Possibly The Least Intuitive Part of Scaling a Business

Since exiting my previous job, I have been lucky enough to be able to step back a bit from the daily work of leadership as I charge up for my next run. I have taken to calling this period my adult “gap year,” albeit with a much lower ratio of cool Instagram photos and interesting destinations than most gap years entail. 

When people ask how I’m spending my time, I talk loosely about four buckets of activity. Energizing work on boards, and investments with some great companies. Some long-overdue work on our family’s philanthropic priorities. More time with family and on nascent hobbies. And giving advice on things about which I know nothing. 

The fourth bucket always gets a laugh. Since I live in the DC area, it usually gets a snappy response, too (“You’re a cable news pundit!”).  But it pretty accurately reflects the time I get to spend mentoring entrepreneurial leaders looking to scale their companies. 

It’s not that I don’t know much about growing a business. My career has put me in the thick of some pretty compelling growth opportunities, and I have had the chance to benefit from them personally. But the nature of these conversations inevitably leads down a path where I — by definition — don’t know what I’m talking about.  Because the really interesting conversations about scaling are usually about professional expertise I don’t personally have. 

Let me step back and explain. If someone is seeking advice on scaling a business, they (usually) have a product with some market resonance. Seeking advice on scaling a business without a reasonable degree of market receptivity for your product is not unlike the female protagonist in the Beatles’ “Drive My Car” who hires a driver before owning a car. Forward-thinking to be sure, but ultimately a total waste of time. 

To that end, asking me “what do you think about my product?”, might elicit an interesting comment or two. But unless it is a product of which I’m a regular consumer (such as dried fox pee to keep rabbits out of my garden), I’d hope early customers have more insight into its value. Same with pricing or marketing messages.  I’ll have opinions of course (and I might even expect you to pay attention to them: I’m not that far removed from the CEO chair) but they are at best a complement to voice of the customer and market data.

By definition, scaling a business is not the same as creating a business. Scaling a business means growing a business in a way that helps realize economies of scale. In layman’s terms, something needs to get better with growth — cost structure, value to the customer, competitive position. In a perfect world, all of this gets better with growth. 

Those who do have a real product, and real evidence of a real market, often have a very different set of questions. Hence the opportunity to hear me share my lack of knowledge. Many challenging questions about scaling businesses, it turns out, are about when and how to add costs you didn’t know you needed. You might have even thought of these costs as “overhead” (which they can be, if not carefully understood and managed).     

To put it bluntly, when you look at a company with $10 million in revenue and compare it to a company with $1 billion in revenue, some of the differences are obvious and expected — more sales people, more people supporting customers, more people managing and developing products, and more engineering. But alongside this growth is a proliferation of roles and capabilities that simply didn’t exist at $10 million. The list seems nearly endless — sales operations, procurement, cybersecurity, tax planning, learning and development — to name just a few. 

And pretty obviously, this isn’t because a CEO woke up when revenue hit $900 million and went on a hiring binge. Nor did they sit down at $15 million and say: let’s add fifteen new admin functions and double our burn rate. So — somewhere along the way — a “miracle” occurred. At various points, the leadership team made the decision to add a new capability to accelerate growth, reduce cost, or protect the franchise. 

These are challenging decisions for leadership teams and boards — particularly in fast-growing companies. Add the capability too soon, and you are putting in place non-value-added cost (or worse, layering in bureaucracy that serves as a drag on speed). Add the capacity too late, and you are courting Babel-like inconsistency and inefficiency in key processes or legal/ethical jeopardy. 

These aren’t just “when” decisions, they are “who” decisions. For the CEO in particular, they are complex “who” decisions, as they usually involve evaluating skills the CEO doesn’t have. Many CEO’s have personal experience making or selling products — few have run any of the technical capability areas a scale company needs. And the stakes are high — done right, these hires often become the sorts of transformative moments that create the next inflection point in performance. At various companies, I’ve had the chance to see high impact hires cut tax bills by a quarter, add nines to infrastructure performance, increase high-potential retention by 15%, halve the time to first sale of a new salesperson, cut the cost of capital by a third, cut recruiting time to fill by 10 days -- and dozens more – all from supposed “overhead” positions. 

This is how I end up talking about what I don’t know much about. When I’m engaged with another leader grappling with scale choices, usually we’re talking about what I’ve seen the best people in these roles do, how that can drive the business, and what the minimum viable additions should look like in what order. In short, I’m talking about jobs I’ve never done (with someone else who has never done them) and trying to help someone figure out which adds, in which order, can add the most value.

These conversations don't always sync with popular perceptions of growth-company life. The next TV show about high-flying business people is unlikely to feature an episode where an entrepreneur consults me over a stale bagel on whether or not their General Counsel should add a big-time contracts lawyer to their staff. But boards and CEOs that sequence these hires right, and make them well, can add a huge amount of value.

In subsequent posts, I’ll share further thoughts on how to diagnose needs at different scale points.