Five years ago, I joined an organization that changed my life, professionally and personally. Entrepreneurs' Organization has helped transform and grow both of my businesses, and many thousands more, and I'm honored to call its founder, Verne Harnish my friend, mentor and investor. Since founding Entrepreneurs' Organization, Verne also founded and runs Gazelles, a company that helps businesses strategically scale.
This month I interviewed Verne about his new book, Scaling Up (Rockefeller Habits 2.0). I interviewed him with a single focus: Why do only a fraction of companies actually scale up, while so many others fail to scale? His answer was simple: they have to conquer complexity, which creates three barriers organizations must overcome in order to grow.
Go back to when there was just the founder and an assistant with a plan on the back of a napkin. This start-up situation represents two channels of communication (degrees of complexity); and anyone in a relationship knows that is hard enough. Add a third person (or customer or location or product) and the degree of complexity triples from two to six. Add a fourth and it quadruples to 24.
Expanding from three to four people has only grown the team 33%, yet complexity has increased 400%. And the complexity just keeps growing exponentially. It's why many business owners often long for the day when it was just them and an assistant selling a single service once again.
To deal with this increasing complexity, the company must grow the capabilities of the leadership team throughout the organization; install scalable infrastructure to manage the increasing complexities that come with growth; and up their marketing effectiveness. Failing to do all three creates barriers to scaling up the venture.
1) Leadership: It's hard enough for entrepreneurs to let go of many of the functions necessary to grow a business. But as the business scales, the next level of leadership must learn how to do the same--mastering the skills of hiring and delegation. If you want to 10x the business you have the 10x the capabilities of the leadership and middle management ranks, yet most companies fail to do this well.
2) Scalable Infrastructure: It's imperative that companies ramp up the systems (IT) and structures (physical and organizational) to handle the communication and decision complexities that come with growth. Without enough focus on scaling up processes, the company finds itself throwing people at problems and frustrating both employees and customers due to the increasing amount of drama created by this lack of systems and structure to the business.
3) Marketing Effectiveness: It's critical that the venture build an effective marketing function separate from sales in order to keep the organization focused on going after the right (and most profitable) customers. And this function is also needed to attract enough of the right talent to keep up with the growth of the business. Instead, marketing is often seen as glorified sales support while totally absent from the people recruiting process. This creates a significant constraint to growth.
When you remove these barriers, then that anchor you've been dragging up the S-curve of business growth turns into wind at your back and you can get your boat sailing ever faster. You can better navigate through the "valleys of death"--those points in the company's growth where you're bigger, but not quite big enough to have the next level of talent and systems needed to scale the venture. These are points where the business needs to leap from one white cap to the next or risk falling into an abyss.
In summary, growing a business is a dynamic process as the leadership team navigates the evolutions and revolutions of growth. And like the growth stages of a child, they are predictable and unavoidable.
Which of these barriers have you faced? How did you overcome them? Are there any barriers we're missing? Please let me know in the comments section below.