When I was in high school, one of my favorite classes was physics. I had a great time conducting various experiments, including building and launching a rocket. After months of learning the theory and working on our model, launch day finally came and we all marched out to a soccer field and took turns launching our rockets from a soccer field. When my turn came, I nervously walked up to the launchpad and after a few minutes of fumbling around, I launched my rocket high into the sky. In fact, my rocket ended up going higher than anyone else’s in my class. I was very proud of that moment and ended up keeping the rocket as a souvenir. How was I able to get my rocket to go so high? I’ll explain in just a minute.
Fast forward fifteen years and I’m helping to run a company that has survived the startup phase and is now confronted with a whole new problem set — scaling up. Scaling a company requires a fundamentally different set of business mechanics than the startup phase. In the startup phase, a group of people are running around trying to develop a vision, recruit an all-star team, find product/service-market fit, building great customer experiences, and make everything repeatable and scalable. In the scale-up phase, the quick, nimble, iterative approach begins to break down. The problems you deal with begin growing increasingly complex and you’re not able to move fast and break things as easily as you did before.
I was trying to explain to our senior leadership why simple solutions in the past weren’t as effective now that the company had surpassed a certain revenue threshold. I paused and realized that the same technique used in launching my rocket back in high school could serve as a powerful analogy on how we could continue to successfully scale our company. The conversation went something like this:
“Let’s reframe the issue. We’re no longer in the startup phase of our company — we’re in the scale-up phase. Think of putting a rocket into space. It’s an incredible balancing act. The more things you put on the rocket, the more fuel you need, but the more fuel you need, the more mass you’ve added which in turn needs more fuel for lift off. You can’t just put all these things into the rocket and expect the same amount of fuel you planned initially to get it off the ground. That’s how things are in the scale up phase. Yes, we’re adding more sales to the pipeline and our accounts are growing bigger. However, we need more streamlining of business processes for this added activity and we’re not factoring those processes in our workload.”
Then there was an “a-ha” moment and everyone got it. We wanted to focus on the simple building blocks like sales and accounts. But the business had evolved and needed much more activity that we felt wasn’t real “work”. It took some getting used to but we came to the realization that these new activities were the additional fuel we needed to take the company even higher.
What were these functions? I’ve listed them below. These are seven, simple functions you need to take into consideration when your company is in the scale-up phase:
Cash flow becomes critical in the scale up phase. Here, you need to have proper book-keeping, accounting, payroll, and a line of credit. This data determines almost every major decision the company will embark on from marketing to sales to hiring to firing to compensation. This information also affects how you engage customers. For example, you may determine that a specific customer that was great when you were small isn’t providing you enough revenue and you have to let them go. Conversely, you may discover that the customer you least expected has a great lifetime value and even though they gave you smaller contracts, they have been repeat customers or have provided you referrals or are a great brand that attracts other customers. The only way to make strategic decisions effectively is by looking at the financial data which must be easy to access, accurate, and structured properly.
When you’re in scale up phase, you’re going to deal with a host of contracting issues concerning clients, employees, intellectual property, and compliance with regulatory agencies. Entrepreneurs typically hate lawyers because they don’t like restrictive nature of the law and they see it as an expense. However, as a company scales, a lot of decisions will be simply beyond your area of expertise. It’s better to spend the money up-front on good legal counsel then have to learn some hard lessons and end up engaging in legal conflicts that will be far more costly than if you had invested in legal services from the get-go.
One of the key metrics in marketing is net promoter score — how likely is it that your customer will recommend you to others. Since our company is based on a B2B model, referrals are critical to growing accounts. Good account management and business growth go hand-in-hand. You need to make sure that all of your company’s work is on time, on budget, and within scope. You can’t do that if you aren’t tracking how each account is performing on a regular basis. 20% of your customers will generate 80% of your revenue. Why risk keeping the customers that are providing your company so much value with poor customer service? Make sure that the customers are being provided value and if the relationship ends for whatever reason, do so in a way that is respectful and dignified to both parties. You never know when a customer might come back or send you future business from other sources.
In the startup phase, marketing is an after-thought. Word of mouth marketing is the main driver of sales. In the scale-up, you need to devise a marketing strategy that suits your business. You need to consider whether all the collateral you produce has the same brand idea and is consistently applied throughout the organization. If you value great customer experiences, that should be reflected in every paid ad, website, and offline experience customer has with your company. For us, our key marketing strategy evolved from social media to word of mouth marketing, RFPs, and thought leadership in the form of white papers, blogs, and speaking at events.
Sales is the hardest part to build into a system but it is by far one of the most critical processes. A business mentor of mine recently told me “Your pipeline is your lifeline.” In other words, always be selling. However, it’s not enough to do things haphazardly but build it into a system. Everything must be tracked and incorporated into the financial model. There will be some resistance to bringing transparency and accountability to the sales process, but these are all part of the learning pains of building the company to handle the weight of more business. Moreover, it’s critical to connect the sales team with the accounts to ensure that each sale is actually in congruence with the capabilities of the company. You don’t want to sell something that brings in a huge amount of revenue but the team is incapable or handling (an HR problem) or unable to handle due to other commitments (a project management problem). Communicating early on is key to ensuring that sales are done as part of clean, efficient business operations.
(6) Human Resources
Early on in a company’s history, decisions like hiring, firing, and compensation are often made arbitrarily. That doesn’t work when a company scales. A company’s greatest asset in the creative economy is its people. Retaining talent — especially design, tech, and marketing — gets more and more challenging as the economy shifts from a manufacturing to knowledge and creative services. Make sure that the company makes clear what the business model is, what the staffing needs are, how fair market value compensation is determined, how people can progress, setting up training programs for skills development, and providing competitive benefits.
Technology is no longer limited to the IT department updating legacy systems, it is a key part of every company’s business strategy. Big data, cloud computing, and the Internet-of-Everything demand that businesses adapt or die. Make sure that your company has a clear vision, staffing strategy, and environmental scanning process and, more importantly, that all of these activities are aligned. Learning and training must be baked into not only the tech team, but the entire organization. Everyone must learn basic tech literacy and the major trends that are disrupting almost every single sector and market imaginable.
By incorporating these processes into your company, it’ll help you go farther than you could ever imagine. Without them, your humble little startup will eventually collapse under its own weight and come crashing down to earth instead of launching into space.
What else do you think is critical in the scale-up phase of a company? Share your thoughts below.