Sunday, March 4, 2012

Pushing Past the Growth Plateau

It's been five months since my last blog post. I'd like to say that I've been on holiday skiing in the Sierras, but in fact, I've been working overtime to clear away the obstacles keeping my business plateaued and hindering growth. Those of you who have grown businesses know what I mean. This growth plateau results when a successfully growing business outstrips the processes and people needed to service it's existing customers. It's more than just a simple capacity problem; pushing past a growth plateau usually requires a phase change in a company's processes and/or people.

Some of the signs that you've reached a growth plateau:
  • You and your team have stopped trying to do anything not critical and urgent. All tasks not critical and urgent, including many which are investments in the future have been sidelined (e.g. like networking and blogging!)  
  • You and your team are working over capacity, both in terms of time and energy, for weeks at a stretch. You are in 100% reaction mode; you no longer have time to think.  
  • Your cash resources are inadequate to hire more people. But to bring in more cash,you have to add customers, which you can't do because you don't have the people. Catch-22.  
  • Worse, if you are able to add people, it actually makes the resource crunch worse because of increased coordination, training, and management time. This is a clear sign you've overloaded your systems.  
  • Errors start to rise as your existing systems can no longer cope with the volume of work and the bandwidth of your people to compensate for process deficiencies disappears.
When this happens, you have three options (and maybe only two):
  • Stop growing - In other words, stop accepting new business. In our case we put a 60-day moratorium on accepting new clients; not doing so would have compromised service to existing ones. For a service business like ours, this is the kiss of death.
  • Hire more people - But this requires money. If the money is not available from cash from operations, then this means external financing, either debt or equity. In our case, debt financing was not readily available and we are committed to self-financed growth. This means no outside investor money.
  • Rework processes - This often means changing the fundamental nature of the workflow to strip out unnecessary steps. In our case, this was where we spent most of our efforts because only by doing this were we able to free up the people time needed to change systems and increase work capacity without increasing costs.
A BIG Caveat
I mentioned that you might only have two options available. If you are in what Tony Seba calls a "Winners Takes All" market - characteristic of many high technology and web based businesses - "stop growing" may not be a wise option. If you stop accepting new customers, your competition is likely to capture this market share, possibly permanently if the switching costs are high. In this case, you must hire and scale processes ahead of the growth, which almost always means outside investor money.

In our case, being in professional services, this is not the nature of the business, and provided that we can keep up with the demands of our clients, we are able to pursue a controlled growth strategy.

Pushing Past the Plateau
In order to push past the plateau and break the resource barrier, you need ADD. No, I don't mean Attention Deficit Order (which is how your business will act if you don't take these steps).  In this case, ADD stands for Automate, Diversify, and Delegate.
  • Automate - Look at your existing processes and strip out every marginal activity you can. Figure put how to break complex steps into simpler ones. Then automate the simple ones. If you can get software or a SaaS service for this, great. But at the most basic level, automate simply means being able to script a process with enough specificity that a lesser trained person can follow the recipe and get the results. With this in place, you should be able to free up existing personnel time and cost to take the next step which is...
  • Diversify - In the beginning, startips by necessity need "T-shaped" people. These are specialists that can act as generalists too. However, the generalist tasks may not be handled particularly well. With a simplified process, you should be able to access a broader and more efficient (i.e. cheaper) pool of specialists to handle the routine. Pull out your "T-shaped" people and redeploy them towards the new and complex tasks that will fuel the next round of growth.
  • Delegate - Ideally you want to delegate tasks away from your most "expensive" people to the "cheapest" specialists you can. Keep in mind "cheap" and "expensive" does not just refer to salary but rather the whole job. Using a $100/hour person who takes 2 hours to do a job is cheaper than using a $25/hour person who takes 5 hours. And don't forget opportunity cost; take a look at who your bottlenecks are. Chances are there is a high opportunity cost that can be eliminated in unburdening these people.
Learning to push past growth plateaus is a critical skill that must be mastered by anyone seeking to grow their business. The fact is growing business will experience multiple growth plateaus. The ones that can reinvent themselves thrive. The ones that can't stagnate or die.

My business is still making the push off the plateau. I'll be back with another post; I just can't tell you when it might be.