Business is a brutal game. It’s takes the strength of a wrestler, the conditioning of a cross-fit athlete, the speed of a sprinter and the stamina of a marathoner to play this game
The financial capability and the revenue potential of a business are it’s strengths. The scalability of the business is it’s conditioning. The go-to-market and organization building capability gives it, it’s speed. And the Management and Leadership capability give it the stamina to survive. There is much to talk in there but let’s focus on scaling or scalability today.
Several businesses or business leaders confuse growth with scale or growing with scaling. Let’s take a minute to think, so we can distinguish:
Scenario 1: You need sales of 500,000 (in whatever currency you may fathom), or you have won an order of 500,000. To deliver this you make 3 different kinds of investments of 70,000, 195,000 and 230,000: in space, people, and production. Hence, total investment to make revenue of 500,000 in this case is 495,000. Hence, profit of 5,000.
Scenario 2: You need sales of 500,000, or you have won an order of 500,000. But in the previous quarter you spend 100,000 on organization and process improvements. And now to deliver the 500,000 revenue you invest 10,000, 55,000 and 100,000: in space, people, and production. Hence, total investment to make revenue of 500,000 in this case is 265,000. Hence, profit of 235,000.
What is the difference between Scenario 1 and 2?
Scenario 1 is a growth scenario, while scenario 2, is a scaling scenario.
Scaling a business means, delivering higher revenues with much lesser cost. This almost always is about making higher profits for every unit of sales. Growing the business on the other hand is about increasing revenues and being ready to spend on acquisition or fulfilment costs. This may result in profits or losses.
Scaling is what makes growth profitable, sustainable, and even desirable. Both growth and scaling are important for any business. Growth requires fundamentals to be clear and this builds the foundations of an organisation. Scaling increases the efficiencies and enhances the ROI of the business. Growth starts the journey, but scaling makes the journey sustainable, carving the way for the next set of growth initiatives.
There are several mantras for scaling and most of these would require internal expertise or external experts to help you succeed. However, in this direction your prime considerations should be:
1. Be customer orientated to keep the scaling real
Customers fuel and fund the growth of a company. Hence, customers must continue to fuel and fund the scaling of a company. The value that customers receive must continue and even get enhanced by attempts to scale. So, the desire or design of scaling can only start with appreciating what customers currently pay for, and what they would want to continue to pay for. In fact, it is good to ask if they will pay higher, faster, repeatedly, or longer if we build the scale that we are intending to build.
2. Develop clarity of what scaling means at this stage
Every business has its nuances: industry nuances that are generic like sourcing, logistics, revenue cycles etc, and company nuances that are specific like offerings, delivery model etc. The effort to build scale must begin with understanding what are the areas where efficiencies can really generate exponential gains, without really diluting the value to the customers. At various stages of an organization, the answers could vary. The executive decision here is crucial to unlocking value in the right order. For example, sometimes it may make sense to implement a software to scale, whereas at another point it may make sense to outsource to scale.
3. Build purposeful processes that are the backbone of operations
Processes are the fabric of operations and delivery of an organization. In whatever area that’s been chosen for improving scalability, the first thing to fix is the process. A simple, secure, and evolving process is ideal for scaling. Target process improvements, to eliminate as many errors as possible that are or can be identified. And keep evolving the design with new learnings. This applies to all functions or areas that are the current focus for scaling
4. Acquire technology to enhance your advantage
Processes once streamlined, can further give exponential or incremental gains with the use of technology. E.g., a well-oiled customer onboarding and management process may improve exponentially with a quality CRM implementation. Similarly, a well-oiled employee experience can improve incrementally with a good HRMS system. So, if you have invested the time and energy in improving processes, consider technology as the next unlock.
5. Reuse or enhance utilization of what’s available in the organization
From knowledge, to expertise, to processes, to data, to insights, to tools and methodologies, there is much in the organization that is know to all, and in some cases know only to certain functions who own or create them.
In several organizations, we have a myopia of what we have or what we need, hence we end-up reinventing or duplicating efforts or double spending on things. E.g., multiple functions having people with similar roles – like for data management. Or for e.g., different software or process to do similar work. Similarly, for e.g., a function having complete data and information, but other functions not using this, and working without the insights. In all these cases scale is getting beaten.
In the first case, there is a good opportunity for a Shared Services or a Horizontal Function. In the second case, there is a good opportunity for Standardization. In the third case, there is a good opportunity for education, propagation, and utilization of what’s existing. All these methods will increase the scalability of the organisation.
6. Fixing operational issues at the root cause
Whatever runs, breaks-down or has wear and tear. So does an organization, where people, tech and process can all have breakdowns and wear and tear. In all these cases, scalability mindset says, fix things permanently, and for a better future. An additional nudge here is, when something breaks, you can fix something bigger than what’s broken as a preventive maintenance to generate value for a longer period. For e.g., There is customer or employee attrition being faced by an organization. Traditionally, the organization would put loyalty or engagement processes in place. However, a scaling mindset may initiate a reprofiling of customers and employees that are good for the organization in the long run, and hence change the customer or employee acquisition process itself.
Similarly, for e.g., if there is a delay in achievement of sales targets, traditionally an organization may scrutinize, monitor, push and incentivise various aspects of the sales process. However, an organization with a scaling mindset will go and look at various value chains that impact sales success. Some may fix the demand forecasting itself – impacting sales targets. Others may increase branding focus to increase the readiness for sales to achieve penetration. And yet others may improve the logistics or production efficacy so that any negative market sentiments about fulfilment can be eliminated – giving sales the terrafirma to achieve greater numbers.
All in all, scaling is not about throwing people, money or tech at problems created by growth. It is about ‘working the work’ of the organization and finding better ways of working. Scaling is about organizational improvements that can result in business improvements. So, discern the two, and focus on both.
Scaling is what makes growth profitable, sustainable, and even desirable!
Sai Kumar Chandran is the founder of OrbitShift. He is a coaching and consulting practitioner and an entrepreneur at heart. He can be reached at email@example.com.