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 6 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 ever 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 catches 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 six scale constraints…
The 6 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 six scale constraints. They are:
- Unclear, uninspiring, or misaligned VISION
- Failing to choose or failing to execute upon the right STRATEGY (usually it’s the wrong growth strategy, but it could also be the wrong product or positioning strategy)
- Not having the right PEOPLE on the team, or having the right people in the wrong roles
- Unclear and/or inconsistent COMMUNICATION
- A lack of documented SYSTEM and processes
- Mismanagement of MONEY and cash flow
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: Vision
During the start-up phase, a common Vision for all companies is, “Just survive another day…don’t run out of money.”
And early on, a simple Vision like this is not only good enough, it’s downright inspiring!
But over time, as your business transitions from the Traction Phase into the Momentum and Expansion Phases, this scarcity-minded vision will hold you back. In other words, the vision that got you “here” won’t be enough to get you “there.”
Here are some questions to ask yourself and your team to uncover a new, scalable vision:
- Who are we?
- What do we do?
- Who do we serve?
- Where are we going?
- How should we behave along the way?
SCALE FACTOR #2: Strategy
We have already discussed how traffic and lead generation strategies can “stop working” as your business scales, and that’s why it’s essential that you update and optimize your sales and marketing playbooks to address not only conversion rates, but also velocity rates.
In other words, it’s not enough to look at just the volume of traffic, leads, and sales you’re receiving in a given month…you also need to look at the compounding rate of growth a given strategy is yielding.
This doesn’t mean we need to abandon strategies that are working, but it might mean that we need to switch from optimizing our existing playbooks to testing and executing brand-new, additional playbooks. Remember, the growth strategies that got you “here” may not be the growth strategies that will get you “there.”
Here are some questions to ask yourself and your team to uncover a new, scalable strategy:
- What goals must we achieve in the given period to fulfill our mission?
- What critical projects must be completed and when do they need to be completed by?
- What resources, skills, and assets must we acquire?
SCALE FACTOR #3: People
This one is tough…
It’s one thing to say, “Our old marketing strategy just isn’t cutting it any more…” but it’s a different thing, entirely, to say, “Our Director of Marketing just isn’t cutting it any more…”
People have feelings? People have hopes? People have families? People are complicated.
But if you allow “people issues” to go unaddressed because you’re scared to have a difficult conversation, I’m sorry, but the REAL “people issue” is with you, and not your team. This was my challenge. This is why I fired myself from my first company. I was unwilling to accept the fact that the people who got me “here” weren’t the same people who would take me “there,” and everyone suffered because of it.
I don’t want you to live that same failure, so here are some questions to help determine if your team and team structure is truly scalable:
- Do we have all the help we need or are we missing roles?
- Who is responsible for what, and do they know it?
- Who is allowed to tell other people what to do?
- How do we deal with conflict?
- How do we hire, train, and if necessary, exit someone from the team?
SCALE FACTOR #4: Communications
Communication is easy when the team is small.
Have a big announcement? Just bring everyone into the same room. Want to adjust the strategy? Just gather everyone around the whiteboard. Need to kick around an idea? Order a pizza and has it out over lunch.
To put it bluntly, keeping everyone in the loop is simple when “everyone” is sitting in the same room and reporting to the same person.
But for some reason, everything in business seems to break when you hit 25 employees, and the #1 culprit is a breakdown in communication.
So look at your meetings. Are you having too many? Too few?
And what about goals and key initiatives? Does everyone know what’s going on? Do they know what’s most important right now?
Again, none of this matters when you’re small, but the methods of communication that got you “here” won’t get you “there,” so here are some questions to help determine if your communications are scalable:
- What is most important right now, and is everyone on the team aware of and aligned to these priorities?
- Does the team know how is the company doing? Do they know what the goals are, and if we are making progress toward those goals?
- What meetings do we run, and how do we run them?
- How do we use tools like email, Slack, and SMS?
SCALE FACTOR #5: Systems
“I don’t care how you get it done, just get it done!”
Show me a founder who hasn’t said that at least once, and I’ll show you a business that never got out of the starting blocks.
