Successful smaller companies that attempt to grow to scale usually do not succeed. I’m Rick Williams. I sit on the board of directors of technology companies and advise company leaders as they make key decisions on the path to growth and success.
Some companies are founded by teams with a goal of growing to scale with a high-potential product. Others have been successful as smaller companies and the leadership team believes that their business model can be successful in a larger geographical market by capturing a larger market share or developing related products. Whatever the starting point, few companies successfully grow to significant scale. Growth to scale is not a linear extension of your company’s path to success as a smaller firm. In this video, I will outline the barriers to growing larger and suggest some steps you can take to improve your chances of success when you take this path.
Why Is Growth So Difficult?
The first question is, why is growth to a significantly larger size so difficult? Key characteristics of every company include its leadership, business and economic model, demand for its products, control or an accounting system, and access to capital. You may have mastered these core elements for a successful smaller company, but each will have to be transformed in order for your firm to succeed as a larger company. You will need to define what the company must look like in these categories and you’ll need to transition the operations of the company in each of these categories at roughly the same time.
A barrier for many companies is that their business models are not scalable. Products that can be produced and delivered to a modest number of customers cannot be delivered to a large number of customers. Examples are when the CEO of the company is the primary salesman and has a relationship with many of the customers, or products must be customized to individual customer requirements.
The first step on your path to growth is creating what I call a growth-to-scale profile for your company. This is what the company will look like when it has gotten to $50 or $100 million in revenue. Include each of the characteristics I mentioned: leadership, business model, etc. There may be other essential characteristics unique to your company.
Then outline a transition plan for moving your company from where it is today to the growth-to-scale profile. How will your firm get to be this successful $100 million company you visualize? This is the execution plan against which your team and investors will judge progress. Successful companies are the stories of people working successfully together. Start with your team and your key partners, the leadership team, other key employees, investors, board members and particularly yourself as the CEO. The company will change dramatically. Leadership and probably ownership will change; culture and expectations will change. Do the key players on your team buy into the plan and their roles? Are you and your partners ready to make the changes needed for the company to grow?
We all know that cash fuels growth. You will need funding commitments before growing to scale. Funders will want to see your growth-to-scale profile and understand why the company can be successful with that profile. Funders will then examine your transition plan and your execution plan. Can your team successfully implement this plan and achieve the growth-to-scale profile? With funding commitments in hand, you can launch your growth-to-scale plan. Getting clarity on these points will improve your chances of success.
Steps to Success
First develop a deep understanding of your customer and the value they see in your products. Demonstrate that you have a product that is actually scalable. Demonstrate that you have a business model for producing, selling, and delivering the products profitably. Have an open and honest conversation with your team about what this path means for them and why you and they should follow this path. Bring key stakeholders into the process. Make sure they are on board. Key suppliers and customers are examples of these stakeholders.
Growing to a significantly larger scale is very difficult. Most companies are not successful making this transition. Even if you are successful at a smaller company, you are re-launching a company if you want to grow to $50 or $100 million in revenue. Be sure that you have a large market product that your company can produce, sell, and deliver at scale. Make sure you really understand what your customer is buying from you and the value that they get from the product. Can you deliver that value on a larger scale? Are you the right leader and is your team the right leadership team to grow the company to scale? Bring on board a value-add board of directors and other advisors to make your team stronger. Finally, get the cash commitments before starting.