Scaling UP- What is it about?
By Jeremy Han
Every business wants to grow, to scale. Yet not all would achieve that result. In fact, just almost a year ago, on 12th November 2015, the Business Times reported that 53% of Singapore businesses surveyed reported hitting a plateau in growth or negative growth. The survey covered almost 2800 companies, yet more than half are not growing as they should. This is serious because businesses are the engine of an economy, and if the engine is not revving, the country would slow down. The article also noted that this was the highest percentage of ‘no growth’ in recent history.
“53% of Singapore business reporting hitting a plateau in growth or negative growth”
Does this mean that scaling up a business is not for everyone?
So how do we know if a business has what it takes to scale or not?
The first thing a business needs to do is to develop the mindset of scaling up. As the philosopher Descartes famously said,
I think, therefore I am.
So the first step is to think correctly about scaling.
First of all, what is a scale-up business? Nowadays, it is common to link scalability to the unicorns i.e. tech businesses who cross the billion dollar mark in less time than a traditional business. But is this really the correct definition of scalability? What about non-tech businesses? Can they scale?
Technically speaking, a ‘scale-up’ is a business that can sustain 20-30% growth year on year for 3 years – thereby doubling every 3-4 years. If this is the correct definition of a ‘scale-up’, then it means all businesses can scale.
Then this leads to the next question – how do we achieve the 20-30% growth and keep it sustainable? Short bursts of growth are possible, but the difficulty is in sustainability. To answer this question, businesses must first have the intention to scale. One of the factors to scaling a business is change. How willing are business leaders to change? Changing the way they run their businesses, their habits, their mindsets etc. Change is painful, but necessary. In my experience working with executive teams across Asia, from multi-generational family businesses to tech scale-ups, the one thing I notice that is critical to scaling up a business is the willingness to adapt. One thing I noticed is while every business leader is willing to work hard, not all are willing to change.
“I think, therefore I am.”
-Descartes
Every business leader talks about willingness to grow, to learn, and repeat clichés like ‘change is the only constant’, but it is only those who demonstrate an intention to change, manifested through action, that see results. As Einstein said, only when we do something differently, will we get different results. For every leader I worked with who saw results because they changed their organisation’s habits, there are also others who kept the status quo because of the oft used excuse – ‘no time’.
How intentional are you to scale your business? Is growth incidental or intentional? Do all your team mates share this intentionality? Intentionality must be demonstrated through willingness to change. Intentionality cannot be subjected to ‘only if I have time’.
If business leaders are willing to change, then how do they change? Thus the next step for a business that wants to scale would be to adopt a framework of growth. Without a framework to manage scalability, business growth depends on the individual leaders’ ability, temperament or experience. This becomes too subjected to the leader’s presence. In fact, without a framework to get everybody on board, he will not be able to harness the collective ability of the organisation to scale, because everybody would be speaking a different’ language’. For example, one prestigious property development company that is very famous in the Philippines has a very dynamic leader. In fact, the current success of the business is very much attributed to his talent and commitment. Yet as I worked with him, he told me he is very much aware that his management team depends too much on him. What he needed me to do was to help him build a growth framework and inbuilt it into the DNA of the management team so that they can continue to scale the business after he retires.
“Only when we do something differently, will we get different results”
-Einstein
So what does a good growth framework look like? It must encompass these four areas.
The first is Strategy.
Businesses always confuse strategies with goals or tactics. For example, in a recent meeting with the executive team of a local tech company, they said their growth strategy is to make their flagship product the best in Asia.
How?
What troubles me is that in the entire meeting, no one mentioned the word ‘Differentiation’. As Michael Porter said, ‘Strategy is about being different – trade-offs that lead to differentiation’.
So one of the first things I am working with this business is to identify the right choices that would drive differentiation –differentiations that matter to the core customer’s needs.
What separates strategy from tactics or goals in business is really the concept of differentiation. We need to be clear which we are applying. Another favourite example companies give about their strategy is to ‘increase productivity through technology’. But this is not a strategy because it can be copied very quickly by our competitors. It is in fact to keep up with the changes in the market such as rising cost, but it in no way makes us different from the rest of the pack because, just as you are implementing these changes, others are also doing it.
Recently Accenture Consulting released an interesting report that among the companies they surveyed, only 6% saw substantial revenue, profit and valuation growth. The rest reported improvements in processes but not in earnings. Why?
The answer is differentiation. The report highlighted that the 6% used technology to change their business models, and not merely their processes. That was why they saw their revenues scale.
How different are you from your competitors? Do you know where your difference should be in?
The second area is People.
Without good people, it is impossible to scale. And what do we mean by good people? A good employee is someone you would enthusiastically re-hire if you can do it again.
