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  • Writer's pictureThomas Watson

Growth Companies - Scaling a Business

Almost nothing is as exciting and invigorating as being part of a high growth company.  People are upbeat, opportunities abound, and the financial rewards can be significant.  However, a number of companies that start to grow find they can’t scale, and the growth and euphoria is short-lived.

Planning for Growth Before it Hits

Ideally you have anticipated and planned for exponential growth.  You’ve thought through whether the growth will come from a few jumbo accounts or a large number of discrete customers.  The right scaling solution varies greatly depending on the source of new business growth and the duration.  

It’s also important to evaluate whether your business is prepared to handle more than a single wave of growth.  Is your business robust, and can you manage sustained high growth?

Do You have the Cash Required?

If you’ve brought in investors who expect the business to scale to get the return required, make sure you’ve gained agreement upfront about the investment required (and the timing of those investments).  Do your financial backers support investing ahead of the growth?  Will cash be readily available when needed?  There may be a delay between when revenue is earned and recognized on the books, and when it is turned into cash.  A/R doesn’t pay bills, cash does.  It is possible to grow too fast.  

When High Growth Surprises You

One of the things that often happens when a business unexpectedly starts to grow extremely rapidly is issues emerge in one area of the organization and then move to another.  The analogy of a rat being eaten by a snake is often used (and, while that may be a bit disgusting to think about, it provides a pretty good image of how problems move from one area of the organization to the next).  What makes this so difficult for the management team that is unprepared is that just as they finish getting things back in shape in one part of the business, another, different set of issues pops up elsewhere.  This can be exhausting and overwhelming.

Gaining Control & the Questions to Ask

One way to regain control if growth surprises you is to reset customer expectations.  Quickly assess if there is a way to sequence installing sold business so customers needs are met, but you don’t compound your problems by turning on more than you can properly support.

Consider what happened.  Was it sheer volume that caused a concern or issue, or did you accept too much non-standard business?  Do you have appropriate approval processes in place for sales commitments, especially product or service exceptions (i.e., special requests)?

Other Considerations

If you find you need to react immediately and scale there are a number of other considerations.

Staff & key person dependencies – is there just a single person or a limited number of people who are the only ones that know how to do certain critical functions or tasks?  Do you have the ability to hire rapidly, or are there areas where you’ll need more people who are in tight supply or uniquely skilled?  Do you have the physical space to house all the resources that are needed?  Can you outsource, and what will be the impact on service and quality?  

Training - can you ramp up new hires quickly enough?  Are your core processes standardized (repeatable, trainable)?  How long does training normally take, and where and how can instructions be communicated and delivered?  Will those potentially large new groups of resources know how to get things done and who to consult if old processes break down?  

Leadership - can you afford to appoint one of your executives full time to oversee the scaling effort if needed?  Do you truly have someone who is capable of executing such an effort?  Do you have the management team in place to operate a large, inevitability more complex organization?  

Issues management - is there a streamlined process for handling issues?   How will issues to resolve get divvied-up?  Is there a predetermined way of prioritizing issues?  And, if a lot of the issues will fall to the technology organization, for instance, will they know how to deal with the competing demands for their finite time?  Is there a discipline in place to ensure the most forceful personalities in the organization don’t secure precious resources for less critical problems?

Processes - has authority and decision rights been delegated to the right places in the organization?  Is it clear who should be consulted and simply informed versus who has the authority to make the decisions (based on the relative impact of the topic or item under consideration)?

Are your workflows optimized?  Consider bottlenecks.  Specifically, evaluate connection points between departments / processes.  Are there places where things will get jammed-up, especially those that are hard to fix quickly.

Technology - arguably one of the most important areas to scaling a business is leveraging technology.  There is so much involved and unique to this aspect of scaling that I’ll limit the points of consideration to three areas: 1) Do your systems have contention points, where they can’t handle certain volumes on an hourly, weekly … absolute basis?

Have you assessed every area across your technology infrastructure, not just some? 2) Have you already built up technical debt, and how will that impact your ability to scale?  And, 3) Don’t short-change testing in your race to put new technical solutions in place.

One watch-out: be careful what you assume will be capitalizable, if that expense gets reclassified to operating expense under a year-end review / audit, it could severely impact EBITDA.

Crisis Management

Finally, force the time to figure out what to do if your inability to scale becomes a crisis causing clients to leave.  What damage control steps will you take?  What will you sacrifice to mitigate the situation?

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