Mark Emmer is the president. Optimize Co., Ltd. He is an author, speaker, and consultant specializing in strategy and strategic planning.
We tend to use the word “scalability” liberally as if it applies equally to all businesses. However, as companies go through growth cycles, their approach to scalability changes. Startups primarily focus on bringing their products to market. Ideating and iterating a product is all-consuming. Small teams of generalists wear many hats and don’t have time to develop corporate functions such as accounting, operations, sales, and finance. Everything is raw.
Once the product is built, the team turns its attention to distribution. At this stage, sales and marketing become comprehensive.
It is only later in their evolution that companies begin to truly “scale up” by building infrastructure that includes people, processes, and technology. When a private company reaches a significant size (say, $50 million in revenue), more structure is needed.
1. Automation and technology
Many have felt the need for automation, but over the past two years it has proven difficult to deploy automation quickly. But the potential of AI and machine learning has operators excited about the prospects for both manufacturing and office automation.microsoft Recently introduced Copilot, a generative AI tool. There is a clear shift within midmarket IT teams toward building applications that enrich the client experience.
2. Business model innovation
The new era of AI will revolutionize application development. Apps get to market faster and are more configurable. Many of these innovations simply aggregate existing technologies into new offers, an activity called “recombination.” When scaling up, recombination can be a way for a company to separate itself from the group by offering new solutions. Airbnb combined home ownership with a dating app and sparked a whole new industry. We can expect a wave of recombination and new business convergence, such as TV and streaming.
3. Integrated system
Perhaps the most painful chasm for mature private companies to overcome as they scale is moving from cobbled together systems to integrated systems such as enterprise resource planning (ERP) software. Given the cost and pain of integration, management teams often freeze when making these decisions. Today, there are many cloud systems that talk to each other, but businesses that fail to take this leap when scaling can find themselves stuck in a state of perpetual manual processes and unable to access the information they need. . button.
4. Employee management and planning
Almost all private companies plan their workforce for the current quarter or year. This situation is exacerbated by the war for talent, which has left many HR departments in turmoil. Mastering recruitment (and perhaps retention) requires succession planning and a longer-term view of how many people you need to hire and when. This provides role descriptions and career advancement opportunities for existing high-potential employees. Today’s workforce management requires thoughtfulness and preparation.
5. Standardization and mass customization
Small and medium-sized businesses often customize because it is a differentiating factor. But customization doesn’t scale, and the most scalable technology companies offer “mass customization,” giving the illusion of choice. For example, the iPhone 15 can be purchased in five colors, but there are two models. On Amazon, you can purchase an unlimited number of products and choose from multiple shipping options.
People confuse the word “disruption” with doing something new. But with Clayton Christensen, I coined the word, he was talking about developing products that are available to the masses. Generative AI is not a new idea, but ChatGPT was one that was easily accessible to the public in a format that people could understand. To scale quickly, some standardization is required.
6. Accounting management
Medium-sized businesses need to implement significant accounting controls. I once had a client with a dirty CFO who stole over $500,000, which is proof that you shouldn’t keep a fox in the henhouse when it comes to accounting. For example, a large private company can make its finances redundant by requiring the approval of two people to add a new vendor or transfer cash. Companies can also build more rigorous budgets based on actual sales or departmental forecasts. These organizations employ cost accountants who have access to reliable information, giving them a clearer picture of their costs.
7. Cash operation cycle
During the startup stage, founders are absorbed in managing the runway until they need to raise new funding.
One thing that may seem counterintuitive to many businesspeople is that the more you grow, the more working capital you need. Large companies need access to more cash. Therefore, at some point, management will need to compress the cash operating cycle more intentionally. This is the main motivation for many companies to switch to a subscription model. Large companies have “bankability” and can access debt without giving up equity.
One of our manufacturing clients dramatically improved their cash operations cycle by splitting high-speed production items into A, B, and C.
If you’re a growing company looking to scale, make sure your management team is investing in a strategic plan to build the people, processes, and technology you need to grow.
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