In a 76 trillion dollar economy, it should be easy to grow a company, right? Wrong. Many companies lack the ability to “scale up.” Business guru Verne Harnish explains why transitioning from big to bigger requires a completely different approach with these scale-up business tips.
We’ve interviewed many thought leaders in various business segments, but we’re honored to feature an interview with one of the biggest of the bigs -- Verne Harnish.
Michael Dell, Steve Jobs, and Mark Cuban all participated in some of his early organizations (ACE and YEO) and in over 34 years, over 40,000 companies have heeded his advice.
Verne is the founder of Gazelles, a premier coaching company for mid-market companies around the world that want to scale up. Today, he is one of the leaders of the scaling up movement and the author of the book “Scaling Up.”
He believes there is abundant focus on start-ups, but limited focus on scale-ups — the companies really growing the economy.
Scale Up Your Business Definition: What is Scaling Up All About?
What we love about Verne’s approach is that he’s not a consultant that cranks out new strategies and ideas simply to boost his consulting business. He’s built a systematic approach to “scaling up,” and over the years, he’s continued to refine and enhance it.
Scaling up is about the “S” curve, in essence. “The S-curve drives everything -- life and business,” Verne explains.
In life, you weigh more in the womb than when you’re born. Then when you’re born, you lose weight and look to be fed.
The same holds true for your business. In the start-up phase, you have less, as you look for money to grow your business. Once things start to click, you have more. Then, as a mature business, as your initial growth starts to wane, you have less again.
Scaling up is about finding the next S-curve -- the next geography you can jump to so you can continue to grow.
(Listen to Verne’s advice on the most important thing business leaders can do (it will surprise you), then read on!)
Why Do Businesses Fail as They Move Beyond the Start-up?
Few companies can transition from the lean, start-up phase into mature growth. “Most companies in the US and around the world remain small,” Verne explained. “76% of companies have a single employee.”
Granted, a fair number of those small businesses remain small by choice, but many do not. At some point, most have pursued a growth path, possibly even doubling or tripling revenue. But after a point, they give up, because their bottom line either stagnates or shrinks.
“They think to themselves, ‘I’ve got all these customers and employees -- and I’m making less money,’ ” Verne said. “They decide to just go back to working by themselves.”
3 Things That Go Wrong When You Start to Grow
Why do so many small businesses stay small? It’s because businesses with more than 50 employees and more than $5 million in revenue experience different issues than the small business. “Things change dramatically,” Verne said.
Your culture starts to leak: You no longer have the tight-knit company where you know everyone’s name. You get more people, and you lose the comradery and family-feel you had before.
You lose your gut feel for the biz: As you become removed from the day-to-day decision making, you lose touch with the critical business routines. You’re separated from the culture, and your feel for how the business works lessens.
You become more complex: The big thing that kills you is complexity. For example, if you add product lines, you add more people and processes to each team. Your productivity eventually starts to wane.
Some business owners feel that these obstacles are too big to overcome, and they choose to stay small. But if you want to grow your company, what does it take to scale up?
Scaling Up Requires Systematizing
Taking the next step requires systematizing your businesses. It’s the reason why so many bigger companies succeed, “The average revenue per midmarket employee is about a quarter that of a larger company,” he said.
Smaller companies get “sloppy,” Verne says. They lack the processes that can be delegated to others, which is a big part of why senior leaders burn out. “They’re working 90 hours a week, and trying to figure out how to get their lives back,” he said.
The successful large companies understand process. Yes, many organizations are slow to react and bureaucratic -- and those are destined to die a slow, painful death. But the powerhouses have staying power because their systems are strong.
How to Scale Up Your Business: 6 Things You Can Do
In his book, Verne explains the many areas that can impede your efforts to scale up. Here are six he mentioned during our interview:
1. Develop your leaders: You have to turn everyone in your organization into a leader. Everyone needs to make better decisions.
2. Focus on marketing through influencers: Smaller companies have to understand the difference between sales and marketing. To scale up, you need great marketing. And part of that marketing effort is finding the key influencers who can help your business grow.
Verne recommended making a list of 25 people who you need to get behind your project. Then spend time working through that list, doing whatever you can to get those people behind your project.
3. Create a scalable infrastructure: This ties into the systematic approach your business needs to take. Have you clearly defined your systems to allow your entire infrastructure to grow?
4. Tame your ego: This is the single biggest issue that prevents scaling up. “Start-up leaders think they know it all, so they can never let go,” Verne said.
The business world is littered with hefty egos that drove companies into the ground. You don’t know it all. Surround yourself with bright people who can teach you things, and continue to learn, learn and learn some more. You can see further when you stand on the shoulders of giants.5. Be aware of market timing: This is a tough one to control. Timing is so critical, and many factors are out of your purview. “At the end of the day, the market can make you look brilliant, or like a complete idiot,” Verne said.
However, you have to pay attention to the trends. He alluded to a particular company that is ignoring the cash cows of today’s economy - baby boomers - and focusing on Millennials. A great long-term strategy perhaps, but why not target boomers, who are spending scads of money right now?
6. Master your pricing: Verne believe this “the big one,” one of the main factors that prevents scaling. While businesses are very good at watching the cost side, they miss the boat on pricing. “Businesses absolutely have a confidence issue,” he said. “Their revenue per employee is bad because companies just underprice.”
Bottom Line: You Should be Hitting it Out of the Park...Scale Up Your Business!
We’ll conclude by circling back to a number we mentioned earlier - the 76 trillion dollar global economy. With an economy this size, Verne believes a business that doesn’t succeed isn’t really paying attention to the scaling up factors.
“The market is there,” he said. “Our goal is to help business owners figure out how to take advantage of it.”
Go to www.scalingup.com to download a couple of free chapters on the barriers to growth, and how to prepare and run a Strategic Planning session – plus all of Verne’s Growth Tools are there to use for free in multiple languages.