Four Cs of The Scale Challenge

”Let us try.
To-morrow, how you shall be glad for this!”

– Robert Browning

Businesses want to scale. It is especially true for ambitious entrepreneurs. It should be easy, should it not? After all, the smart view is that it is ambition that scales, ‘stuff’ does not. But the reality is not linear, not bi-modal, but nuanced. The road to hell is paved with a surfeit of ambition and a shortage of what it takes.

So what does it take to scale successfully?

Here is what.

Cardinal check: The core issues

Is the core of the business profitable? If it is not, then there may be a problem to solve already. There could be many reasons for unprofitability from bad strategy to poor execution. But one big outcome is that the business has little money to spend on dreams.

Is the business amenable to scaling? Not all businesses are. Some personality driven businesses and hourly chargeable careers may not always scale. The entrepreneur needs to take a dispassionate look – or ask someone else more dispassionate than she is to take a look – at the possibilities in and limitations of his business. That will also help think about strategic pathways to scaling. For instance, Nicky Clarke, who is a well-known hairdresser, can give only so many haircuts himself. Can he scale? Yes, possibly by personally training other stylists, or by launching haircare related products. But only he can decide if it is acceptable to him to scale that way.

Does the business have the capabilities required? A firm may be looking to open a new market. But it will be difficult to service a demand it actively creates if, for example, its manufacturing capabilities do not scale, or do not scale easily. For one of my clients in biologics manufacturing, we are doing our sums and readjusting our timetables because  the manufacturing plants must obtain regulatory approval. In other cases, a firm may not have the capabilities but may be willing and able to source help from outside.

Above all, will the added scale enhance the value of the business? If the answer to that is ‘no’, the project may not be worth the hassle.

Capital: do your sums!

Does the business have the money it will take? Nearly all scaling activities require money. Lots of it. There are both monetary and opportunity costs associated with raising money. One could approach one’s bank, assuming it is willing to lend. One could go to investors who have expertise in one’s industry or bring other non-financial value-add. However with both these sources, tough questions regarding the profitability of the core business must be answered.

If one’s ambition really does scale and if there is confidence in other organisational capabilities, then one could bootstrap, as one of my clients – a serial biotechnology entrepreneur – is doing! He understands the risks and that if he must use leverage or raise money, timing is all important.

Regardless of how one raises capital, the balance sheet will change. So will the nature and scope of control as we see next.

Control: See, letting go of.

Can you let go? For ambitious entrepreneurs, one of the hardest things to do is letting go of absolute and full control: control of the company ownership and sometimes, of strategic pathways to propel the ambition forward. It is however a necessary risk, since the entrepreneur himself cannot scale.

Scaling also requires organisational and process redesign. And empowerment of people who buy into the vision of the business and have the capability to make the right decisions. If a robust core business and a basic but clear structure exist, letting go of control enables emergent structures that suit emergent needs.

The global scaling experience of Indian IT firms, such as HCL Technologies, is informative in that respect.

In some cases, it has been my experience that it is easier to work on scale challenges with a serial entrepreneur of any age or background than with a first-time entrepreneur. Those who have been there, done that have a better understanding of leverage and using it to create enhanced value. The latter often needs to be asked: Would you rather than 10% of something that is worth £ 10Billion or 100% of squat? Brutal but a good readiness check.

Complexity: Dealing with it

I know “simplify or die” was one of the messages in my last post. But in reality, things do get more complex. What changes when complexity grows? I suggest a quick look at this link where Rui Das quotes James Kay:

“Under conditions of complexity, our framing of the situation changes from one (correct) perspective to multiple perspectives and scales. Our explanations shift from linear cause-effect models to narratives about self-organization, attractors, cannons, and propensities. Investigators into complexity do not seek prediction, control, right answers, or efficiency. (…) Rather, the investigators seek understanding, adaptability, and resilience.”

Although written in the context of science, the above description is equally applicable to business.

When seeking scale, assumptions about culture, people, time-scales all come up for scrutiny. There are gaps in data and knowledge. There are trade-offs to be made. All this makes decisions less easy.

In such a situation, a business with a clear vision, empowered employees and the ability to deal with ambiguity succeeds. All that and a lot of preparation.

Most recently, I am working with a British client keen on alliances with healthcare providers in India. Our main challenges are not just regulation, but deceptively simpler things like culture, use of language and imperfect information from potential partners. What helps? Above all, not being fazed by unpredictable developments. Also being able to join dots we have been watching which may not be directly relevant but have an impact on decision-making time lines.

And yet, helping them tackle these challenges is not the only reason why I work with entrepreneurs. I work with them because with their ambitious and unusual choices every day, they embody something else Robert Browning wrote:

“Ah, but a man’s reach should exceed his grasp,
Or what’s a heaven for?”

%d bloggers like this: