Scaling SmartA Strategic Approach to Growing Your Company Successfully

A Kapta eBook

Identifying problems worth solving and creating a viable product that meets customers’ needs is what all start-up companies must accomplish. In so doing, they must identify how to accelerate growth with limited resources.

Identifying problems worth solving and creating a viable product that meets customers’ needs is what all start-up companies must accomplish. In so doing, they must accelerate growth with limited resources. There are a variety of effective steps a company can take to mitigate the growing pains associated with accelerated business growth. It’s no coincidence that the best venture-backed companies in history did a great job scaling. It’s how you turn small amounts of invested capital into extremely valuable equity in a short period of time.

Many CEOs are worried about losing or diluting their culture as they grow. With the right building blocks in place however, a company can actually maintain and reinforce its values and culture as it scales. Over the course of 100+ interviews with CEOs, a very clear pattern of “scaling-up practices and organizational behaviors” has emerged.

Scaling up from a ‘good’ company to a ‘great’ company requires decisive strategic execution that supports sustained operating leverage with a healthy dose of corporate alignment to support company culture and innovation. Our findings show that those organizations that are effectively scaling-up consistently demonstrate the following organizational behaviors and processes. Those that perform best have proper systems in place to ensure these behaviors and processes are properly embedded and not left to chance:

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Operating Leverage1

Communication2

Network Influence3

Speed7

Accountability6

Alignment5

Transparency4

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Operating LeverageIf you add operating costs at the same rate you grow revenue, then your business does not scale.

According to venture capitalist and author Alex Taussig, “Businesses that scale are businesses with operating leverage. Put simply, if you add operating costs (sales, marketing, administrators, R&D, etc.) at the same rate you grow revenue, then your business does not scale. Alternatively, if additional revenue requires relatively smaller and smaller additions to operating costs, then [your business scales.]” It’s a simple formula that is fundamental to building and maintaining financial health in a company, but far too often, it is overlooked or ignored.

“Operating the business at scale means allocating and optimizing resources to drive the greatest results and volume across market segments,” says Josh Lowry. Often times CEO’s are leveraging their time on innovation, on hiring too quickly or keeping up with market demand with the product or service they offer. Basic assessment of the company’s balance sheet needs to work in tandem with other company departments on a regular basis.

Encouraging cross-enterprise collaboration creates more value in aggregate and all participants have an opportunity to gain more than they had before. When all departments are privy to the corporate balance sheet, it gives incentives for setting and realizing goals at both a department and company wide level.

It also fosters corporate transparency and leverages trust intra-company.

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In the past, “executives have tended to be wary of cross-enterprise collaboration out of disagreements over the distribution of rewards or concerns over privacy”, says author and consultant John Hagle. However, “these concerns are largely shaped by a zero-sum view of the world -- if one party gains, the other parties must inevitably lose.” Working in tandem produces real results.

Marketing and sales must work together cohesively to generate demand and close business.

Closed deals need to be transitioned to services/support to be nurtured.

Partners need to be leveraged to multiply the company’s marketing, sales and services

efforts to reach new customers and displace

the competition.

Make sure every employee knows how they fit

into the organization and how they contribute to

the company’s success to leverage talent.

Operating the business at scale is about optimization, not duplication, of efforts. Once a company can optimize resources with a scalable business model, cross-enterprise collaboration can create more value to secure bottom line growth and generate financial success.

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The Strategic Advantage of Global Process

[additional reading]

How to know if your business will scale

[additional reading]

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Communication

Top-down, authoritarian management styles just don’t work as well as they used to. With today’s speed of business, competitive pressures and workplace dynamics, companies are turning to conversations instead of one-way diktat, to drive strategy and alignment. “Part of the answer [to how companies are changing in the 21st century] lies in how leaders manage communication within their organizations—that is, how they handle the flow of information to, from, and among their employees”, says Boris Groysberg, a professor of business administration at Harvard Business School, in the Harvard Business Review. “Traditional corporate communication must make room for a process that is more dynamic and more sophisticated. Most important, that process must be conversational.”

Groysberg and Michael Slind a writer, editor, and communication consultant, co-authored a book Talk, Inc.: How Trusted Leaders Use Conversation to Power Their Organizations believe that the patterns and processes by which people communicate with each other are unmistakably in flux. The old “corporate communication” is giving way to a model that they call “organizational conversation.”

In 2012, they surveyed a group of leaders from global organizations that use the power of organizational conversation to drive their company forward. For these leaders, internal communication isn’t just a process of Human Resources. It’s a fundamental cornerstone that boosts employee engagement and improves strategic alignment.

Traditional corporate communication must make room for a process that is more dynamic and more sophisticated. Most important, that process must be conversational.

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Groysberg and Slind have found that there are four steps that a company can take to make their approach to leadership more conversational.

