This week on In Process, we're revisiting a topic with many intricate parts: how to scale your business. Hosts Evelyn Ashley and John Monahon sat down with author and entrepreneur Doug Tatum a few weeks ago--author of No Man's Land and Chairman of the Board for The Newport Board Group--to talk about the issues that can kill good businesses as they expand.
"It's a fascinating opportunity to look at the checkerboard of U.S. company demographics," says Tatum, who works with a research institute at the University of Wisconsin that tracks every company in the United States over multiple decades. Tatum says that while the number of companies as a whole skyrocketed in the recession, the number of companies with more than 100 employees dropped dramatically. This is where we start to see "no man's land," a period in companies' growth that generally occurs between 20 and 100 employees.
"too small to be big, too big to be small"
The conversation about growth and adjusting to scale revolves around what Tatum deems The Four Ms:
- Market - How does a company relate to its customers & grow? What is the value proposition?
- Management - Who is the inner circle? What is the culture like at human scale vs. financial scale?
- Model - How does the business make money? How will that change as it grows?
- Money - Where will you find the financial fuel to get to the other side of a growth spurt?
These commonalities across all businesses are what inspired Tatum's book. "There really is no shortcut," he says of finding a successful business model at a larger scale. Tatum stresses the importance of objectivity in identifying what factors will allow your company to grow--in the early stages, that's usually through some form of innovation. Sometimes, your customers are the driving force behind innovation--Tatum laughs about how often companies make promises to customers that they, as businesses, are obligated to keep, ultimately forcing growth.
"In the early stages of a company, what you're really doing is making a series of promises," explains Tatum. The entrepreneur's job is managing those promises versus managing the organization's priorities. The problem arises when the company's growth reaches the physical limits of the entrepreneur--he or she can't work any harder, longer, or smarter, so growth sputters and the company begins to suffer.
What are you good at?
"It is remarkably difficult to keep a business simple for customers to do business with," Tatum says. As the entrepreneur delegates fulfillment of promises, you'll recognize No Man's Land kicking in when sales stop growing and customers begin to complain. To side-step this growing pain, it's critical that business owners consider what it is his or her clients applaud them with: What is the value proposition? Is it scalable?
Tatum also discusses perhaps the most emotional (and most ignored) issue facing expanding comanies: outgrowing original management.
"You can grow yourself out of business if your model isn't scalable."
"It's okay to stay small and make money," stresses Tatum. "You can grow yourself out of business if your model isn't scalable."
If you're going to get to the next level, the ticket to the inner circle has to be performance, not loyalty.
Listen to this episode of In Process for more details on refining your inner circle, scaling your business and preparing for success at all stages of growth. For more episodes like this one, subscribe to In Process on iTunes.