Today’s Strategic Alignment Journal post in two sentences:
Growth playbooks can provide useful guidance, but adopting another organization’s strategies, structures and practices without understanding the conditions that made them successful can create more problems than they solve. Sustainable scaling requires an understanding of your own business’s ambitions, capabilities and constraints rather than assuming that someone else’s formula for success will work for you.
There’s no shortage of advice on how to scale a business.
Entrepreneurs are presented with growth playbooks, proven frameworks, step-by-step methodologies and success formulas that promise to help them move from one stage of development to another. The underlying message is often the same: follow the model, make the recommended changes, and your business will be better positioned to grow.
The appeal is understandable. Scaling a business can be complicated, and having a roadmap developed from someone else’s experience can provide a sense of direction and confidence.
But what happens when the roadmap doesn’t reflect the business you’re actually running?
A graphic I saw recently outlined three transitions businesses supposedly need to make as they scale. Between 20 and 50 employees, the founder should move from personally leading the business to developing a leadership team. Between 50 and 150 employees, the CEO should transition from specialist to generalist. Beyond 150 employees, the focus should shift from working on the product to developing an organization that can operate independently of the founder.
There is merit in recognizing that leadership responsibilities and organizational requirements change as businesses grow…but what works for one organization at a particular stage of development may be entirely inappropriate for another, even when they employ the same number of people.
When the Playbook Becomes the Strategy
Growth frameworks can help business owners anticipate challenges, recognize changing responsibilities and identify capabilities they may need to develop.
The problem begins when these frameworks are treated as prescriptions rather than reference points.
A founder reads that businesses of a certain size should have a formal management team and begins appointing managers. Another is advised to introduce sophisticated systems and procedures to prepare for expansion. Someone else adopts a sales model that helped a competitor achieve rapid growth.
These decisions may appear reasonable, particularly when the recommendations come from successful entrepreneurs or respected business advisors…but what conditions made those approaches successful in the first place?
- Was the business operating in the same market?
- Did it have a comparable revenue model, customer base, financial capacity or organizational structure?
- Were the leadership capabilities and operational demands similar?
- More importantly, was the intervention responding to a problem that actually existed in the business adopting it?
Without understanding those circumstances, organizations risk copying the visible practices associated with success while overlooking the conditions that made them effective.
Growth and Scaling Are Not the Same Thing
A business can grow by increasing sales, employing more people, expanding its product range or entering new markets. Scaling involves developing the capacity to accommodate that growth without costs, complexity and operational demands increasing at the same rate.
Why this matters is because growth can occur even when the organization is becoming less efficient, less profitable or increasingly difficult to manage.
A company may double its revenue while experiencing declining margins, deteriorating customer service and increasing employee turnover. Another may establish several new departments without resolving the communication and decision-making problems that already exist.
The business may become larger, but not necessarily stronger.
Scaling requires an understanding of whether the business model, operating arrangements, leadership capabilities and financial resources can support additional demand without compromising what makes the business successful; and those requirements cannot be established through a generic checklist.
Employee Numbers Don’t Determine Readiness
The graphic I came across suggested that certain leadership transitions become necessary at identifiable employee thresholds…but headcount alone tells us remarkably little about an organization’s readiness to scale.
A business with 30 employees may already operate through capable departmental leaders, well-established systems and delegated decision-making authority. Another with 100 employees may still depend heavily on its founder for routine decisions.
A professional services firm, a manufacturing company and a technology business may encounter entirely different constraints, even when they employ similar numbers of people.
The nature of the business matters. So do its customers, revenue model, operating complexity, management capabilities and the extent to which critical activities depend on particular individuals.
A founder may need to delegate responsibilities well in advance of employing 20 people. Another may remain closely involved in specialist work because that expertise is central to the business’s competitive advantage.
The appropriate leadership structure should be informed by how the business actually operates, not by the stage a growth model suggests it has reached.
When Growth Magnifies Existing Problems
One of the more consequential aspects of scaling is that growth can expose weaknesses that were manageable when a business was smaller.
Informal communication may work effectively when everyone operates from one location and the founder knows what is happening across the organization. As the business expands, those same arrangements may become unreliable.
- Decision-making that once happened quickly may slow considerably as more people become involved.
- Customer relationships that depended on personal attention may become difficult to maintain.
- Processes that were adequate for a smaller operation may struggle under increased demand.
These are not necessarily problems created by growth. Some may have existed all along but were less visible because the organization was small enough to accommodate them. Increasing the size of the business can magnify those weaknesses.
This is why scaling cannot be approached simply as a matter of introducing more sophisticated systems, appointing additional managers or adopting practices associated with larger organizations.
Before determining what the next stage should look like, leaders need to understand how the business currently functions, where its constraints exist and which capabilities must be developed. Otherwise, they risk expanding an operation whose underlying problems have never been adequately addressed.
Is Scaling Even the Right Objective?
There’s another question that receives comparatively little attention in conversations about scaling.
Does every business need to become larger?
For some entrepreneurs, growth is essential to achieving their ambitions. They want to expand into new markets, build substantial organizations or create businesses that can operate independently of their involvement.
For others, success may mean maintaining a profitable enterprise, serving a particular market exceptionally well, preserving the quality of their work or creating a business that supports the life they want to live.
Neither ambition is inherently superior, but the pressure to scale can encourage business owners to pursue expansion because it is widely regarded as evidence of success, rather than because it supports their own objectives.
An organization can be financially healthy, highly valued by its customers and entirely appropriate for the market it serves without becoming significantly larger.
The decision to scale should therefore begin with understanding what the owners are trying to achieve and whether expansion is the most appropriate way to accomplish it.
Understanding the Business Before Following the Playbook
Growth playbooks are not fundamentally flawed. They can provide useful insights, expose business owners to different approaches and help them anticipate challenges they might otherwise overlook. But they cannot replace an understanding of the business to which they are being applied.
A company preparing to scale needs to examine whether its customer demand is sustainable, whether its delivery capabilities can accommodate expansion, whether its financial model supports growth and whether the organization can maintain the qualities customers value as it becomes larger.
It also needs to establish whether the people, systems and leadership arrangements necessary for the next stage are already in place or must be developed.
The answers may lead to adopting some of the practices recommended in a growth framework, adapting others or rejecting approaches that don’t suit the organization’s circumstances.
Some businesses will need significant structural changes. Others may require relatively modest adjustments. Still others may discover that strengthening the existing operation is more important than pursuing immediate expansion.
The danger isn’t in learning from how other businesses have succeeded. It’s in assuming their methods can be replicated without understanding why they worked and whether those conditions exist in your own business.
Scaling is not a formula to be followed. It is a strategic decision that needs to be informed by the organization’s ambitions, capabilities, constraints and operating realities.
A playbook may show us what worked somewhere else. It cannot determine what our own business needs.
Strategic Reflection Prompt
Are you making decisions about your business’s growth based on an understanding of its actual capabilities and ambitions, or are you following a model of success developed for an organization whose circumstances may be entirely different from yours?
I’m Giselle Hudson, The Pre-Fixer™.
For nearly three decades, I’ve worked with business owners and leaders across the Caribbean who carry important decisions largely on their own, often when problems keep returning, solutions fall short, or implementation stalls.
When I ask business owners what problem they can’t seem to solve, the answer is usually “people.” So I ask them to tell me more, because people and businesses are rarely as simple as they first appear.
I help them understand what’s really causing the problem before they spend more trying to fix it. And where needed, I help design the solution and guide their teams to put it into practice.
Get Clarity before the Fix.
What are you trying to make sense of right now?