Do you feel this way about all the people you employ now? Businesses often fall into the tap of hiring under pressure. When a staff leaves, and the bottom line is tight, we feel pressured to hire.
Hold on.
Hire slow, fire fast – because the cost of a bad hire is 15x the salary of the person. Besides the monetary cost, what about the emotional cost of hiring wrongly? Multiply that across the number of relationships in the company and that would be the true cost of hiring.
Besides asking ourselves would we enthusiastically rehire everyone, we also need to know why we are hiring a particular person. And usually the answer is for qualifications and experience. But are qualifications and experience the only criteria for scaling a business? Remember scaling a business is about change, so you need to have people who are high in adaptability and resilience. Jim Collins, world famous management guru would call them A players. I work with a CEO in South Asia who is having problems with one senior member of his team. This is a third generation family business spanning more than twenty companies. The leader had great plans to scale the business but a particular member of his team did not want to adapt and change. He insisted on doing what he was doing for the last few years and refused to flow with the new vision. This caused great distress to the CEO as he felt his plans were stuck. In my work with him, we had to design a clear accountability chart to get his management team, including this senior member to change his priorities, including constant reviews to change his behaviour.
So in order to scale up, you need to have a people strategy; one that is different from what your competitors in the industry are doing. You need to hire for adaptability and grit before your hire for qualifications.
The third factor in the framework is Cash.
Cash, or cash flow, is the oxygen of any business. Do you have a strategy to constantly improve cash flow? Or do you accept and follow industry constraints? Without cash resources to support your scaling up measures, growth would be tough.
Most businesses I met find it hard to believe that they can differentiate themselves from their competitors when it comes to cash flow. This is because they feel they have to accept, or are held hostage to industry practices.
Now that may sound daunting, so the first step towards having a cash flow strategy would be to map out the entire cash flow cycle. How many days does it take for your efforts to be converted to cash? And which part of the cycle can you influence? What are the ‘levers’ you can move to significantly improve your cash flow? Is this whole process mapped out and studied as part of your strategic planning? For example, a trading company I work with found that their cash flow can be drastically shortened when certain levers were identified as within their ability to influence. During our management coaching sessions together, we build a plan to drastically reduce the number of days to accounts receivable by putting together a plan to move these levers.
Besides looking at the cash flow, do you constantly review your business model? Do you have a business model improvement strategy? Or do you leave it to chance? This is critical because our business model influences our cash flow, our profitability and our revenue.
Again, the key word is intentionality and differentiation – do you intentionally find what can be done differently so as to achieve a better cash flow than your competitors?
The last, but most important factor is Execution.
By this, I mean specifically executing strategy and turning it into outcomes.
Execution is largely misunderstood. Almost all the businesses I worked with had no execution strategy, which meant they assumed that strategy will be carried out during the day-to-day processes. However, when execution is not intentional, the focus would always go back to fire fighting and doing things the old way. There was little or no focus on ensuring that strategy was executed. One business leader from the electronics sector I spoke to told me his corporate planning division worked very hard to craft a great strategy but one year later, not a single strategic move was executed.
Why?
What businesses need to understand is that execution is culture, because culture is beliefs and behaviours. What do your people believe about execution? How do your people behave when it comes to execution? More importantly, how do leaders feel about execution? Is it micro-management, is it laborious? Is it for the lower levels?
To develop an execution culture, it cannot be left to chance. Leaders have to take the lead in instilling an execution discipline – and that is meant by developing a process where strategy is broken down into actions, measured and reviewed on a regular, consistent basis. Now this sounds like common sense, but most companies do not have this nailed down and communicated across all levels, much less executed in a systematic way.
For example, one second generation, fast growing business I met told me they only had a business leaders meeting whenever they acquired another company, so their annual planning sessions change yearly depending on who they acquired and when. Another international company that got me to conduct a strategic planning session in 2015, told me they had not met for the last five years. There is no process to think about strategy, translate strategy into action, and review and revise. They realised they were growing by sheer guts and hard work, but the complexities of running such a large organisation were starting to become a challenge unless they had a systematic way of executing and monitoring strategy.
Execution is the discipline of getting things done – specifically strategic things. It cannot be left to chance, or to a random process.
In summary, every business can scale if they know how. But knowing is not enough, they must be prepared to change. But change is difficult without a framework. In conclusion, I want to break down the word scaling up into smaller pieces. Scaling up a business is really like playing with a Lego set. You need the right pieces to build your goals. The four critical pieces are Strategy, People, Cash and Execution. In the next few articles, I will focus on each of these critical pieces and elaborate how to use them to your advantage.
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1 Comment
Great article!