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October 17, 2017

Growing Pains: The Challenges of Scaling a Business

Diane Pierson - Growing Pains: The Challenges of Scaling a Business

This article by Diane Pierson originally appeared on pragmaticmarketing.com, your go-to-tool for all things product. Subscribe now!

I recently heard a big-company CEO define the problem of business scale as “the proliferation of a thousand tiny flowers that don’t grow bigger over time.” Seemingly great new products may get early market traction, but never become significant revenue producers even though the company has a large and loyal customer base, sales force and brand position.

On the other hand, most of us who grew up in big, established organizations eye startups with admiration, fear and more than a little jealousy. And so we should: the flexibility, the energy, the cutting-edge skills! But even startups have growing pains when it’s time to scale.

In fact, the challenge of moving from innovation to scale has confounded both established businesses and nimble startups. Here are my thoughts on why:

The People

Startups bring together a highly-aligned group of people, often friends or relatives. More than passionate, they are emotionally, personally and even financially invested in the business. They’ve come together around a dream and work 24/7 to create something they believe in. If they succeed through the early adoption phase of a brilliant prototype, it’s time to scale. Often, that means hiring new staff.

While new employees are passionate about the company, they rarely have the intensity, commitment and attachment of the original team. And at the end of the day (and yes, they expect the day to end at some point), they want to go home. They are committed to company goals, but not personally invested in the dream. As a result, founders can become dispirited and feel like “it’s just not the same.” Scale efforts may sag as the business tries to adapt to this new dynamic.

Too Big To Grow

And there’s more. Once, the entire team could bat ideas around over pizza and beer, and everyone was in on decision-making from what color to paint the office to which market to enter next. This heady time attracts people who enjoy working as generalists in a highly flexible environment and have an appetite for risk and uncertainty. If it’s the way you like to work, it’s hard to let go. I’ve seen 80 team members in brainstorming sessions, and decision trees with six “owners” in companies desperately trying to hold onto that early magic. But to stay responsive in the market at scale phase, division of labor and leadership must happen.

Scale requires standardizing feature sets, creating uniform pricing and the addition of back-and front-office support such as finance, legal and customer service. Increasing the size of a company requires a division of labor, clear decision rights and at least some bureaucracy.

The Truth About Change

Not everyone who comes to a startup has an enormous appetite for change. We only find out whether we’ve got agents of change on the team when we have to, well, change something. And the time we most often discover this is at scale.

My first gig with a startup taught me this lesson. I was nervous. Would I have the appetite for change and the ability to produce at the velocity of a dotcom (which is what we called them in the old days)? I mean, they had a foosball table. My old company was still distributing pencil-sharpeners as standard equipment.

I dived in, and noticed we had a backlog of orders. We couldn’t bill the customer until the product was live, so revenue was being delayed. I asked my department manager whether he’d considered workflow changes that might speed up production. The manager, who’d been with the company for the entire 18 months of its existence, rolled his eyes at me, sighed heavily and said in a voice I hadn’t heard since I asked to go to first grade in my pajamas, “Oh Diane, we’ve always done it this way.”

This pattern also holds true at innovative big companies. My first experience with the innovation-to-scale transition was at a 100-year-old global information company, working on a product that identified fraudulent businesses. The innovation team was one of the best I’ve ever worked with: creative, flexible, engaged and invested in the new offering they’d created from nothing but the knowledge that the market had a problem.

The product concept was quickly proven in the market, and we saw real traction. Our first million! Then it was time to scale. This meant formalized pricing, defined product bundles, standardized workflows and larger, specialized teams and managers. Some team members were actually relieved to add structure, but many chafed at the lack of creativity and segmentation of their job responsibilities. While most of the latter moved on to other innovation projects, there were two heartbreaking instances where highly talented founding members resisted the scale process and the opportunity to move to other projects. They ended up leaving the company.

 

Innovators, Maintainers and Accelerators

The innovators who think of your next new thing are invaluable. But they make a terrible scale team. So do people who keep the trains running on time for your most lucrative legacy products. Innovators work best when unencumbered by process, and maintainers are excellent at leveraging the processes in place to extend existing business.

Scale is a unique skillset needed in between. The people with these skills—the accelerators—are good at identifying the distinctive value in a fledgling product that will appeal to a broad market, versus tweaking features for an established market. They expand sales via demand-generation and market awareness programs, versus relationship management. They implement the processes, structure and standardization necessary to accelerate revenue, without the bloat of unnecessary reviews, meetings and signoffs.

The Product

As quickly as markets change, time to scale is as crucial to startup products as time to launch.

If we don’t know how to expand a product from innovation to scale, the opportunity for profits will pass us by. Startups and big businesses make different mistakes here, but the results are the same.

Prototyping is something startups are really, really good at, in part because the entire enterprise has come together to execute on the idea. So many startups begin with two people: a practitioner with a problem (say, a medical doctor who can’t easily find drug protocols online) and an engineer to build the solution she’s thought of. Prototyping at a startup is about getting the vision of the founders into the market.

Scale, on the other hand, requires listening to the market to build on that initial excitement. Planning a product roadmap that will generate profitable revenue growth. Balancing nimble reaction to the market with disciplined focus. Once they’ve run through their own ideas it can be hard for the startup to grow beyond the initial product to a solution, and from there to a business.

