The Fourth S - Scale

The Fourth S – Scale
You are ready to Scale your business if you’ve already:

• Strategized your business with a clear understanding and alignment between your corporation, enterprise, product/service, set vision, OKRs, KPIs, and prioritized your action plans for measurable outcomes
• Simplified your product, business process, and communication for higher efficiency and effectiveness
• Standardized your product, business process, and governance with automation options for optimal replicability and reliability

Scaling up your business for growth will be smoother and more sustainable as a result of this strategic and tactical work, particularly when incorporating that work with the suggestions below. With careful work, you won’t need to scale down unless you choose out of strength to spin that portion of your business off for benefit. The ultimate art and science here is to smoothly take your company to the next level by crossing the chasm (by Geoffrey A. Moore). These are infliction points where opportunities and risks co-exist, requiring holistic perfective executed with surgical precision. Each growth stage requires you to go back on the drawing board and re-evaluate your strategy, simplification, and standardization plans, particularly the 8Ms I’ve covered in the Strategy section.

Manpower    Do you have the right and enough resources?
Money            Do you have enough capital to achieve your objectives now and in the future?
Material      Do you have enough material to produce what you need now and in the future?
Method          Do you have suitable & practical plans, policies, and procedures to scale your business?
Machine         Do you have tools and machines to produce products & experiences?
Marketing      Do you have the platform to promote your services when the time is right?
Measurements Do you have the basic KPIs to measure yourselves & partners against your goals?
Mother Nature  Do you have protection against most uncontrollable events?
 
You may notice that your processes and tools may need slight to moderate modifications to accommodate successful growth.

Here are the key elements you need to pay attention to:

Securing and Growing Revenues
Securing revenues will be easy because you already created a product or service with a solid competitive advantage over rivals. Furthermore, addressing the following points will help you scale your topline more successfully:

1. What percentage of your revenues comes from your big clients or channels? What is your risk of losing them?
2. To dampen the risk, do you need to build a more substantial revenue baseline where you engage more customers at a lower price or add a subscription service for more reliable cash flow? Your higher revenue customers could be a nice add-on rather than counting your entire business on them
3. How do you address seasonality, ebbs and flows? Are there revenue opportunities to dampen the seasonality effect to spread cashflow and workforce hours more evenly and adapt to business needs?
4. How can you strengthen and improve the channel strategy? Do you need to reconsider rebalancing the emphasis between B2C, B2B, and B2B2C? If so, with what priority is less cannibalization? Even if you’re cannibalizing your business, wouldn’t you prefer being the one rather than your competitors doing it to you?
5. Are you working with the right channel partners for growth? Does your relationship complement and create a great appetite to do business together?
6. While keeping simplicity in mind, do you have a clear path and plan for product brand extension? Product line extension? Category extension? Bundle strategy?
7. Do mergers and acquisitions make more sense? If so, do you have reliable plans to integrate them?
8. Do you have the essential focus on building your brand equity in one geography rather than reaching a global market by spreading your precious resources? (This is a common mistake, particularly in small to medium size companies.)
9. Can you optimize the number of your salespeople to sell your products and services with new goals?

Great! You’re ready to scale your top line. What does that mean for your company?

Reinvesting in Innovation & Technology
Innovation is the lifeline for your business, where you identify and formulate how you will reach higher brand equity with a competitive advantage by creating new Intellectual Properties. What percentage of your revenues are you investing back into your company for innovation, research, and development? Is it sufficient for the next-generation products and services? On the other hand, you don’t want to spend for the sake of spending it, right?

Watching for the Capital Expenses
You’ve managed to scale the top line and invest back in your R&D healthily, but it won’t prevent the company from getting into trouble if your expenses exceed your revenues. The irony is the more you scale the business, the faster you could get into trouble. I had one such client that they didn’t even realize they were on the verge of bankruptcy because of that.

One such expense is capital expenses. Though they are more controlled and come with depreciation benefits, decision-makers must ask themselves if such expenditures are necessary. I’ve seen a company whose competitive advantage is in service yet; they kept their two SMT manufacturing lines and recently added six lean-lifts, all nearly costing them $16 million, the footprint of manufacturing and inventory room and inventory cost excluded. Instead, they could work with a PCBA manufacturer and get what they wanted, even at a lower product cost, while using this $16 million for further growth. This is where Make vs Buy decision-making comes into play.

On the other hand, if your business relies on manufacturing and you can do so at high quality at the lowest cost, you may consider not only keeping it for your production but also changing manufacturing from a cost center to a profit center. Keeping your productivity at an optimum level with manageable labor shifts and enough equipment would be ideal for a company that can manufacture for others, even competitors, if and when it makes sense. This also helps minimize manufacturing downtime, reduce equipment amortization costs on products, and increase revenues simultaneously.

Watching Out for Operating Expenses
The same rules apply to operating expenses. You want to keep your internal resources occupied for impactful outcomes. You don’t want to keep them for the sake of doing so. If you can outsource mundane tasks, you should do so. Not only does it save money for the company, but it keeps the employee morale up because they can focus on more important matters. On the other hand, outsourcing too many people requires more internal resources to manage outside help, which would double the cost. Keeping in-sourcing vs outsourcing is a delicate balance. You decide what makes sense overall.

Scaling requires measured redundancies in the system. What happens if a bus hits your crucial employee who is the only one with tricks of the trade? The knowledge needs to be passed on to the next generation along with proper documentation. Then, hire a few inspirational and capable resources and get a lot done.

Lastly, Don’t Do These Common Mistakes!

• Failing to share your strategy and the plan to achieve your objectives with everyone in the organization
  
• Resisting to adapt and change
• Compromising your company’s agility and flexibility for the sake of standardization.
• Complicating your systems, processes, tools, and governance
• Keeping your divisions working in silos that use proprietary systems with interoperability issues
• Focusing on many things rather than what makes a difference
• Changing directions often
• Failing to communicate the link between the grand plan and everyone’s contribution. Explain what’s causing the growth pains and how you’ll be addressing them
• Being a pennywise and dollar-fool leader. Spending on band-aid solutions and expensive gadgets rather than the money where it needs to be spent
• Hiring more and wrong people to solve problems, adding layers to the management
• Hiring in overdrive mode with plans to grow prematurely unless you’re sure there is no downsizing risk for a considerable time
• Overstretching people’s capabilities for an extensive period and delaying necessary hiring, leading them to “burn out”
• Comprising mid and long-term plans for a short-term gain
• Choosing the wrong channel partners
• Failing necessary training and succession planning
  

Additional Reading
Crossing the Chasm, Marketing and Selling Disruptive Products to Mainstream Customers by Geoffrey A. Moore
Scale or Fail: How to Build Your Dream Team, Explode Your Growth, and Let Your Business Soar by Allison Maslan
Scaling Up for Building Strong Company by Verne Harnish