4 Things You Didn't Think You Would Need When You Scaled Your Business
A Note From The Editor
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In our experience, most small organizations want to grow. If you have a business model that is scalable, and you are successful, you are going to face challenges. Think about it. The needs of a business with $500,000 in revenue and four employees are very different from those of a business with $10 million or $100 million in revenue and hundreds of employees.
We have helped dozens of businesses scale. What we find is that, regardless of the industry, all businesses will encounter many of the same needs as they transition from a micro business, to a small business, to one that is much larger. Here are four things you might not have thought about but that you will need as you grow.
The truth is that the employees who got you from micro to small may not have the horsepower to get you to the next level. We have witnessed it too often. Take a business we recently worked with: The business owner has a loyal employee who has been there from the start. As the business grew, the owner promoted this person several time, and raised his compensation.
About a year ago, the owner realized that this long-term employee could not grow the division further. He was out of his depth. What the organization really needed was someone with a much broader skill set and experience.
The dilemma -- How does the company afford the new employee it needs when it already supports a highly compensated employee in a senior role? Does the owner terminate the loyal, but less skilled employee? Does the owner cut the incumbent employee’s compensation and layer him/her when it hires another, more highly skilled employee?
If the owner chooses either option, what does this do to the great morale and culture of the organization? In the case of the company described, the owner has yet to make his decision.
Our advice: The best course is not to put your organization in this difficult position in the first place. Don't raise employees’ titles and compensation above what their skills, education and experience would fetch in the open market.
In addition, have honest conversations with employees about the need to bring in additional talent as the business grows.
With most businesses, scaling means adding employees. But having more people will bring new challenges to your organization. A firm we worked with that had scaled back during the recession was on the rebound. We worked with its leadership team to assess the issues the organization face.
The list we put together was one that dealt almost exclusively with employee issues. Hiring, training, employee performance and accountability, discipline, culture, a DOL audit, and compensation issues were all on the list.
Unfortunately, the company had cut its HR staff during the recession, as well. Without daily guidance from a knowledgeable expert, the managers were overwhelmed with employee-related issues. That's why we advised the owners to hire an HR manager to help tackle the long list of concerns.
Today, the company focus is on growing sales, increasing efficiency and implementing a new software system. The company continues to grow and increase profits.
Our advice: As you scale and increase your headcount, you will encounter new and challenging people issues. You can expect to need help with recruitment and training, adding benefits to attract and retain the talent, and the regulations that come with an increased headcount. Don’t skimp on HR. You will need expert advice and council to help you through the transitions.
Documenting what you do in your organization isn’t sexy and no one will pay you a nickel more because you've written your processes down. However, scaling a business without such documentation will create more difficulties then the investment of time to create and write out those systems.
We worked with a family-owned broker-dealer, a company that executes trades in the financial markets. The family had placed almost exclusive emphasis on sales and marketing. Because the owners had little interest in operations, they never invested the time to develop appropriate systems or establish documented processes.
As they grew, however, their operations floundered. Most of the knowledge about how to do things resided in the heads of the experienced employees. Because processes hadn't been systematically written down, there was no basis for formal training; seasoned employees simply passed down their knowledge.
Unfortunately, this method was not reliable. As with any oral tradition, over time, information is lost and inconsistency occurs.
This was a problem for the back-office work of a broker/dealer, whose work is typically extremely nuanced. Precision is critical. But at the company we worked with, processors had no documentation to consult. They just did what they thought was best. But without consistent training or documentation, errors increased. Customers grew dissatisfied with the mistakes and inconsistencies.
The situation was bad enough in normal times, but the economy's unprecedented market volatility in 2008/2009 resulted in a doubling of this broker-dealer's processing volume in a very short time. The result was near catastrophe.
We jumped in to help the company determine what and how to document and met with the managers daily to identify errors, correct them and document the process. Improvements didn’t happen overnight, but the company now has the documentation it needs and a training program for new employees.
Our advice: When you start to grow, document what you do. Good process documentation has a number of benefits. It ensures that employees complete their work consistently across the organization and over time. It also lessens the impact of key employees leaving and makes training more efficient and effective. Finally, it provides a basis from which to make improvements. If you aren’t sure how to do this,you might find it worth the investment to hire an expert.
How do you know if you are winning, if you don’t know the score? When a business is small, the owner is typically involved in every aspect of the enterprise. Once it transitions from a small to a large company, the owner can no longer be involved in every detail. No one can. The business is too complicated.
The broker/dealer described above suffered from just such a lack of metrics. As we began to engage with the company, we asked the person responsible for running the back office to provide all of the metrics used to run the operation. When he responded that there weren’t any, we thought that he was being intentionally difficult. Actually, he was telling the truth.
The company knew it made too many errors, but it had no way to quantify the issue. Standards for service delivery were nonexistent; a mechanism for quantifying performance didn't exist.
The managers knew things weren’t good, but they didn’t know how bad they actually were. And attempting to make processes systematic without metrics to track results didn't work; it was never clear how much progress, if any, had been made. As we had done with the lack of processes, we worked with the management team to identify and develop metrics. This gave management the information it needed to make good decisions.
Our advice: Metrics let an entrepreneur sleep at night. They tell you what is going on in your business -- both good and bad. Without them, you have no way to know what to fix, or to tell if your efforts are effective. Metrics also go well beyond your monthly financials.
So, develop a robust set of daily, weekly and monthly metrics on key measures in your business. Again, if you need help with this, it is probably worth the investment to seek out expert advice.
Often, business owners believe that figuring out how to grow their business will be their biggest challenge. But, in our experience, success brings further trials. The four items isted above are important to a growing business. Our advice? Pay attention to these as you scale.