What is Required to Scale a Business?
Growing a business is not the same skill set as starting a business!
By Bob Norton, Founder and CEO, AirTight Management
Whether you are a small and new business, or an old and established business scaling, or rapid growth, requires certain things be put in place. I have seen established businesses with $40 million in revenue explode and self-destruct in a single week because they did not understand this.
When asked by CEOs and others how do I know I am ready to open a new location, expand or grow my business I say these two things are required:
1. Understand the detailed Economics of the Business - You must totally understand the economics of your business. Some call this the "Virtuous Financial Circle". This means if I spend $x on marketing (lead generation) and $y on sales (closing the deals) that will get me 'Z' clients and net profits of exactly $XX,XXX. Of course, there are many components to this simple top level formula.
Many mature businesses cannot answer these basic questions well, like: What does it costs (fully-loaded) to acquire a new customer? What is the lifetime value of that new customer? What is the productivity of their people in delivery and servicing customers later? If you do not know these, literally off the top of your head then you are not ready to scale. Management must all understand these basic inputs and outputs before they scale or grow rapidly or they are in danger.
A typical business would likely have 50-100 of these kinds of numbers that it watched in Corporate and Departmental Dashboards that allows "running the business by the numbers".
2. Systemization - You have systematized not just the delivery of your product/service but also the hiring, training and management of all the people to do it. And the managemetn of all the processes needed to deliver it consistently. This means documentation of processes, policies, procedures and more.
Many companies fail when they try to scale because they think just "Doing the service" (or product) is enough. It is not. Running a business is usually only about 20-30% about what you deliver to the customer. The rest is sales, marketing, finance, management and many other things needed to succeed.
There are two levels of abstraction above "doing the business" which must be mastered first. These are about working "on", not "in" the business. No one would think being a doctor qualifies you to run a hospital. So why do some think that painting a car would allow someone to run a car painting shop? Or playing baseball would prepare you to run a major league baseball team? Hum?! There are at least two levels above the actual job, art or technical skill that a company provides (domain experience). They are:
1. Managing the people to do it - A very different skill set which includes management, leadership, planning, sales, marketing, operations and many others things.
2. Finding and training new people to do it effectively - And getting the people to stay long enough to pay back their training and development, which for some can take 6, 12 or even 18 months.
So How Do You Accomplish These Two "Big" Things? Big problems need to be broken down into component parts to solve then typically.
The magic is not in the "what" of things, but usually in the "how" of things.
This is where both art and talent live.
I am in the business of installing Management Systems (6) that prepare companies to scale that few companies even know they need. It takes training, consulting (design) and coaching to get people to do these things well. Literally every company that wants to scale needs all of these six systems in place before they go into a rapid growth mode. The Six Systems are:
1. Strategic Planning - A process and the experience on the team to execute that process well, or bring in help to get it right.
2. Management Best Practices - This is an art that comes only from experience and includes the 5 styles of management every professional manager should use at appropriate times.
3. Dashboards and Metrics (KPIs) - Design of these is an art that only professional consultants in this field will do well. In fact many people think they can do this but the result will be tragic. Maintenance and using those dashboards is a process that requires ongoing discipline and process as well. See six videos on dashboards here.
4. Strategic Budgeting - Also a process and one that requires the right experience to do reasonably well.
5. Process Management - The process of process documentation, training and constant improvement - Kaizen. This is about documenting your key value creation processes so you can train new people, have ownership and continually improve them too. This is key to keep innovation happening as a company grows.
6. Human Capital Acquisition and Development (HCAD) = Finding and keeping the best people and controlling your culture to be appropriate for your market and brand.
One of the key rites of passage for companies to shift from "seat of the pants" management to professional best practices and managing by the numbers with leverage it having in place good metrics, or Key Performance Indicators (KPIs). These are custom for every company based on its Strategic Plan, market position, brand and many other factors. Dashboards will frame and define what success is, improve your managers and allow complete transparency and communication among the management team.
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