As your company grows in scope and size, it also grows in complexity—which can be hard for any founder to navigate. Yet it’s likely that the scaling challenges your company is facing aren’t unique to you and your business.
By understanding what the common scaling challenges are, you can start to recognize patterns and avoid the issues most founders face as they grow their startups.
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DOWNLOAD NOWWhat Is a Scaling Plan?
At the beginning of a business, it can seem premature to start thinking of its growth potential. Yet, not laying a foundation early for future growth will likely lead to several avoidable challenges. That's why it's important to create a comprehensive business plan that accounts for your company's current status and potential expansion.
Creating a scaling plan allows you to prepare for potential customers and future business opportunities, ensuring sustainable growth in your company.
How Businesses Fail to Scale
The key to avoiding failure as a company grows is ensuring that business leaders agree from the very start on what its products, ideal customers, and internal processes are. Solidifying these is critical before scaling up, as they clearly define a company’s business model. Failing to do this step is one of the primary reasons some startups fail in the scaling process, as they didn’t have a clear vision of where their company should’ve gone before the unprecedented growth took place.
“If you develop an understanding of the archetypal challenges associated with rapid scaling, you can build in design for scalability,” says Harvard Business Professor School Professor Jeffrey Rayport. “There are decisions you can make early to mitigate risk.”
When asked what those challenges are, Rayport breaks them down into what he calls the “Six S Framework.” Or rather, the six areas founders should focus on when building their venture. They're:
- Staff
- Shared values
- Structure
- Speed
- Scope
- Series X
Here’s a closer look at what each area means and its potential impact on your growing business.
Applying the Six S Framework
1. Staff
You can’t scale your venture alone. You need a team of talented, highly motivated staff who believe in the company’s mission. For resource-constrained startups, the right talent can change everything: High performers are 400 percent more productive than the average employee, according to McKinsey. As roles grow in complexity, that productivity number jumps to 800 percent.
When a company is in a rapid growth phase, it often feels easier to hire anyone who can get the work done. But as Apple Founder Steve Jobs once said: “Go after the cream of the cream. A small team of A+ players can run circles around a giant team of B and C players.” If you compromise on talent early, it’s harder to backtrack.
“You need to set a high bar for the first few recruits in the venture,” Rayport says. “You can’t compromise on that first wave, because they’ll be the ones who propagate the values of your organization. Pretty soon, they’ll also be hiring the next wave and hire performers who are a lot like them.”
Related: 4 Challenges to Avoid When Scaling Your Venture
2. Shared Values
Shared values represent a company’s culture, and are what defines how employees interact, solve problems, and work with one another, according to Rayport. As individuals encounter challenges and learn how to collectively address them, particular patterns are reinforced and ultimately coalesce into shared values and beliefs about how work gets done.
“Most startups have a culture that is a direct reflection or translation of the founders’ personalities and values,” Rayport says. “And most founders are largely unaware of the outsized impact they have in instilling the culture of their organization.”
One of the biggest scaling challenges around culture is de-personalizing the company’s core values, so they feel less like mantras shaped by a few individuals, and more like a shared organizational fabric.
“You need to make those implicit values explicit and take the time to write them down,” Rayport says. “It’s important to separate cultural inputs from outputs. Most ventures describe the culture they want, which are the outputs, as opposed to determining the actions founders can take, or the inputs, to deliver on that culture.”
3. Structure
How you structure your organization is crucial to success. As the company grows, so, too, should the number of decision-makers. The founders can’t be involved in every detail of the business once it scales. It’s important to recruit seasoned leaders with specific skill sets or develop employees who can thrive in environments with more specialized roles.
Training new employees can feel like additional work, but taking the time to properly onboard them pays dividends later. It’s all about creating leverage to deliver on the founders’ vision—and that requires not only recruiting the right people, but structuring their roles and the organization in ways that favor growth. If you don’t let go, your organization won’t scale.
Amazon CEO Jeff Bezos encourages failure. As he once wrote in a shareholder letter, as reported in Business Insider, “Failure comes part and parcel with invention. It’s not optional. We understand that and believe in failing early and iterating until we get it right.”
4. Speed
Once you have evidence of product-market fit, it’s important to stop and assess how fast you can, and should, grow.
“A lot of tech ventures assume you should swing for the fences and grow as fast as humanly possible,” Rayport says. “But there should always be the question, ‘How fast is too fast?’”
Most ventures accumulate “technical debt,” which is the price of scaling what works rather than what’s perfect. Over time, tech debt adds up and it’s critical for leaders to find ways to pay it down. That’s the only way you can create the robust business systems and stable infrastructure needed to support increasing scale.
“It’s better to pay down your tech debt as you scale,” Rayport says. “If you have a market opportunity, you don’t want to wait a few months to get your house in order. But sooner or later, you have to upgrade the systems and infrastructure. As Marshall Goldsmith famously said, ‘What got you here won’t get you there.’ It’s important to recognize that each stage requires its own set of approaches.”
5. Scope
On the other side of speed is scope. Rather, where do you look for opportunities? At what point should you consider expanding into new geographies or markets, or building additional products or services? It’s easy to lose focus when you start to scale, but having a map of growth options helps.
“One way to start categorizing your options is by asking, ‘Will I grow by extending existing products into new markets or by selling new products to existing markets?’” Rayport says. “Make decisions rigorously to set your path.”
6. Series X
Financing is one of your most valuable resources, and it’s important to understand how your financing strategy aligns with your growth strategy, according to Rayport. Hiring additional employees and building out the right infrastructure and business processes typically require capital. You need to know what kind of financing is necessary to support that growth and where you can cut costs.
“Founders often make the ill-advised decision to convert variable costs into fixed costs too early,” Rayport says. “For example, many e-commerce ventures have rushed too quickly into owning their own fulfillment centers rather than relying on third-party vendors.”
What fixed overhead can your organization bear while still having maximum agility? Rayport uses the cloud as another example of how companies can keep fixed costs variable. Is owning a data center crucial at this stage of your growth?
If there’s a market shift or downturn, your company should be poised to adapt and respond. Without a flexible cost structure or the right financing, that’s nearly impossible.
How to Prepare for Scaling
As an entrepreneur, it’s critical to anticipate your business’ growth. It’s one of the most important business strategies on your path to success. Preparing for this change involves having the right individuals who are attuned to the company’s mission and agree on its values and strengthening the company’s internal structure and processes for unprecedented changes. By applying these key areas to your business, you can rest assured the company is equipped to handle any measures of success, no matter the capacity.
As Rayport says, “A lot of businesses don’t anticipate scale.” But by understanding what the common challenges are, it’s something you can, and should, start to plan and prepare for.
Do you want to master a proven framework for building and financing new ventures? Explore our four-week online course Entrepreneurship Essentials, and discover how you can learn the language of the startup world.
This article was updated on July 28, 2022. It was originally published on March 7, 2019.
