What must change in a company as it grows to reach larger scale?

scaling May 04, 2022

This is a complex question, as there are many things that must evolve with growth. We break this down into the four “gear shifts” to get through the five stages of growth shown in the image below.

The numbers above are just an approximation and can vary widely by industry and company, but are guidelines.

Each stage requires very different management style, level of planning, people and risk management. These changes must be done, or the company will go sideways or fail. And often means giving up previous lessons learned and habits in the new stage.   

Raw Startups require speed, high risk and micromanagement while the product market fit is figured out. Flexibility and agility are key, and easy to do with a small organization. Fast decisions, cheap testing and rapid feedback are required as cash-flow is likely negative and time is your enemy.  The key goal is building the product and making sure it is valuable to the initial target market.

When the early revenue stage is reached, the CEO and management must focus on figuring out and then optimizing the marketing (lead generation) and sales processes.  Basically the brain trust of intellect and critical thinking of the management team, especially the CEO must focus on this area.  Companies in this stage must also begin to document internal processes and hire a new set of employees that may double or triple the headcount rapidly as more sales, customer service and operations staff are needed with a growing customer base. Now you need the first sales and customer service people.

An established company has all the process and tools to market, sell and deliver its products and/or services and needs to begin to work on optimizing these processes and also learning to hire and train people that can do all these things with both high success and retention.  This can be a painful shift of entrepreneur that are used to “set off the pant” management and making all the decisions.  It is where most owner will fail to allow their company to grow by using more systematization.   It is why only 0.4% of companies reach $10M in sales.  Most companies go sideways from here because the founder and/or team cannot shift their style to professional management. It is also why most founders are replaced by venture capitalists with an experienced CEO.  It is a very different mindset.  Few can transition and gain the experience needed fast enough to scale rapidly.  People turnover has a very high cost, and companies must try to retain most of the people they hire for five or more years if they want to get into the expansion stage. Otherwise, the new hiring and training cannot keep up with the brain drain.

Expansion can be growth of anything over 15%, but I define scaling as targeting and planning for growth of 50% to 100% per year.  This requires reorganization, development of internal employees and refinement of the hiring, training and management systems to run at larger scale. This level of growth requires solid financial planning, capital raised in advance and a strong management team.  Generally, a senior person with ten or more years professional experience heading up each department or area of the business is needed now because each department can have many people quickly.  Growing the management team with a combination of outside hiring and leveling up current employees is needed.  Very few people can grow their professional expertise as fast as a company can scale.  Additionally, management systems must be put in place for goal setting, measurement of performance, strategic planning, financial controls, process management and optimization and to control the culture of the company.  You can read about all these systems here: www.AirTightMgt.com. Each of the six systems should be installed one at a time between seven and 50 employees. The first three should become formal processes between seven and fifteen employees, or you may never get there.

Also check out my blog where I have loads of articles on entrepreneurship, scaling and raising capital.

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Scaling a company is both art and science. The science comes from structure and proven best practices of management and leadership that have evolved since the industrial revolution.  The “art” can only come from experience and requires senior people.  Knowledge is not the same as experience. And smart is not the same as experience. Experience always wins.  Few companies and founders will survive scaling without the help of people who have done it before.  There are just too many deadly traps that no one teaches in school.

See our courses and coaching programs related to scaling here.


Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.

Call (619) SCALE06 or email [email protected] for a complementary strategic consultation

 

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