Close the gap between you and your employees.Make leaders more accessible, define strategy in terms that are clear and easy to understand, break down barriers to communication.

Promote two-way dialogue within your company.Leaders should listen, not just talk. Let ideas bubble up from around the company – you may find some gems in unexpected places.

Engage employees in the work of telling the company story.Motivated employees are your best advocates and shape your message and culture. Encourage that, don’t fight it.

Pursue a clear agenda.Lead by example, be consistent in your strategy and make sure that all employees understand how their contributions affect the company’s success.

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4Leadership Is a Conversation

[additional reading]

Changing the Conversation in Your Company

[additional reading]

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Network Influence

Influence Marketing Defined

Influence marketing is a great way to scale your business by tapping into external factors to help propel your company

forward. At some point or another, we are all influenced by someone or something. Students are influenced by teachers.

Friends influence one another. Entrepreneurs are influenced by mentors.

However, we are only influenced to the point that we trust others. Building trusting relationships takes time – but

there are shortcuts. That’s where influence marketing comes into play.

Influence marketing is a strategy that targets key individuals who have influence and trust over your key target market. It

brings leverage to your marketing message and allows you to sell through trusted advisors and established communication channels.

It is the next generation of marketing and public relations where you target the people your prospects turn to for information. These influencers help generate awareness and sway the purchasing decisions of those who seek out and value their expertise.

It is the next generation of marketing and public relations where you target the people your prospects turn to for information. These influencers help generate awareness and sway the purchasing decisions of those who seek out and value their expertise.

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If key influencers are interested in your message, they will begin talking about your company, its leaders, and your products and services. Key influencers are found in social media and blogs, in the press at conferences and at analyst firms. These influencers are respected in many networks and they help build credibility for you in the eyes of your prospects because influencers are often trusted resources.

Below are five benefits to incorporating network influence into your corporate DNA from OpenView Partners, Boston-based venture capital firm.

Raise awareness of your brand within your industry/space.

Increase your Web traffic.

Test your messaging and value proposition.

Generate inbound leads or inquiries about your company.

Build credibility/overcome objections/close more sales — faster.

If they’re interested in your message, they will begin talking about your company, its leaders, and/or products and services. Influence marketing builds credibility for you in the eyes of your prospects because influencers are often trusted resources.

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The Value of Influence: The Ultimate Guide to Influence Marketing

[additional reading]

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Transparency

Ryan Smith and Golnaz Tabibnia’s recent article, Why Radical Transparency Is Good Business in the Harvard Business Review Blog, asserts that radical transparency, the idea of everyone knowing everything that’s going on in the company, could actually be a major driver of increased organizational and individual performance.

Research software firm Qualtrics believes that the biggest reason companies fail is because people lose focus. High-growth firms driving to satisfy investors get off track in order to meet revenue and growth goals. Qualtrics wanted to take a different route so the company decided to make all employees’ performance data available to everyone in the company – this meant that the entire workforce has access to a host of information about the performance and practice of each employee, including:

Detailed Quarterly objectives and results

Weekly snippets of each individual’s goals for the week

Up to the minute performance reviews, ratings, and bonus structures

Noted successes and failures, with notes for everyone to learn from

Career history at Qualtrics

Providing this much data to everyone at the company may seem a terrifying (or terrible) idea to some. But it does help to level the playing field, get everyone excited, and it removes barriers to performance. When employees are clear on where they stand and how their colleagues are performing, they work better together to achieve company goals.

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Why Radical Transparency Is Good Business[additional reading]

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Alignment drives the performance of your company. If everyone understands where the company is trying to accomplish (and

why) they will feel more engaged and be more effective in their work.

The key to alignment is letting employees know how they contribute to the company’s success and that their

work matters. While this sounds simple enough, it is a very important part of building a company that can scale.

Too often, CEOs assume that all employees know how they fit in to the big picture at the company. This

is a huge mistake – in fact, research shows that in some cases less than 10% of a company’s employees

know the strategy or how they impact it. So take the extra time to work with your entire management team so they

not only know how they contribute – but that they can also have proactive conversations with their teams about strategic

alignment.

Alignment5

What are the benefits

of clearly aligning

strategy with action?

You will drive better business results, your employees will feel more engaged, and you will move faster.

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Accountability

The most common reason a plan fails is lack of ownership. If people don’t have a stake and responsibility in the plan, the plan won’t prosper. People need to have a strong and positive relationship with their direct manager and an inherent trust in the organization in order to feel accountable for the commitments they make. There is a great HBR article by Mihnea C. Moldoveanu called The Promise: The Basic Building Blocks of Accountability that provides valuable recommendations into how to bring accountability to your company:

Leaders must model accountability: If accountability matters, it starts at the top. Employees will imitate the behavior and vocabulary of their leaders, make sure your executives “walk the walk.”

