Growing Pains: Planning Points for Scaling From Small to Medium

Published by Chris Jenkins in Business Development on February 3, 2017

Editor’s Note: This article was originally featured in EDGE Magazine, a publication featuring entrepreneurs and business professionals collectively collaborating to empower and support like-minded professionals.

With the constant focus on growth in business, it’s easy to be so focused on growing the revenue that you overlook the internal changes that need to occur to support that growth. While systems, processes, and even your physical space may be adequate for a small business, all of those things have to be adjusted to account for the changing demands of a larger team and higher production. With that in mind, here are some key areas to address when planning for growth from small to medium.

Hire the right people, at the right time.

While that may seem obvious, hiring is one of the most difficult tasks a business owner faces. Making the wrong decision is costly in ways that aren’t always obvious. Aside from the investment in training, compensation paid out, and a potential negative impact on your business from someone underperforming in their position, you also have the costs associated with termination, potential unemployment claims, and the emotional toll of dealing with a bad employee.

What’s more, many businesses hire in response to a perceived increased demand, without having solid metrics to guide those decisions. It’s important to understand both your current revenue per employee and the expected growth in revenue per new hire. If your labor cost growth is outpacing your revenue growth, it’s a warning sign that you’ve got organizational issues eating into your margins.

The saying “Hire Slow, Fire Fast” may sound harsh, but it speaks to taking the time to vet your new hires aggressively on both competence and culture fit, and to taking decisive action when it’s clear that the employee is not a good match for the position for whatever reason. When interviewing, don’t just ask about their skills and experience; you also need to get a sense of who they are as a person. Open ended questions about their perspectives on the workplace can help you get a greater sense of what they would be like to work with. Some good examples include:

  • What do you find most frustrating in the workplace?
  • Tell me about your favorite boss, and why they are your favorite.
  • What do you hope to accomplish in the next three years?

Once you’ve asked the question, sit back and listen, without further input. When it’s clear to them that you’re truly interested in what they have to say, they’ll often volunteer more information than they would have otherwise.

Finally, trust your instincts. We often pick up on subconscious cues and body language in ways that aren’t easy to articulate, aside from “I’ve got a bad feeling about this one”. Imagine working with that person for the next five years. Are you excited about that prospect? If not, take a pass, and move on to the next one.

Learn to delegate.

When you’re a small business owner, you often find yourself responsible for everything. Some of your daily tasks are because you’re the only one with the expertise, and some of them simply because you don’t have the staff to hand off a task to. Over time, this turns into a habit for many business owners, and they begin to find themselves overwhelmed trying to balance their daily task list and the demands of management.

Karen Rowe, the owner of full-service writing company NYCWritersCamp.com, recounts her experiences:

“It took me seven years to hit six figures, and until last year, I was more or less doing the same stuff as I had when I opened my doors. I still have a long way to go. Sure, I have better systems and structures in place…some of the time. But not all of the time. And if I am looking to grow or scale, I need to create consistent, concrete, dynamic, easy-to-follow systems to allow for me to sustainably grow the business and work me out of the business in a more tangible way.

Last year I attended an entrepreneurial speaking event where the keynote speaker was an owner of a popular and incredibly successful restaurant in the Tampa Bay area. He mentioned that in the first few years of the business, he and his wife were still doing jobs in the restaurant that they shouldn’t, as owners, have still been doing, including sometimes washing the dishes. I remember thinking, “Oh my God, I am still washing the dishes in my business.” I was still doing everything! I was six years in at the time and I was still messing around with admin tasks, bookkeeping, social media tasks, among other things that could easily be outsourced to someone who is far more talented in those areas than me.”

 

Don’t be trapped by the old adage that “if you want something done right, do it yourself”. Evaluate your daily task list, and decide which of those tasks truly require your personal attention. Then, make a list showing which of the tasks you can hand off now, and which tasks you will hand off in the future as you gain additional staff.

Additionally, plan for the need for middle managers. As your business grows from a single cohesive team into separate departments, you’re going to need people to make day to day decisions on the micro level, while gathering and reporting the information you need to make business decisions on the macro level.

Evaluate your processes and procedures for scalability.

In a small business with a handful of employees, processes are often deceptively simple. Everyone knows who everyone is, and what their responsibilities are, and process breakdowns can easily be attributed to a specific person in the process. In the growth from 15 to 150, that visibility completely disappears. Organizations that have not planned for scalability in their processes and procedures may find themselves floundering in inefficiencies with no clear understanding why. When this happens, profit margins decrease or disappear, production quality drops, and morale falls straight into the toilet.

