NOTE: This is post is part of a series called, How To Build a Scalable Company. Here are the other posts in case you missed them:
Part 1: The 5 Phases of Scalable Companies
Part 2: The 4 Types of Scalable Founders
Part 3: Overcoming the 8 Constraints To Scale (you are here)
Wanna go even deeper? Click here to access The Scalable Operating System Mini-Class
Why are 5-year-olds more excited about their birthdays than 55-year-olds?
Both have cake. Both have presents. Both have friends and family. On the surface, both should be equally fun. After all, another year lived is another year worth celebrating, right?
But turning 5 is a “BIG DEAL.” (If you don’t believe me, just ask any newly-minted 5-year old, and they’ll tell you.)
But what about turning 55?
Or even 25?
Not so much.
At some point, birthdays just become less exciting, don’t they?
Why is that?
Setting aside all fears of our own mortality, I think the answer is actually quite simple…
Think about it. When you go from 4 to 5, that’s a big deal. You aren’t just a year older, you’re 20% older. That’s a lot!!
Now consider aging up from 54 to 55. Yes, a year is still a year, but in this scenario, you’re only about 2% older.
Note that the absolute time hasn’t changed…it’s the same 12 months…52 weeks…365 days. But the “relative” difference between turning 5 and turning 55 isn’t just larger, it’s 10X larger.
2% vs. 20%…that’s a MASSIVE difference…an order of magnitude difference!
To put it another way, “relatively speaking,” a 5-year-old’s birthday is 10 TIMES more important than a 55 year-olds birthday.
Now, let’s move the conversation away from birthday parties and get down to business…
What Is Relative Gain? (And Why Does It Matter?)
When you first launch a new site, 100 visitors in a week is a big deal.
But fast-forward 12 months to the same site that’s now generating 10,000 visitors in a week, and suddenly 100 visitors barely registers on the analytics graph.
But it’s still 100 visitors, isn’t it? What changed?
The same is true for leads…
10 leads a week is a lot, right?
Relatively speaking, 10 leads is a lot when you’re only getting 2 or 3, but when you’re generating 10,000 leads in a month, 10 new leads is a rounding error.
And this explains why all companies (and especially great companies) eventually flatline and stall…
Your Playbook Didn’t Stop Working…It Just Stopped Working at the Same Relative Gain
Congratulations! You are a victim of your own success.
If you have heard the expression, “What got you here won’t get you there…”
…now you see why it’s undeniably true. It’s not your fault…you aren’t doing anything wrong. Relative gain and the law of large numbers catch up with us all.
And the real kick-in-the-head is, the faster we grow, the more difficult it becomes to top our previous wins.
This, my friend, is why all companies eventually stall out. It’s not your fault…
But, if we can pinpoint exactly WHERE our relative gains are in decline (in other words, where our previous playbook is no longer yielding the same results), we can take steps to optimize it.
And that’s why you need to understand all eight scale constraints…
The 8 Scale Constraints
So far, we have talked about how traffic and lead flow are impacted by relative gain, but the truth is all areas of business (not just your sales and marketing strategy) can hit a ceiling and cause you to stall out.
I had to learn this lesson the hard way, and it nearly bankrupted my first company.
Obviously, I don’t want that to happen to you, so let’s dig into all eight scale constraints. They are:
- A lack of CLARITY
- Insufficient DEMAND
- The wrong STRATEGY
- Poor and/or outdated SYSTEMS
- Not having the right people on the TEAM
- Unclear and/or inconsistent COMMUNICATIONS
- Not enough CAPITAL to sustain growth
- IMPACT MISALIGNMENT of the company and its ownership
Now, let’s look at each of these “Scale Factors” and consider how our “playbooks” for each must change and adapt as we scale.
SCALE FACTOR #1: Clarity
As entrepreneurs, in the earliest days of a business, the mission is, “Don’t die…don’t run out of money.”
And in the earliest days, you know what? That’s fine.
But at some point, just don’t die is not a good enough reason to keep a business going. It’s not going to inspire your customers, and it’s not going to inspire your team. At some point, you’ve got to build clarity.
Now, there are four things that we look to put in place to create clarity…
- A three-year revenue and profit target.
- A company purpose. (Why do you get out of bed in the morning?)
- Core values. (Your standards of behavior in the company.)
- Strategic anchors. (We scale decision-making by making it clear what we are and are not good at.
Now, once you’ve got a three-year target, a company purpose, core values, and strategic anchors, you’ve got clarity!
