Growing a business is hard. Fewer than five percent of all businesses in the US grow to be more than $1 million in annual revenues. And fewer than one percent make it to $10 million. There are many reasons why companies fail to scale: bad timing, a poor economy, ruthless competitors, or shifts in underlying political or cultural trends.
However as a business coach, having worked with dozens of companies ranging from early stage startups to successful businesses with hundreds of millions in revenue, I find that most companies fail to scale because of internal reasons not external ones.
Here are the most common problems I see. Addressing these, you'll have a much better chance of reaching your organization's true potential.
1. Dysfunctional, or non-existent, leadership team
Often, I find that the leadership team is not functioning well, if there is one at all. While a visionary Founder is needed to get the company off the ground and a great CEO is needed to lead the growth, without a solid team of key executives to head up the various functions, a company will quickly reach a growth ceiling.
One of the first things I do with new clients is to help the Founder/CEO envision the company at the next level--typically 3-5 times the current size--and have them design the ideal leadership team. By envisioning the departments, functions, and leadership qualities of their ideal teams, we set a clear goal to guide our talent acquisition and development.
2. People not aligned around a set of core values
Nothing kills a company's growth prospect more than if the people do not share a common set of core values. Your values define your priorities and the trade offs you're willing to make. If people are not aligned around a common set of values, they will pull in different directions and undermine each other's efforts.
I'm a strong believer that core values are emergent rather than chosen. I have teams choose values they feel are representative of their company and then we test them by finding examples of them at work in the choices they've made, especially the tough ones. Once we have a core set, we promote them in the hiring process to reinforce and propagate them within the company.
3. Poorly defined core customer, core product/service, and core channel
The irony of scaling is that the faster you want to scale, the more you need to narrow your focus and the less you need to offer. By choosing a core customer, product or service, and channel, you increase your chances of success because you make it easier to optimize, streamline, train, and communicate.
Many companies want to sell anything to anyone in hopes of getting more business. However, it's better to zero in on a core customer and target a core product or service so that you can streamline and optimize to increase our growth rate and profitability.
4. Too much drama in your critical processes
Every business has 5-8 critical processes that give it a competitive advantage in their market. If these are not running smoothly, it means you'll scale our problems when we scale the business.
Start by looking at the stream of value that is delivered to your customer and identify the key areas in which the business needs to be successful in order to win. Once we have the top 5-8 identified, we can then look at removing waste and inefficiencies without comprising value.
5. Failure to master your cashflow
Everyone knows the saying, "Revenue is vanity, profit is sanity, and cash is king." When you're looking to scale, this catchphrase is twice as true. Many companies grow themselves in a cash crunch because they failed to determine how much additional cash would be consumed by marketing and sales costs, additional raw material and inventory, and hiring and training new staff.
Creating a detailed cash flow map, showing how cash moves into and out of your business is the first step to getting your hands around your finances. Then, you can start making changes to your standard practices in order to optimize your receivables and liabilities, improving your position and reducing the cash demands that will be put on you as you scale.
While getting these right won't guarantee success, they can greatly reduce the chances you'll get stuck. And usually, you don't need to address them all at once. Find the one that is currently constraining the business the most and start there. But keep an eye out for the next bottleneck, and be ready to refocus your efforts.