Scalability is my new favorite business-y word. It applies to our careers, client’s success, and business generally. We all want to scale our businesses.
In a perfect world, this word describes the ability to copy/paste the good parts of the business with limited resistance or obstacles. Keep doing good work, but more of it.
In a perfect world, it hints at a consistency and rigor which allows for high quality work to continue with the same level of administration. SG&A % does not increase.
In a perfect world, it rings of revenue growth, market share wins, and career advancement. It is a word that means winning.
In reality, most people and organizations do this poorly for a myriad of reasons.
- Growth is hard. There are more competitors than ever, and the law of supply and demand guarantees that if you are making lots of profits, you will have more competitors tomorrow than you had today. Markets adjust your profits away.
- M&A often destroys value. It is even more difficult to grow in a disciplined way. Companies often over-eagerly grow through acquisition, even though 2/3+ of mergers destroy shareholder value. Bain did a study here.
- Markets change. What made a company originally successful then, might not be the way to go forward now. Market change, technology changes. Dell used to eschew the retail model, now you find them in Best Buy. Southwest now has priority seating. Have to change with the S curves, be nimble.
- Process takes over. As companies get larger, they try to reinforce control through process and policies. The bureaucrats take over. It stops being a LEAN organization. SG&A increases as more people call meetings that go nowhere. BCG makes an argument here, that complexity needs to be fought with simplicity.
- People refuse to change. As companies progress, a different set of leadership behaviors need to emerge. Sometimes, it is the same people taking on new and expanded roles, but often people hold on too long to their historic roles. They need to change, but cannot or will not. The peter principle takes over.
- Culture stops. While this is an amorphous concept, it is critical. I firmly believe that culture trumps strategy, but culture is hard to transmit. It needs constant reinforcement through good recruitment, mentoring, selective promotion, story-telling, difficult decisions and a culture of trust.
- Burn out. Ramping up an organization is tough work. You are the “entrepreneur” who is staffing, delivering, selling, coaching, traveling, writing, talking, and running. There is eustress, but there is also burn out. Good people will leave.
- Mis-hires. For professional services organizations (consulting, law, accounting, marketing), the equation is simple. Good people = asset. Bad people = liability.
- Don’t know WHY. Many large companies do not have a mission, vision, true-north that their employees understand. This can be a bit of an identity crisis. As Simon Sinek said so famously in a TED talk, “Start with the Why.”
- No focus. Strategy is as much about what you “don’t do” as what you do. Strategy requires choices and saying no. In the search for growth, it’s easy to chase after the next thing, and lose sight of the end goal. Too many consultants fall in this trap; they go from one project and firm to another. . . until they end up mid-career without a clear industry or functional focus. Generalists cannot scale.