A funny little thing happens on the road to success. Often the prosperity of the business can outpace the ability of the business to maintain that success. At this point most of you are probably wondering what am I talking about. Rapid success can lead to failure? Get real. But it can. And I have seen it repeatedly in all scales of businesses over the past few years.
How does it happen? Let’s say you bring a product to market. It is received well by the public. They begin to buy. You begin to make money. All is good. You begin to advertise the product more and to different segments. Maybe you even diversify and offer variants of the original goods or services to capture a greater market share. You make more money. You are happier than ever. You spend more on advertising. More money flows in. The cycle continues.
One day you get a disturbing memo from accounting. It seems the business is losing money. Not drastically. Not in leaps and bounds but slowly over time. Even though you are bringing in more money than you ever imagined possible there is a slow bleed causing your expenses to exceed, if ever so slightly, your revenues each month.
Your first reaction is typically one of disbelief and anger. Obviously, accounting has made an error. You explain to them your grand vision, how next month you are rolling out more products and services. How revenue has tripled in one year and will double again next year. The accountant looks at you with that blank stare and says the immutable truth of business and accounting: "Numbers don’t lie."
Often as entrepreneurs we become so focused on bringing the product to market, advertising the product, and selling the same that we fail to grow all aspects of the business in unison. As a result, while the business attains its ever-increasing benchmarks in sales it is growing upon an infrastructure that is not keeping pace with the growth of the business. Flaws in management systems slowly begin to be revealed. Quality control is not in sync with the growth. Eventually a tipping point is reached in which these flaws, caused by the failure of the business to grow its infrastructure at the same rate as sales and advertising, cause the system to collapse.
Don’t think this can really happen? It does, and to some of the biggest companies in the world. Over the past few years we have had dealings with one of the largest hand-held device manufacturers in the world. Since 2000 they rocketed to success riding a wave of innovative technology and cutting edge marketing. They went from being a scrappy start-up to one of the world’s leading hand-held device manufacturers with annual sales tipping the charts in the billions.
However, over the past two years this modern titan has experienced a dramatic fall. Sales have plummeted. Once the industry’s leading innovator, today they are, in large part, viewed as a one-trick pony whose time has come and gone. Their latest products come to market with little fanfare and even less consumer interest. Last year their devices, in large part, stopped working due to some technical glitch which took days, and in some cases, weeks to remedy. They have fallen so far from their lofty perch it is now rumored among the major financial papers that the company may be forced to sell off assets to avoid bankruptcy or face the inevitable later this year. Oh, how they mighty have fallen.
How could this happen to such a juggernaut of technology? Notably, within the course of our dealings with them we noticed a few flaws in their structure that inhibited our ability to effectively communicate with the company. In hindsight, these were symptoms of fatal flaws in an organizational structure that had simply failed to keep pace with the growth of the company.
For instance, for months we attempted to reach their online marketing department through various channels only to have our efforts constantly thwarted. Discussions at certain levels had to go through a bureaucracy which was maddening. Ultimately a deal fell apart that, in our opinion, would have been extremely lucrative for all parties. Why?
The answer did not reveal itself until months later when I was having lunch with the company’s general counsel. In short, he revealed that because their company had grown so large so quickly he did not even know who to call within his own organization to get us to the right people to close our deal. In short, he had no idea who to get on the phone to complete our negotiations. Every time he tried to find out he got passed around from department to department within his own company ultimately with no one offering to take responsibility to speak with us. In short, their structure had failed to keep pace with the growth of their company to the extent that even people within the company could not determine who was in charge of various aspects of the company.
Accordingly, despite a meteoric rise to the top of one of the world’s most competitive industries, the afore referenced company is now in a financial free-fall approaching its eventual demise. What can you learn from all of this? You must grow your organizational structure in proportion to your business. Here’s how:
1. Create a Scalable Management Model
As your business grows you must develop scalable management and quality control systems. In the beginning management and quality control is easy. Perhaps your business begins only as a solo entrepreneurial endeavor or one among just a few people. Everyone has a defined role and everyone knows what everyone else’s role in the company is. Nonetheless, as your business grows and duties become more segmented among new employees, a management structure must be put in place to ensure accountability against established benchmarks as well as to make sure quality control of your goods and services remains constant.
