It can be difficult for any founders to manage the complexity of a growing company. It’s possible that your company’s scaling challenges are not unique to your business.
Understanding the scaling challenges that most startups face will help you to identify patterns and avoid issues.
What is a scaling plan?
It can be premature to think about the growth potential of a new business. Not laying the foundation for future growth early will lead to many avoidable challenges. It’s therefore important to develop a comprehensive plan of action that takes into account your current business status as well as potential expansion.
A scaling plan will help you prepare for future customers and business opportunities. This will ensure sustainable growth within your company.
How Businesses Fail to Scale
To avoid failure, business leaders must agree on the company’s products, ideal clients, and internal processes from the beginning. Before scaling up, it is important to solidify these elements as they define the business model of a company. This is the main reason why some startups don’t scale, because they lack a clear idea of what their business should be.
Jeffrey Rayport, Harvard Business School Professor, says that if you understand the archetypal problems associated with rapid scale-up you can design for scalability. There are early decisions that can be made to reduce risk.
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Rayport, when asked to describe these challenges, breaks them down in what he calls “The Six S Framework”. Or, rather, the six areas that founders should concentrate on while building a venture. They’re:
- Staff
- Shared values
- Structure
- Speed up
- Scope
- Series X
Take a look at each of these areas and their potential impact on the growth of your business.
Applying the SIX S Framework
1. Staff
You can’t scale your venture alone. You need to hire a talented team who are highly motivated and believe in your company’s mission. The right talent is crucial for startups with limited resources. According to McKinsey , high performers are 400% more productive than average employees. This productivity number increases to 800% as roles become more complex.
It is easier to hire people who are capable of doing the job when a business is growing rapidly. Apple’s founder Steve Jobs said , “Go for the cream of cream.” It’s easier to turn back if you make a compromise early on.
Rayport advises that you should set high standards for your first few recruits. You can’t compromise with the first group, as they will be the ones to spread the values of the organization. They’ll soon be hiring performers similar to them and the next wave.
2. Shared Values
Rayport says that shared values are the culture of a company and define how employees work together, interact and solve problems. As people learn to work together and overcome challenges, certain patterns emerge and are eventually consolidated into shared values.
Rayport says that “Most startups are characterized by a culture which is a reflection of their founders’ personalities or values.” “Most founders don’t realize the impact they have on the culture of their company.”
De-personalizing core values is one of the most difficult scaling challenges in culture. It makes them feel less like individual mantras and more like an organizational fabric.
Rayport says, “You must make implicit values explicit by writing them down.” It’s crucial to distinguish between cultural inputs and outputs. The majority of ventures define the culture that they desire, which is the output, rather than determining what founders can do, or the inputs to achieve this culture.
3. Structure
The structure of your company is critical to its success. The number of decision makers should increase as the company grows. Once the company grows, founders cannot be involved in all aspects of it. You should either hire seasoned leaders who have specific skills, or train employees to thrive in environments that require more specialized roles.
It can be difficult to train new employees, but it pays off in the long run. The founders’ vision is all about creating leverage. This means not only hiring the right people but also structuring their roles in the organization to encourage growth. If you don’t let go, your organization won’t scale.
Amazon CEO Jeff Bezos encourages failure. He once said in a letter to shareholders, reported by Business Insider: “Failure is part of invention.” It’s not an option. “We understand this and believe that failing early and iterating till we get it right is important.”
4. Speed up
It’s important that you stop and evaluate how quickly you should and can grow once you have proof of product-market match.
Rayport says that many tech ventures believe you should grow as quickly as possible. “But the question should be, ‘How quickly is too fast’?”
Most businesses accumulate ” Technical Debt” as a result of scaling what is working rather than perfect. Tech debt accumulates over time and leaders must find a way to reduce it. This is the only way to create robust business systems, and stable infrastructure that can support increased scale.
Rayport advises that it’s best to pay off your tech debt while you scale. If you’re in a position to take advantage of a new market, you won’t wait months to put your house in order. You will have to upgrade your systems and infrastructure sooner or later. Marshall Goldsmith said it best: “What got you here will not get you there. Each stage requires a different set of approaches.”
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5. Scope
The other side to speed is scope. Where do you search for new opportunities? When should you start thinking about expanding into new markets or geographies, or creating additional products and services? When you begin to scale up, it’s easy for your focus to slip. But having a roadmap of growth options can help.
Rayport says that one way to categorize your options is to ask, “Will I grow if I sell new products in existing markets or if i expand my existing products to new markets?” “Make decisions firmly to determine your direction.”
6. Series X
Rayport says that financing is a valuable resource. It’s also important to know how it aligns with the growth strategy. Capital is usually required to hire additional employees, build the necessary infrastructure, and streamline business processes. You must know the type of financing required to support growth, and where to cut costs.
Rayport says that founders make the mistake of converting variable costs to fixed costs early. Rayport says that many ecommerce companies have made the mistake of rushing to own their own fulfillment centers, rather than relying upon third-party vendors.
How much fixed overhead can you afford to have while maintaining maximum agility? Rayport uses cloud computing as an example of how businesses can keep fixed costs flexible. Owning a datacenter is it crucial for your business at this point?
Your company must be able to respond and adapt if there is a shift in the market or a downturn. This is nearly impossible without a flexible financial structure and a cost structure that can be adjusted.
How to Prepare for Scaling
It’s important to predict the growth of your business as an entrepreneur. This is one of your most important strategies for success. This requires the right people who understand the mission of the company and share its values, as well as strengthening the internal structure and processes to prepare for the unprecedented change. You can be confident that your company will be able to meet any measure of success by applying these key areas.
