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  • mattheelan

Why do we scale organizations?

I have always been fascinated by why Founders/Entrepreneurs/CEOs and/or leadership teams decide to scale organizations. A lot has been written about how to scale whether it be a product or service-based business, whether you want to scale slowly or super quickly but why do it in the first place? If revenues are good, the company is highly profitable, people are paid great and there is a great culture then why go changing any of that?

I have worked in various roles for three Founders/Entrepreneurs/CEOs who hired me (in part) to help them scale their organizations. In every instance the premise for scaling was the same:

  • increase and/or diversify revenues

  • improve or maintain healthy profit margins

  • increase sales and customers

  • create some economies of scale and

  • increase market share

All three companies are still in existence and here is why they decided to scale:

  • Clayton has successfully run his business for 20 years with about 60 employees, 6 million dollars in revenues pretty consistently for the last 10 years, and a profit margin between 10-20%. Clayton’s company provides professional services and charged those services on an hourly basis. His Why: Clayton in some ways was forced to scale his business based on two things: (1) The industry was moving away from fee for service model and towards a more flat rate, bundled model, and (2) His leadership team was highly successful in executing from a sales and operations perspective. In order for Clayton to stay competitive within his industry and to deliver all the new deals he was going to have to scale the organization to meet these demands.

  • Norman has successfully run his business for 10 years with about 100 employees, 16 million dollars in revenues with steady growth year over year, and a 5-10% profit margin. Norman’s company provides technical services and products. His why: Norman wanted to grow the business so that his company would be viewed as a successful local business that might inspire other entrepreneurs. He also wanted to build a company where he could grow future leaders that would go out into the community and start other businesses. The one unexpected result of the successful scaling of his organization was when he was approached by a competitor to sell the business.

  • Julie has successfully run her business for the last 7 years with about 50 employees, 5 million dollars in revenues with steady growth year over year, and a 3-4% profit margin. Julie’s company provides a technical service. Her why: Julie was a little unique in that she wanted to scale her organization in order to create more technical careers and opportunities for men and women from historically disadvantaged communities. She believed that by franchising her business all across the country that she would be able to maximize the impact she could have in different communities. She believes that teaching them these technical and business skills while she simultaneously expanded her own business was the best of both worlds.

In all three cases, there were numerous challenges in getting from their current state to their future “scaled” state. Below are just a few of the challenges that they faced and eventually overcame:

  1. Their poor planning resulted in cash flow concerns specifically related to getting the product to the customers.

  2. The inability of the Founder/Entrepreneur/CEO to delegate responsibilities as the company was growing.

  3. The unwillingness to have an abundance mindset. This led to their inability to see the value in forming a joint industry partnership to leverage scale and size for marketing purposes.

  4. Their lack of early investment in building systems, models, structures, and frameworks.

  5. Their lack of clear communication with leaders, managers, team members, customers, and partners about why they were scaling the organization and how they will be impacted

  6. They ignored early critical customer feedback related to the product and internal feedback around design and functionality which caused monthly new customers to plateau.

The bottom line: 1. If you are a Founder/Entrepreneur/CEO have a real honest conversation and collaboration with key stakeholders and team members about why you are thinking of scaling the organization. Discuss not only why you want to scale the organization but also how you plan to do that and what you are willing to do in order to achieve this goal. Listen to their feedback.

2. See above (1-6) and make sure to avoid those mistakes and pitfalls.

3. Talk to other Founders/Entrepreneurs/CEOs who have successfully scaled their organizations and how they overcame their challenges.

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