In this regard, each position’s duties and responsibilities should be defined in writing. An organizational chart should be constructed and maintained which clearly defines who is responsible for what, who reports to whom, on what subjects, and how often. If properly segmented over time you will see your organizational structure begin to resemble a pyramid with the CEO on top and increasingly widening rows of persons with specific defined roles thereunder.
2. Define a Quality Control System
As your company grows you must make sure that the quality of your goods or services is maintained despite its increasing size. As such, you must determine what elements should exist in a quality control system and then assign the responsibility of maintaining that quality to someone within your management model.
For instance, let’s say that you run a call center that, in the early days, existed with only a handful of people. At the beginning it was easy to make sure that everyone used the same scripts and delivered the same quality of customer service for your inbound clients. Yet as you grew it became less clear who was in charge of maintaining that level of customer service on the phones and, as a result, a systemic problem has now developed within your organization. Not all of your sales team are using the same scripts. There is inconsistency in call backs of inbound customers. As a result, your sales and margins begin to slip.
To combat this you must create a quality control system to make sure your systems are being performed on a daily basis and assign a manager in your organization to oversee the same. For every business quality control will differ. If you operate a call center those benchmarks may be overall sales as measured against knowledge of the product, responsiveness, etc. For example, a factory may need to make sure that the work being performed by assembly workers is consistent so that each product leaving their station is assembled perfectly, or within measured perfection, every time. But without a quality control system unique to your business the quality of your product will flounder over time.
Once established, a manager or management team must be specifically assigned to oversee the execution of the system. You need to be able to point to one person, or a team if you are large enough, and say that they are responsible and/or accountable for the quality of your company’s goods or services. This structure, like your sales force, advertising, and other segments of your business, should grow at the same rate as the rest of your business.
For instance, let’s say your business originally consists of an assembly factory with 20 workers assembling various parts of your products. Your initial quality control systems can be managed by one full-time manager. If you grow to 40 workers assembling more and more of your products it is reasonable to assume you will now need two quality control supervisors. If you grow to 60 workers you will need three.
Now the actual number will vary for every company. It suffices to say you must know that it has to grow as well alongside your workforce. And within that growth even those added quality control team must have its own division of responsibility with well-defined roles for quality control of the company.
3. Execute the Systems 100 Percent of the Time
Now that you have created a scalable management model with a defined quality control system it’s time to make sure it is executed to perfection.
Each person within the management and quality control team by now should know their respective duties and responsibilities. Even so, you must ensure that those systems and assignments are executed without deviation 100 percent of the time. To this end, especially for small and mid-sized businesses, we have found that it is very effective to use daily and weekly checklists to make sure individuals are performing their assigned tasks in a consistent manner.
For instance, a front-line quality control manager may have a daily checklist of five quality control matters to be reviewed on Monday, seven on Tuesday, three on Wednesday, etc. They are responsible on each of those days for performing those tasks and then recording that they have been completed. The manager above them has his or her own checklist of matters to do which includes checking with the subordinate manager on a daily basis to make sure that they performed all of their assigned tasks. It is a simple system but vital to making sure the systems that are created are executed and executed 100 percent of the time.
The person responsible for executing the front-line systems reports to their manager that they have been completed. That manager then reports to their supervisor that all tasks have, or have not been done as required. If all works properly, we are only speaking about a few minutes out of the top level manager’s day to deal with the reporting of the underlying systems. But it makes sure that all of those systems are running and running to perfection.
4. Listen to the Numbers. Numbers Do Not Lie.
Lastly, even when you set up the systems and grow management and quality control systems in pace with your organization’s growth you must still always be mindful of the numbers. Numbers don’t lie. If used properly, they will tell you where additional oversight or changes are needed within your organization to increase efficiency, sales, and quality.
Returning to our opening discussion, let’s say sales are great. They are growing at an unbelievable pace. Yet your accounting department tells you something is amiss. Something is wrong. Your expenses are outpacing your revenue growth. The numbers don’t lie and they will tell you more about the health of your business than anything else.
So what do you do when the numbers tell a story you don’t like? Use them. Use them to determine what the problem is. Create a system to fix the problem and then assign it to someone to manage and create the internal systems to ensure those systems are run to perfection 100 percent of the time.