To avoid this, you need to ask yourself some questions:

  • How can I measure the labor cost of my product life cycle from order to fulfillment?
  • How much time is each step taking in that process, and what is the optimal time for that step?
  • How can management view the status of any order within that life cycle?
  • What tasks in that life cycle can and should be automated?

The first three questions above can be answered with a good business management system. Unfortunately, many small businesses don’t have a centralized management system, relying primarily on stand alone tools like spreadsheets and documents. No matter what industry you’re in, without a centralized management and reporting system, you’re not going to have the visibility you need to answer those questions.

The fourth question above requires some analysis skills and an understanding of the tools and software available for your industry. Fortunately, you have a secret weapon at your disposal: your front line staff. Too often, business owners neglect to take advantage of the knowledge of the people working those positions day in and out. Sit down with your staff one on one, and ask them about their daily experiences. Use those answers to document the processes and procedures as they are today. Then ask them how things can be improved, specifically addressing the following points:

  • What is the most annoying step in the current process, and why?
  • What are the biggest bottlenecks in the process currently, and why?
  • What tools or software would help streamline that process?
  • What improvements would you suggest to increase the quality of our product?

Compile those answers into a planning document, and use them to guide your improvements across the organization. Additionally, don’t discount improvements that seem minor. “It only saves five minutes” neglects to account for the fact that when the process is running hundreds or thousands of times a day, those five minutes become hours of labor time. Small, incremental improvements in efficiency translate into big improvements as you grow.

Liza Marie Garcia, CEO of Enterprise Communication services, adds that thinking of your departments as internal customers to each other can also help with the analysis:

“Sometimes I have the internal customer, meaning the person that is in the next step of the process, do the evaluation from their viewpoint. This will give you a completely upside down way to look at your process where you find something overlooked, or at least another way to look at the process.”

She also uses management workshops to spark creativity in process improvement, by adding a little competitive pressure:

“I put four managers in a conference room, and lay out the start and end of a current process we use, and say that they have to come up with a completely new process with the same results, but using different elements than the ones we currently use.

I put a very short time limit to this, but it challenges my management to be creative and think outside the box. Sometimes ridiculous answers actually lead to a change in the process that is very useful and had this challenge not been set, we would have never modified an in-house process.”

Plan for the build out.

One of the most exciting times in a growing business is when you outgrow your current space and look to move up into a larger space. While that presents a great opportunity to review your physical layout in relation to desired process improvements, it also comes with a stack of headaches that may not be obvious until you’re already in the process.

It’s always going to take more time than you expected. From working with the architect to waiting on permitting to waiting on contractors, build outs are painfully slow. Even the process of getting the new lease finalized can take several months, and that’s after you’ve already spent several months scouting locations. Don’t wait until the last few months of your existing lease to start the process. Give yourself a minimum of six to nine months.

Build outs can be wildly expensive, but some of those costs can be offset by the property management company or rolled into the lease. Before signing the lease, ask the company what they’re willing to include on the build out. Once you’ve determined that, ask if additional build out costs can be worked into the lease itself. This acts as no-interest financing on construction costs, which will leave you with more cash in hand. Many property management companies are going to have their own preferred contractors and so may be willing to finance those costs if you’re going to use their vendor of choice.

Draw up your ideal layout before you start shopping locations. It’s far easier to make minor adjustments to a layout that is close to what your ideal is than it is to figure out how to make an ideal layout from a property leased without that plan in mind. If you’ve taken the time previously to document your product life cycle, you should have a good understanding of the best physical layout to facilitate those processes. Grab some graph paper and a pencil, and brainstorm on the best way to set it up. Then, take that with you when you’re visiting potential sites, and evaluate how well that site works for your proposed layout.

Finally, write your second act.

Small businesses are founded on a specific service or product offering, and during the first act of a company, that offering is tested for market viability, and the company tested for survivability. For the companies who survive this initial vetting, a plateau is reached. You may continue to grow progressively, but you won’t grow exponentially. If all you are looking for is to run a small to medium business, this may be satisfactory, but for owners looking to scale massively, or to achieve a highly profitable exit, there has to be a plan for the next stage of the company, which generally focuses on diversification.

Keep a running journal around your business ideas and experiences. Include your thoughts about how you can expand your product line or service offerings. Create an acquisition strategy, both for acquiring smaller businesses whose products and customers are complementary to your own, and for an exit strategy, targeting larger companies to whom you would likely bring value. Document the most painful experiences of your growth so far, and what you’ve learned from them. Having all of those thoughts in one place will provide both an easy resource to review your current decisions in light of your history, and also a running roadmap for the future of your company.

Dealing with the growing pains of a scaling business can be challenging and overwhelming, but with proper planning, it doesn’t have to be. Taking the time to plan for that growth, even when it seems you’re too small to be worried about it, means that when the time comes, you’ll be ready for it.

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