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Grow Your Business, Grow Your Leaders – learning from Verne Harnish’s “Scaling Up”
Growing your business isn’t easy — in this article, Fullstack will take a look at 10 tips on business scaling taken from Verne Harnish’s “Scaling Up”
Business can fail due to a lack of adequate capital or knowledge. The most common reason why businesses fail in Australia, however, is poorly managed growth. Verne Harnish’s Scaling Up: How a Few Companies Make It and Why the Rest Don’t is an award-winning business classic that focuses on proven scaling methods and techniques for developing and planning an effective growth strategy.
In this article, we’ll deliver 10 key takeaways from Scaling Up that you can use to grow your company successfully.
1. Scaling Up’s “Four D’s”
Scaling Up deals primarily with identifying the reasons why growth doesn’t necessarily equate to success. Uncontrolled growth is a common cause of business failure. In Scaling Up, Harnish introduces a four-dimensional assessment structure that you should adopt when growing your business:
- Drivers: Coach, Manage, and Train
The first element of Scaling Up’s 4D process is ensuring that both team members and managers are focused on driving personal and economic growth within a business team. Business owners should consider additional training, fostering a learning environment and getting the right focus on performance.
- Demands: Create Balance
Business leaders should balance the demands of stakeholders with the demands of daily work requirements. The processes that a company follows must be profitable — but maintaining positive stakeholder relationships is essential.
- Discipline: Establish Routines
Discipline is key to the success of any business. Routines and standardized processes foster discipline. Business leaders must identify clearly-defined targets and prioritize business activities accordingly. Routines should be supported with regular meetings and data review.
- Decisions: Prioritize Effectively
Any business in a growth stage must identify the most important, largest issues first. The first step in creating an effective scaling strategy is working through problems in a logical order.
2. Personnel Management Must Grow With a Company
Human capital is the most important investment you can make in growing your business. Unchecked growth doesn’t lead to success — physical infrastructure, strategy, and personnel management must evolve alongside one another.
Scaling Up refers to this relationship as the “Growth Paradox”. The faster a company grows, the more employees it needs. The more employees a company has, the harder it is to manage them. Planners must ensure that teams are structured to ensure efficient communication flow between employees as well as ensuring there is enough physical space to support each employee.
3. Responsibility & Accountability
All employees and leaders within your organisation must operate with clearly defined responsibilities to grow your business. Without responsibility, accountability is impossible. A lack of accountability is a primary cause of business failure in Australia.
Scaling Up presents two models of accountability management — a Function Accountability Chart, and a Process Accountability Chart. The former measures and defines success and responsibility, while the latter establishes processes for accountability management.
4. Motivate, Don’t Manage
Scaling Up advises business leaders to invest in existing employees rather than hiring new staff. A key takeaway from the Scaling Up management process is the replacement of the term “manager” with “coach”. Managing a team, according to Harnish, isn’t just about delegation and supervision — management is driven by leading and inspiring.
Training is a powerful tool that can enhance the strengths of existing team members and help them learn from their weaknesses. Scaling Up highlights the importance of small remuneration changes — spending an additional two to three percent on payroll can dramatically improve employee productivity and loyalty and can help grow your business.
5. Strategic Vision
Retaining a sense of purpose is critical to the growing your business. Strategic vision provides businesses with a means of defining and acting in accordance with a core value set. This ensures that all leaders and employees in a company are able to access detailed guidelines for every decision.
The core values that define the strategic vision of a company should be succinct and striking. Any company vision should include two elements: a Brand Promise, and a “Big Hairy Audacious Goal”, or BHAG.
Brand promises ensure employee actions satisfy customer expectations. A “BHAG” helps company leaders reassess the growth of a company on a long-term basis.
6. Leveraging Strength to Improve Revenue
After developing a clear strategic vision and investing in employee motivation and training, you are well on the way to growing your business.
In order to capture the revenue necessary for growth, a business must identity the key strengths it possesses and leverage them in order to boost production quality, gain an advantage over competitors, and clearly define their brand.
7. The Importance of a Strategic Framework
While establishing a creative strategic vision is an import step towards growing your business, it won’t ensure stable, effective growth. Scaling Up recommends that business leaders create a One-Page Strategic Plan in order to help their business visualize and achieve their goals.
- A One-Page Strategic Plan should answer the following questions:
- Who is responsible for each step of the plan?
- What is the most important priority for the next business year?
- What metrics can be used to track progress towards the goals outlined in the plan?
A strategic plan keeps all parties up to date and on the same page. Scaling Up recommends that business leaders incorporate an execution checklist such as the Rockefeller Habits checklist in order to summarize and track important factors such as team alignment, company activity visibility, and performance visibility.
8. Meetings and Reviews
Scaling Up recommends that a strategic framework be supported by regular meetings and reviews. Establishing a regular meeting routine removes communication friction and ensures information flows smoothly between relevant parties within a business.
The trips for growing your business, include executive leaders spending a minimum of five minutes every day with team members, as well as participating in one day of learning on a monthly basis. Most importantly, a business should host a large-scale offsite strategic meeting every quarter.
9. Capital Generation
Even if you have everything in place to grow your business, no business can grow without sufficient cash flow. Understanding the way cash flows through your business and maintaining adequate cash reserves is essential in executing an effective growth strategy.
In Scaling Up, Harnish highlights the cash reserve practices outlined by Jim Collins and Mortin T. Hansen in Great by Choice — highly successful companies maintain cash reserves between three and ten times larger than their less-successful competitors.
Cash reserve management is best performed by observing a company’s Cash Conversion Cycle, which Scaling Up defines as the time it takes for invested capital to flow back through a company as turnover.
10. Modifying and Enhancing Cash Flow
The final growing your business take away from Verne Harnish’s Scaling Up is a breakdown of the best practices for improving cash flow. A company can improve cash flow by assessing various factors such as the price of goods, inventory size, and accounts payable.
Scaling Up recommends an incremental, exploratory cash flow optimization process in which the reduction of operational costs is compartmentalized and executed on a day-to-day basis, then comparing results. This process helps companies identify the critical levels that can be modified in order to improve cash flow.
Scaling your business and optimizing cash flow can be a complicated process. If you’re entering a critical growth stage, reach out to Fullstack today for comprehensive guidance on how to manage growth effectively.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, agencies and entrepreneurs.