Prepare to scale with strong internal systems
When you’re the first and only person at a start-up, everything works the way you want. You’re still learning as you go, but you have no one to report to bar yourself and you’re still establishing your systems and the best ways to operate. There can be no miscommunication, there’s no hierarchy, and you simply pay yourself.
But then your business might grow to 3 people. You’ve tripled in size! You’ll need new lines of communication, a rough hierarchy, designated tasks. It’s not complex but it’s certainly different to when you were on your own.
Moving to 10 and then 30 employees marks more turning points. You might need a bigger payroll system or more sophisticated accounting software. You’ll need an IT department, an accounting department and managers for these areas with clear reporting lines.
“It’s common for businesses, especially those who experience sudden growth, to be unprepared to support their new size.”
Then, imagine growing to 100, 300, and then 1000? How does your organisation look at this size? It’s quite likely you’ve never thought this far ahead. It’s common for businesses, especially those who experience sudden growth, to be unprepared to support their new size, or to make haphazard, reactive decisions on systems, processes and lines of communication and hierarchy.
The theory of Hiroshi Mikitani
Hiroshi Mikitani (https://en.wikipedia.org/wiki/Hiroshi_Mikitani) is a Japanese billionaire and the founder and CEO of Rakuten (https://global.rakuten.com), Japan’s largest e-commerce retailer. Mikitani started out on his own in 1997 and Rakuten now employs 10,000 people. He has a theory about the way businesses grow and when they should act to scale their systems in preparation for the next growth phase.
Mikitani's hypothesis says that everything breaks at roughly the points of 3 and 10 (multiples of 3 and powers of 10). And by "everything" he means everything, how you handle payroll, how you schedule meetings, what kind of communications you use, how you do budgeting, who makes decisions.
Mikitani believes that each implicit and explicit part of the company changes significantly when the size of a company triples.
Many companies run into trouble because of this dynamic. Your fast-growing start-up could power past a few of the earlier milestones (3, 10 and 30 employees) without realising it. You could be so busy working on growing your business that you fail to build its support systems as you go. You may suddenly find that you’re employing several hundred people, but you haven’t reviewed your processes since you were employing 30.
Best to plan ahead for your business than to play catch up
Retrospectively making changes and putting in systems to meet the needs of your much larger organisation will take money and time, and take your attention away from the coal face of the business. Growth could slow, costs could blow out. It’s certainly not as easy or cheap as building in changes as part of your growth.
A business which has grown quickly is vulnerable because they don’t have a strong enough foundation to accommodate their growth. Sometimes new systems are hurriedly installed, or not tested properly in the rush to catch up with the number of staff who need them.
As a smaller (but ambitious) business you can avoid these pitfalls by thinking about how to reinvent yourself as you grow, knowing when to add extra staff, what role these staff will play, and how they will work together. Think ahead about the number of staff you’ll need to trigger a new payroll system or a hierarchy reshuffle, so your business can support the number of staff you’ll have in the future, not how many you had two years ago.
Some organisations don’t know when to stop making changes
Mikitani says while some businesses fail to put in infrastructure to support their growing business, others continue messing with it, even when there’s no pressing need for infrastructure changes. Once you’ve got 10,000 people in your organisation, it’s going to take a long time to reach the next tipping point of 30,000. You’ve got plenty of time to build in new systems and prepare for greater staff numbers. In fact, you may never get to 30,000 staff, even reaching 10,000 is a huge achievement.
The problem, as Mikitani sees it, is executives like to make their stamp on a company. Waiting a decade or two for the right moment to change internal processes is far too long, so big companies continue to seek initiatives to improve themselves, spending time and money to make changes that are unnecessary because they're not connected to any fundamental change in the company.
This endless quest for internal change wastes money and energy which is better spent elsewhere, on new product lines, attracting new customers, staff development or marketing initiatives.
If you’d like some support to make decisions about your business, contact Mike at Truro Partners. His experience stretches across all kinds of businesses and he’ll give you an honest and intelligent viewpoint of your situation and what’s your best next step. Call him on 0401 142 311.