In Jackson Center, Ohio, workmen are completing a huge expansion of the factory where Airstream builds the gleaming, retro-chic RVs that symbolize America's love of the open road. The new space is 94,000 square feet; when added to Airstream's existing 134,000 square feet, the final floor plan will be 70 percent larger.
That's a lot of Silver Bullets--and a not-insignificant risk. "I took a deep breath," says Bob Wheeler, who is finishing his 10th year as Airstream's CEO, "and decided the recession is over."
Wheeler is not the only one filling his lungs and opening his wallet. America's midsize companies, increasingly confident in the current recovery, are planning innovations and capital expenditures in record numbers. Fully half of these companies have new products or services lined up, and their investment appetite is at its highest level since the National Center for the Middle Market (where I am the executive director) started tracking it three years ago; 68 percent say they would rather invest an extra dollar of revenue than hold it as cash. (The Center defines midmarket companies as those with annual revenue between $10 million and $1 billion. In terms of GDP and jobs, this is the middle third of the private economy.)
But as the companies on Inc.'s Founders 40 can tell you, sustained growth is hard. We all know that most startups fail. (Not nine out of 10, as legend has it; the six-year failure rate is more like 60 percent, still a daunting number.) But how many fail to thrive? How many grow, then stall? How many big plans become modest realities? There is no data on dreams, but we've all heard the stories, told a little wistfully.
Yet there's also the story of the Container Store. Or Yelp. Or SolarCity. Or any of the companies on the Founders 40, which have gone public and on to great things--or those on the Inc. 5000, which have thrived while remaining private.
One reason that some companies plateau and others flourish is that sustained growth requires finding the right balance between developing new products and services and investing in the assets and capabilities needed to build scale. For many entrepreneurs, that's a change. Says Mohanbir Sawhney, professor of technology marketing and product management at Northwestern's Kellogg School of Management, "There are shifts in both mindset and behavior between starting a business and scaling it."
Fresh from the dynamic startup days, some CEOs find it hard to be as enthusiastic about the steady expansion of existing business, even if they recognize its importance in theory. Fast growers can strike a balance; if anything, they favor pursuing economies of scale over finding the next big thing. They are more likely to innovate than are their peers--but they are much more likely to make investments to scale by expanding facilities or moving into new markets.
"One of the biggest things I learned coming here was the concept of scaling," says Mikkel Svane, the CEO of Zendesk, who co-founded his software-as-a-service company in Copenhagen in 2007, moved it to San Francisco in 2009, and took it public in 2014.
"I don't think Silicon Valley companies have better ideas than others," he says. "It's about combining the right ideas with execution."
One way to defuse the tension between innovation and scale: Turn innovation itself into a scalable process.
Of course, any sort of big growth can be wrenching for an entrepreneur used to touching every part of the company. "Founders spend all their time talking to customers, then suddenly customer service is the responsibility of a department," as Svane puts it.
But taking the time to build predictability and scalability into customer service and other functions is essential to avoid becoming what Gary Neilson, senior partner at consulting firm Strategy&, calls an "outgrown organization, literally bursting at the seams, expanded beyond its original organizational model."
Attending to scale mustn't mean neglecting innovation. Growth can be choked off if a company fails to build the capacity to exploit what it has; but it can also stall for lack of fuel in the form of new products and services. Wise leadership is the ultimate guarantee of finding the balance between innovation and scale.
Which brings us back to Airstream. For all the classic looks of its trailers and vans, the company is a hotbed of innovation: CEO Wheeler predicts that by 2020, a quarter of its revenue will come from products it doesn't currently offer. Airstream and parent company Thor Industries guard against the conflict between innovation and scale in part by keeping completely separate the budget lines for capital expenditures and for research and development.
That puts the choice--if there needs to be one--squarely in the lap of the people who ought to have the broadest and longest view of the company's prospects. It's no silver bullet, but it works.