth types over that time:
- Fat growth – Growing for growth’s sake which can lead to eventual death due to uncontrolled expansion or similar affliction.
- Strong growth – Growing thoughtfully and deliberately balancing productivity and people keeping the customer at the forefront perpetually.
A start-up can be driven to scale prematurely (usually by its well-intentioned investors) especially before it has nailed the product market fit. A scale-up can suffer from what Patagonia’s founder mentioned above by growing out of control usually in a haphazard fashion. Your organization may also get stuck due to an incomplete strategy and/or one that is poorly executed and/or possibly issues with the senior team that affect the organization negatively at all levels. As the senior team goes, so goes the rest of the organization.
There are many ways that organizations can fail. However, companies that improve and/or endure over many decades or generations typically do the same few things well. I like to use a modified version of the Anna Karenina principle that Tolstoy writes about in the novel of the same name to articulate this phenomenon.
“Successful companies are all alike; each unsuccessful company fails in its own way.”
Although it does not apply 100% across the board, it is pretty accurate.
I have been lucky enough to hear (Ret.) General Stanley McChrystal (Commander of JSOC), CEO of Red Hat, James Whitehurst, Greg Brenneman, CEO that orchestrated Continental Airlines turnaround and Alan Mulally, CEO of Ford and Boeing, all speak this year. They all told basically the same story about how they were able to become successful. Some had the odds stacked against them and were in very unfamiliar situations.
How did they do it?
They did a few extremely important things very well and they all revolved around people, strategy, execution, and cash. The four decisions eery company has to get right to scale up.
Next time, we will start with PEOPLE as this is a keystone “decision” that affects everything else in your organization. I will share the principles behind this important decision and provide some stories to reinforce them.
Thanks for reading!
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