But, show me a founder that is still saying that after their business is through Traction, and I’ll show you a company that is in Flatline and headed toward a Death Spiral.
Look, I get it. There’s nothing fun about creating systems and processes. It forces us to slow down…even stop, sometimes. But good systems are essential for scale.
And despite all the talk among entrepreneurs about “building the rocket ship on the way up,” when Elon Musk set out to build actual rockets, you better believe they had solid systems and processes in place prior to liftoff…
Here are some questions to help determine if your systems are scalable:
- How can we improve our output and efficiency?
- What are our company’s critical processes and best practices?
- How do we establish a culture of documentation and training?
- Can our critical software and utilities scale with us to the next level?
SCALE FACTOR #6: Money/ Cash Flow
Cash is fuel. Run out of cash, and your business stops. It’s as simple as that.
In fact, if you think about it, there’s only one real reason any business ever fails: it runs out of cash.
So if cash is so important, why do so few entrepreneurs talk about it?
“Accounting is boring. I like to focus on making money not counting it…”
“Financial projections and budgets are for big enterprises, not small companies like mine…”
“As long as we make enough topline, enough cash will drop to the bottom line by the end of the month…”
If you have said these words or thought these thoughts, you’re not alone. I did, too.
Unfortunately, this “If I make enough sales, things will work out…” mentality cost me a small fortune, and nearly bankrupted my entire company not once, but twice. I don’t want that to happen to you, so here are some questions to help determine if your cash flow management is scalable:
- If a catastrophic event occurred and sales dropped by 50%, how long could we stay in business?
- Do we have at least 90 days of operating expenses in savings, and another 90 days available in lines of credit?
- How do we decide how much to invest in customer acquisition, payroll, rent, and other major expenses?
- How do we distribute profits? How much should we hold back?
- When does it make sense to acquire an asset or competitor?
The key to creating a scalable company is to address all 6 of these constraints. But it’s critical that you optimize in the correct order, and that’s where The Scalable Flywheel comes in…
Introducing: The Scalable Flywheel
The Scalable Flywheel is a simple framework for optimizing the performance of any business. If you feel a little stuck, just give the flywheel a “spin” and you’ll find that the answer to getting unstuck presents itself fairly quickly.
The flywheel is designed to be spun clockwise, starting with Vision, then moves to Strategy, then to People, Communications, Systems, and Money. The easiest way to do this Is to
In other words, when you get stuck, the first thing you need to ask yourself is:
- Do we have a clear, inspiring VISION that aligns with our values?
- Are we executing the right STRATEGY?
- Do we have the right PEOPLE on the team, and are those people in the right roles?
- Is our COMMUNICATION clear and consistent? Is everyone truly in the loop?
- Have we documented our SYSTEMS and best practices, and are we holding people accountable to these standards?
- Are we carefully managing our MONEY and leveraging our cash flow?
This sequence is important, because without a clear Vision, it’s impossible to know if you have selected the right Strategy. And if there’s an execution problem with your team (People), you can’t blame them if the Vision. and/or Strategy is unclear.
Similarly, if you don’t have the right People in the right seats, then no amount of Communication will fix a broken team. At the same time, until you are Communicating effectively, you will find it nearly impossible to document your processes and optimize your Systems.
Finally, Money is an accelerant, so the worst thing you can do to a business is flood it with cash until it has a clear Vision, a Strategy to win, the right People to execute that strategy, and proven Communications and Systems.
This is how scalable companies are built.
But, if you want your company to scale over the long-term, you’ll need to keep this flywheel spinning.
So What’s The REAL Secret To Building a Scalable Company?
If we know these are the 6 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 give the Scalable Flywheel a spin! 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…
We also offer an 8-week accelerator called “Get Scalable” that you might want to join. (NOTE: If enrollment is currently closed, please join the waiting list.)
But whatever you do, please do something.
“What got you here won’t get you there…” isn’t just a cliche…
…it’s a reality. It’s YOUR reality! Fortunately, you have what I didn’t have when I was in your shoes. You have a flywheel.
Why not take it for a spin right now? 🙂