Successful smaller companies that attempt to grow to scale usually do not succeed. The barriers to growth beyond $5 million – $15 million in revenues to a significantly larger company are very high.
I’m Rick Williams. I serve on the Board of Directors of technology companies and advise company leaders as they make key decisions on the path to growth and success.
This is the second of three videos during which I’ll give you an overview of the issues to consider before attempting to grow your company to scale and how to improve your chances for successfully growing to scale.
In the first video, we looked at the essential requirements for your company to grow to scale. In the second video, we’ll develop what I call the growth-to-scale profile for your company: what the company will look like when it reaches the significantly larger scale you envision. The third video describes the execution plan: the plan for moving your team and the company from where it is today to the at-scale company you envision in the future.
I will also describe the overall growth-to-scale plan for the company. This plan will become the foundation document behind your business plan, investment proposal, slide deck presentations, and financial planning.
What Will the Larger Company Look Like?
You believe the business you own or lead has the potential to grow significantly larger. You want to get started on this growth trajectory.
If the plan is a generalized notion that is mostly in your head and your concept is that your company will only be doing more of what it is doing, selling, or making now, you probably will not be successful.
My suggestion before starting down this path is to carefully describe what the larger company will look like at scale, how you will make the transition to that new company, and develop support from your team, your investors, potential investors, and your key business partners.
You Can’t Do it All By Yourself- The Role of Teamwork
You may believe that you have been successful without much planning or engagement with outside advisors and consultants. But the first lesson about being a larger company and growing to become a larger company is you cannot do it all by yourself.
Be realistic about the demands on your time. You and your team are already running a successful business. While keeping current operations going, you’re taking on an added, complex and important job: developing the plans for the company of the future.
At-Scale Profile: Core Elements of a Business Model
I will focus now on what I call the growth-to-scale profile. This is an outline of what the company you imagine will look like once it has successfully grown significantly larger. The primary elements of a company’s business profile can usually be characterized in five components:
Leadership: leadership of the firm and cultural norms
Model: this is an economic model
Products: the products you will sell and how they will be sold
Systems: the control of accounting and operations
Finance: capital requirements and access to capital
Your vision for the company in a significantly larger scale will be unique to your company and your team. Start with these core characteristics of your company today and of the company of the future. If there’s another core element unique to your situation, just add it.
The core elements of the business model—the financial profile, operating systems, and corporate culture of your company as it exists today—will probably have to change in order for the company to grow larger. Companies that successfully relaunch themselves and grow to $50 million or $500 million in revenues adopt to the scaling requirements of these categories.
Every industry and every business is different, but let’s look at these five company characteristics. For each of these, you’ll develop a profile of the company as it is today and develop a profile of the company when it is operating successfully at a larger scale. This is the at-scale profile. You also describe the changes required to move from where the company is today to the at-scale profile.
Leadership and Cultural Change
The leadership and cultural change from a successful startup or an established smaller company to rapid growth-to-scale is often the most difficult transition. Loyalty to the team must change to a cultural performance. Different skills will be required, from the CEO to the production staff. The organizational structure will change as the company grows, and operations will be more systematized and formalized. Leadership and cultural change does not happen immediately, but you and your core team must be clear-eyed about the changes needed for your company to grow.
The business model is the second category. The company must deliver its products in high quantities at a quality acceptable to customers with market-rate costs—and make a profit.
Product and Product Strategy
The product and the product strategy are next. The product or service that customers are buying may seem obvious to the smaller company with close customer contact. This may not be so clear to a larger company.
The product strategy, or the product you’re selling—should also be reconsidered as part of the transition to scale. Moving from selling the hardware to selling the service of using the hardware, or giving the product away and selling access to your customers, are change product strategy examples.
Consider the implications of the digital revolution in your products. Who will sell the product or service—direct, distributors, resellers, etc.? High-touch selling to a small number of clients does not scale to successful arm’s-length selling.
Accounting and Control Systems
Accounting and control systems are important, and often overlooked, essential competencies for the business. Startups and small companies can get by with simple accounting and operating systems with minimal need for integration and specialized IT infrastructure. Growth requires more robust, integrated, enterprise-wide ERP and operating systems.
The final category to be defined is financing. Cash and credit fuel growth. How will a larger company be capitalized? How will growth be financed—and on what schedule? Banking relationships you had when running smaller company will almost certainly not be adequate for a rapidly growing company. New equity is usually required and the ownership of the company will change to some degree or even materially. Growth companies are frequently short of working capital and capital for product and market development. Success requires a very careful and disciplined approach to cash requirements of the business and the sources for that financing.
Can the Larger Company Be Successful?
The growth-to-scale profile is your concept of the successful company at the larger scale you imagine, as expressed in these business characteristics. Part of this process includes demonstrating that the larger company can be successful. Do you have new customers, potential business partners or potential investors who are saying that they will support the company if it goes down this path?
The support of investors and other business partners will hinge on whether you can persuade them that the new business you describe can be successful. While defining the company and its business model at a significantly larger scale, you also characterize the company as it as it is today and outline changes required to get to the at-scale profile.
Creating an Execution Plan
The next step is developing an execution plan: how you will make the changes necessary to move from today to the future company, and on what schedule? Creating the execution plan will be the topic of the next video. We will then combine the ownership plan, the growth-to-scale profile and the execution plan into the overall growth-to-scale plan for the company.