SCALE FACTOR #2: Demand
Simply put, not enough people want the thing that you are selling.
Now, what we’ve seen this time and time again and it’s not a lack of desire in the marketplace, right? It’s not actually that people don’t want what you’re selling. In fact, if you’ve sold it in the past, you can rest assured that people probably want it.
What we’ve actually found is that business owners don’t know how to structure their marketing and sales in a systemized manner so that they can scale without them.
The solution comes down to 1-10-3…
One growth engine that is responsible for $10,000 a month in directly attributable revenue three months in a row.
That could be a funnel, predictable selling system, whatever, but one sales process that is responsible for $10,000 a month in revenue, three months in a row. And until you have that, you focus on nothing else.
It is really, really simple.
I can promise you this, if you’ve got one doing $10,000 a month, you can scale that up to a hundred thousand dollars a month or a million in revenue. At that point, going from seven figures to eight figures is just about getting some more growth engines and optimizing the ones that you have.
SCALE FACTOR #3: Strategy
Simply put, failing to do the right things or failing to do the right things at the right time.
We find that a lot of entrepreneurs wind up adopting bad strategies because they have no strategy at all and don’t like the planning process. They’re gonna say…
“Hey, I’m just gonna do what I feel needs to be done. I’m gonna go with my gut, I’m gonna let the market decide.”
And, again, that’s okay in the earliest stages, but at some point, you need to build in a planning cadence.
At The Scalable Company, we plan out in three-year cycles – where do we want to be in terms of revenue, profit, and total customers?
Then we break that three-year cycle into 12 quarters and simply ask what needs to be true (and realistic) in each quarter, starting from today, to hit that goal.
Then we just pick three projects at the beginning of each quarter that we’re going to execute to get us there, measure the results weekly, and check in on our status monthly (and make any necessary pivots).
If you’re doing that, you’re gonna wind up having a much better strategy.
SCALE FACTOR #4: Systems
Simply put, all of the systems, the standard operating procedures, and the source code of the business is probably sitting in your head.
The problem is, if everything that it takes to create value in the company, whether it’s getting new customers or serving those customers or coming up with new product ideas, is trapped in your head, then you are trapped in your business.
Let me put it to you even more simply…
If you can’t take a 30-day vacation and come back and your business be as good or at least arguably better than when you left it, you don’t own your business, your business owns you.
Poor systems are what is holding you back. Out of all of the constraints, this is the one that’s probably the easiest to solve, and yet it’s the one that holds most businesses back.
It’s why at The Scalable Company, the main thing that we help entrepreneurs do is install operating systems in their businesses so that the business can run itself.
But don’t go and create a checklist or SOP for everything that your company does…I can tell you from experience that it will just end up being a massive waste of time.
All you need to get started are three basic flow charts…
- How do we acquire customers?
- How do we serve our customers?
- How do we continue to innovate and come up with new product ideas?
Now we can create some checklists, but only around those most critical stages of the value-creation process.
SCALE FACTOR #5: Team
The wrong team can look like just having the wrong people on your team, or it can look like having the right people in the wrong roles.
Either way, you’ve got the wrong team.
If somebody’s not performing, if an entire team is not performing, it usually is the case that they were good at one point, and then they got bad. Usually, what has happened to them is the same thing that happened to you.
The business has grown, the game has changed, and they don’t know what it looks like to do that role. They don’t know what it is they’re supposed to be doing.
In other words, what we found is that the wrong team normally comes down to what we talked about before, which is poor systems.
You have to focus on systems first.
Map out the different flow charts of your value creation process…
Decide how each of those steps is accomplished…
Then simply say, “who is uniquely responsible for each and every one of these core critical value creation stages?”
What you’ll find out is either that there are people whose name goes in every single one of those boxes (maybe it’s your name), and it’s no wonder the person isn’t performing…they’re completely overwhelmed.
Or you’re going to find that you’ve got talented people who are doing old stuff that just doesn’t matter anymore.
Then it’s just a matter of making one of too simple, but not easy, decisions…
1. Are they uniquely good at something in the value creation process that they should be uniquely accountable to? Great!
2. If they aren’t performing, they aren’t uniquely responsible for anything in the value creation process, and they don’t have the skill set to take on anything that is…then, and only then, can you look at somebody and say, “Hey, it’s probably not a fit anymore.”
SCALE FACTOR #6: Communications
In other words, no one knows what the heck is going on.