So big companies have the advantage, or do they? Established companies already have brand recognition, engineering and product teams listening to the market, so scale should be easy, right? But current infrastructure enables business maintenance, not scale. Product roadmaps are well established and it’s just easier to focus on deepening existing relationships and fending off competition, instead of pure scale. It’s a mistake to assume that existing teams can scale new products simply because they’re good at expanding their existing suite. Anyone who’s ever had the discussion about whether to build something the whole market wants versus “that thing our No. 1 customer wants” knows this.

The Money

I was on an expert panel a few years ago with a startup CEO who warned the audience to be ready for the “vast political pandering” and “grueling inanity” that was necessary to fund scale. Even with my (then) big company background, I knew he had a point. In contrast, the large company I worked with at the time never discussed how it would fund scale of the many products it had in startup mode. Ever. Which is worse?

Unlike beta testing or skunkworks, Scale requires funding. This is the phase where awareness is built, market share is acquired and dominance is achieved. Or not. Nobody does this without a few buckets of cold, hard cash.

Go Big or Go Home?

There are many firms that help newbies through the maze of securing funding, from angel investors to IPO attorneys. But they require startups to measure, project and account to a degree founders hoped to escape by going out on their own.  Sometimes, it’s simply more hassle—and requires more classical business training—than the founders can manage or have the appetite for. Startups should ask themselves whether total world dominance is something they really want, and are prepared to achieve. Or was it just fun and satisfying to solve that pesky market problem?

The Big-Company Blues

Funding is another area where the myth that existing resources will carry a new product to scale bites big business in the behind.

Case in point: I recently read about a startup that received second-round funding to expand its product line; a line that disrupts the core business of a well-established, global company. The startup now has $50 million to beat this established player. It’s unlikely that the established player is putting anything like $50 million against blocking out the upstart. And yet they may be caught flat-footed when they’re edged out by this startup.

Does the big company need $50 million to win? Probably not. But the entire reason their startup competitor exists is to wipe them out. Startups ask for, get and spend substantial dollars on market proliferation. They hire people whose singular goal is success of this product. The established firm often relies on passive scale through existing customers, marketing efforts and sales teams that have only a fraction of the time to spend on the new thing. But for those resources, it’s so much easier to buy, market and sell the old stuff, so why bother?

In order for established companies to win, they need to adequately fund and align resources around their own scale initiatives. For startups, it’s about knowing in your heart whether you want that great idea to turn into unicorn of the year.

Accelerating to Win

Most of us dream of leading a team of engaged innovators who solve market problems profitably, creating an ever-expanding band of enthusiastic and loyal customers. And our purpose for scaling beyond innovation is to achieve these very things. But there is no direct leap from innovation to established success. Every business, big or small, startup or veteran, has to successfully navigate the scale phase. How can you give your own organization the best chance at accelerating to win?

Implement fluid work teams. Don’t expect to keep the same team on a product throughout its lifecycle. Instead, leverage unique talents to maximize success at every phase. Move innovation, scale and maintenance specialists off and on projects when needed. Ongoing strategic direction can be provided by a product or market lead. Think it would be hard to sort out who was good at what? Ask for volunteers. Chances are you will get the right people for each cycle more easily than you think.

Build “alongside.” Within your existing infrastructure, existing customers and products will always trump the new. They should. To enable scale, create a team whose success is defined by the new opportunity, and incent the maintenance teams to enable them. A good example is the sales specialist/sales generalist model, where both are responsible for revenue but the specialist brings expertise on the new offering and the generalist focuses on relationship management. Fluid work teams also enable this tactic.

Shine a bright light. Make sure the entire company understands the new effort, including who’s doing what, how success will be measured and what it means to the success of the company—and  themselves.

Fund realistically. The reason innovation should be cheap is because scale is not. A lean team performs well, a starving team dies. Can you reallocate resources from mature products to fund the new? Do you have the risk tolerance and financial stability to get outside seed money or loans? If you can’t fund to drive successful scale of the opportunity at hand, pursue an opportunity that can succeed with less.

Lead energetically. In this hardest season of business growth, the CEO must be the champion and enabler of success. Our responsibility to eliminate roadblocks, plan for appropriate funding and align the right resources for success are the difference between a new direction and a disappointing experiment.

Obviously, not all startups lose their momentum at the scale phase. If they did, we wouldn’t have Amazon, Slack or Airbnb. And decades-old tech companies such as IBM and Apple have reinvented themselves more than once. But scale is the most challenging and ruthless of all product cycles, and companies old and new struggle with getting through to the other side. It’s important to prepare our teams—and ourselves—for what’s coming, embracing what’s necessary and matching skills to need.

It’s easy to drop a seed and grow a tiny flower, but creating a strong and healthy garden requires diligent tending and enough open space to reach the sun.


About the Author

Diane Pierson has more than 20 years of experience delivering product management and marketing results in the big data/analytics, publishing, and digital marketing industries. Prior to joining Pragmatic Marketing as an instructor, she delivered more than $100 million in revenue to companies, including Dun & Bradstreet, LexisNexis, InfoGroup and Copyright Clearance Center. In addition to holding multiple vice president and general management roles, she started a consultancy specializing in go-to-market strategy and organizational alignment. She brings a results-focused understanding and executive mindset to her role as a Pragmatic Marketing instructor. Contact her at dpierson@pragmaticmarketing.com.

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