It has been said that businesses are like living organisms. They’re born, they grow, they mature and they eventually die. As in life, the formative years are generally the most challenging as new business ventures attempt to gain a market foothold and to establish a level of consistent and sustained performance capable of leading to long-term viability. Unfortunately, most businesses find it extremely challenging to reach maturity primarily due to an inability to scale.
Even some of the best ideas don’t make it past this phase, ultimately finding it difficult to overcome the many obstacles that stand in the way of business growth. Having a plan to address these obstacles, while not a guarantee of success, will position most businesses for growth.
Of the challenges stymying business growth, several stand out above the rest and warrant some discussion. These include operational inefficiencies, manpower, and standardization. Putting aside overall market conditions and the economy, scaling a business often depends on how effectively these derailers are addressed.
Let’s take a look at operational efficiencies. Most new business endeavors, particularly those not infused with venture capital or significant seed money, are lean by nature. They are generally founded by an individual or group with a vision of a product or service and a willingness to invest significant time and effort to make their dream a reality. While these businesses generally have the basics like email, a website, marketing content, and the like, they are typically devoid of the infrastructure and systems we would expect to find in most mature companies. Is this a problem? Not initially. In the startup phase of almost any business, ownership and even a small group of employees are well equipped to handle the business’s operations through sheer manual effort. Operational efficiency will ultimately rear its head to the extent the business grows and demonstrates a capability to deliver consistent revenue performance. As I engage with small businesses in my consulting activities, I consistently see this play out in almost every business regardless of industry. The business will reach a consistent run rate, there is a desire on the part of ownership to scale, but virtually every process in the business is handled manually, many by the owner. Taking on more business only creates more challenges. In such circumstances, many owners then encounter the next major obstacle: manpower.
Faced with a growing business and no automation, many business owners look to add manpower as a means of addressing an ever-increasing level of work. But is it an efficient means of driving growth? For businesses at this phase, manpower additions may be warranted. However, focusing these additions on supporting manual work processes, while likely necessary to address increased business volume, is doing nothing to assist the business in driving operational improvements critical to achieving efficient business scale. While businesses I have worked with at this phase are typically experiencing revenue growth, profits tend to be stagnant or in decline due to the increased costs associated with manpower. Although adding headcount as part of a plan to scale the business can make sense, it typically does so only when that manpower can be directed at driving further business growth.
In addition to the operational inefficiencies and manpower issues mentioned above, standardization proves to be another challenge many businesses face when attempting to scale. This is particularly true for businesses in the technology space or those that provide services. At the time businesses are formed, ownership is typically willing to accept customers of any type even if it means providing that customer a set of products or services which fall outside the boundary of what the business would term its “standard” offering. For new businesses, it makes sense to take this approach, as gaining a base of customers is essential to attracting additional customers, and those initial customers assist any business in figuring out how to handle business basics. However, can a business truly scale if the bulk of its customers are unique? From my own experience in building technology businesses, particularly in the software space, I would say no. For any business owner or leader, it is very tempting to capitulate to potential customers and agree to provide them with something that is slightly outside of what would be considered standard. Doing so, however, is a recipe for disaster as supporting such one-offs becomes an anchor typically requiring more resources and costs, both of which inhibit business scale. For business owners who find themselves in these situations, and many will, the best approach is to forego custom engagements. The old adage “less is more” is a good rule to follow. Just remember, a business whose customer base is custom is not a business, it’s a mess.
So, how do you avoid these pitfalls and achieve business scale? Of the strategies one can employ, those I have found most successful combine elements of three disciplines. First, investing in systems infrastructure and automated workflows as the business ramps will deliver long-lasting value while lessening the dependence on back-office manpower. Second, adding strategically placed manpower is essential to scaling a business effectively. Forego manpower that is not revenue/profit generating in favor of resources that engage directly with customers and who can help continue to propel the business. Finally, solidify your offerings. Whether you sell products, services, or both, standardize what you do. By standardizing, you will soon be capable of effectively repeating each customer engagement, ultimately increasing both the speed and effectiveness of each customer interaction, both essential attributes in achieving scale.
Sounds easy, right? Unfortunately, it’s not. But with the proper focus and right timing, you too can avoid the major pitfalls that derail business scale and achieve success.
Dennis Amorosano is the president and founder of Dendog Strategy Insights LLC, a management consulting firm focused on strategic planning, new business development and go to market execution. Providing services in the areas of strategic business planning/execution, new business development, content creation/marketing automation and technology sourcing support, Dendog Strategy Insights brings 30 years of technology marketing, sales, product planning, software engineering, and professional service experience to help clients implement strategies that yield success.