So how does poor communication get solved? You’re not going to like the answer…
Most entrepreneurs don’t like meetings. We don’t wanna do meetings. We feel like that meetings are death, that they’re a waste of time. And all of those things are true if you are doing bad meetings.
But if you’re running good meetings, then those meetings should be some of the most valuable highest leverage time that you spend at your company. Period.
So what meetings should you be having? Here’s our suggestion:
- Strategic Planning: Get with the leadership team to create a plan that keeps you on track with your three-year target.
- Company All-Hands: Share with the entire team how you did last quarter, what you’re doing this next quarter, and the specific actions and activities that have been green-lit.
- Check-Ins: Review with the leadership team what worked last month. How are we tracking to complete our key initiatives? And do we need to make any changes or pivots to our quarterly plan?
- Scorecard Reviews: Scorecards represent the metrics that matter. These meetings are about disseminating information and discussing how we bridge the gap between where we are and where we want to be.
If you have high-quality dashboards and a proven efficient meeting rhythm, which doesn’t have to be a lot, by the way, you’re gonna have great communication.
SCALE FACTOR #7: Capital
Simply put, not enough money in the bank to sustain growth.
When we talk to a lot of entrepreneurs, when they come into Founders Board, they come in believing that they’ve got a capital issue, that they need to go and raise money, and they need to go in secure debt.
What they actually find is that if you take care of all of the other constraints, capital starts to take care of itself.
Typically, the most impactful constraint we solve is the team (which, for most of us, is our biggest expense). If you can get your team to a point where every member has a direct 3:1 ROI that can be attached to their name, capital won’t be a problem.
Businesses that previously thought they had to go out there and get more capital, suddenly start to realize they are becoming self-funding. They’ve got so much money hitting the bottom line that not only can they reinvest the profits into growth, but they have some leftover distribution.
That’s the goal.
If you deal with all those other constraints (team, demand, communications, systems, etc.), what you’ll find is capital has a way of taking care of itself.
SCALE FACTOR #8: Impact Alignment
This is the one that nobody talks about, and everybody forgets about…impact misalignment.
This is when the goals of the founder, the CEO, the owner, become misaligned with the goals of the company. And this is when you get burned out.
Usually, this happens when the company has grown into complexity (It’s not about size.) This is where the business just stops being fun, and it just stops being worth it.
This is when you start thinking, “God, things were a whole lot easier back when this business was small. Why did I hire all these people? They were supposed to make things easier.”
“It’s only gotten harder, you know, and less profitable.”
“Maybe I should just blow everything up and start over again, right?”
If you start having those kinds of thoughts, what you need to hear is that your business isn’t broken, and you aren’t broken. Usually, what it means is you’re experiencing impact misalignment. You are burned out. And the solution to burnout is just to start at the top of the eight scale constraints.
Do I have clarity on where we’re going and why we’re going there? And does everybody on the team know how we’re supposed to behave? And do they know what we’re good at? Can we scale our decision-making so that I don’t have to make every decision and people are making decisions as though they’re me?
Do we have at least one growth engine generating the 10,000 a month minimum, three months in a row?
Do we have a regular planning cadence in place? Let’s set those three-year targets, let’s break it up into the 12 quarterly goals, and let’s build a plan every quarter for getting there.
This is how you solve impact misalignment and burnout, any time it hits.
So What’s The REAL Secret To Building a Scalable Company?
If we know these are the 8 constraints, then we know how to solve for each of these constraints. (Woohoo!)
But as we discussed in this post on The Entrepreneurial Lifecycle, flatlines occur multiple times in the life of a business, and now you know why. (Remember…relative gain?)
So the next time you’re feeling stuck, just go back and look at each one of these constraints! You don’t have to know all the answers, you just have to know the right questions to ask.
And now, you have those questions!
This truly is the secret to surviving flatlines…
If you want help with this, if you want help resolving these constraints, if you want help building a plan, if you want help building an operating system, this is the work we do at The Scalable Company.
And specifically, this is the work that we do at Founders Board, our highest level program where we work with founders individually to get this stuff resolved, to get you out of being the bottleneck of your business, and to get your company to scale.
Not just scale, but to scale in a way where you enjoy it, to scale in a way where you’re no longer stuck, you’re no longer trapped, to scale in a way where you’re frankly having fun again!
If that’s what you want for yourself, we want it for you as well, and we would love to help you do it. Be sure to check out Founders Board and apply if it’s right for you.