Do not create silly policies in your organization: Don’t burden your employees with excessive policies or requirements. Trust in their professional motivations.

Communicate and share information: You need to let in transparency so that people can see the results of their teams and colleagues. You don’t have to go as far as Qualtrics did – but it certainly would help.

Create a safe learning environment: Don’t punish mistakes – reward employees who made educated guesses based on reasonable hypotheses. Promote openness and sharing, not blame or fear.

Focus on the relationship managers have with their teams: As you scale your business, you need your managers to do their “managing” jobs – that means coaching employees, working with them to identify top priorities, and taking care of the softer side of business.

This is a great foundation for driving accountability throughout the entire organization (from top to bottom).

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In their paper, Managing Corporate Culture Through Reward Systems John Slocum and Jeffrey Kerr suggest that managerial rewards are a powerful means of influencing corporate culture. They found two distinct reward systems: hierarchy-based and performance-based, each linked to a very different culture.

“In the hierarchy-based system, performance was defined in qualitative terms and evaluated subjectively, and subordinates were dependent on their superiors for evaluations and rewards. This system is associated with the clan culture, characterized by long socialization, high commitment, peer pressure to conform, and the importance of superiors as mentors.

In the performance-based system, performance was defined quantitatively and evaluated objectively, rewards were based on formulas (ROI, ROE) connected to results, and subordinates were far less dependent on the opinions of superiors for guidance.”

The upshot? Pay attention to incentives (formal and informal) if you want to orient your company to a performance-based culture.

Managing corporate culturethrough reward systems[additional reading]

The Promise: The Basic Building Block of Accountability[additional reading]

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Speed

In business, there’s always an issue of speed and how quickly a company can get to market. The notion goes, if you can win the race by bringing your product or service to market before anyone else, you win. But there is a “speed gap: It’s the difference between how important a firm’s leaders say speed is to their competitive strategy and how fast the company actually moves”, write Jocelyn Davis and Tom Atkinson.

If you want to speed up, slow down. Focus on getting the basics right and really understanding your customer needs – this focus will provide the energy needed to truly scale up your business. When you have 100% commitment to solving your customers’ problems, and you know exactly what those problems are and how they manifest, your business will grow through its own power. Too often companies are in a hurry to grow and skip this critical part of strategy development.

The benefits can be huge. According to David and Aktinson, “firms that “slowed down to speed up” improved their top and bottom lines, averaging 40% higher sales and 52% higher operating profits over a three-year period.”

Firms that “slowed down to speed up”

improved their top and bottom lines,

averaging 40% higher sales and

52% higher operating profits over

a three-year period.

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They became more open to ideas and discussion. They encouraged innovative thinking. And they allowed time to reflect and learn.

Need Speed?Slow Down[additional reading]

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“Firms sometimes confuse operational speed (moving quickly) with strategic speed (reducing the time it takes

to deliver value) —and the two concepts are quite different.” To drive long-term value and scale your

business, make sure there’s total alignment and customer orientation. That’s where the rubber meets the road.

“[High-performing companies] became more open to ideas and discussion. They encouraged innovative

thinking. And they allowed time to reflect and learn. By contrast, performance suffered at firms that moved fast all the

time, focused too much on maximizing efficiency, stuck to tested methods, didn’t foster employee collaboration, and weren’t overly

concerned about alignment. Ultimately, strategic speed is a function of leadership.”

Get your team aligned, communicate clearly, and focus on your most important goals – that’s how to achieve maximum business velocity.

Our case for scaling companies strategically with clearly defined goals and objectives in place paints a clear picture: growth capital alone will

not unlock the problems and caveats associated with scaling high growth companies successfully. Because of the extreme challenges facing those who are scaling new business models, a blueprint for

success is in order.

This model provides opportunities for business executives to stimulate the creation of promising inclusive business models. Our findings show that those organizations that are effectively

scaling-up consistently demonstrate success in: achieving operating leverage, implementing a company-wide communication

that is conversational, identifying network influencers to enhance brand image, opening up the performance history of each employee

for all to see through transparency, establishing company-wide alignment and accountability and ultimately slowing down to speed up.

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Because of the extreme challenges facing those who are scaling new business models, a blueprint for success is in order.

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About Kapta Kapta provides executives with a cloud-based sys-tem to clearly communicate company goals, track every employee’s expected

contribution and review overall status through a real-time dashboard. Headquartered in Boulder, Colorado, and founded in 2011, Kapta gives executives a clear line of sight

into each team member’s performance and the system’s easy-to-use alignment tools keep employees on track in less than five minutes each week. Kapta’s intuitive input process

virtually eliminates “work about work” and instead provides employee alignment and executive feedback to successfully scale your business.

For more information, please visitkaptasystems.com