Why Fast-Growing Companies Still Fail

The Three Keys to Scaling an Organization Effectively

Entrepreneurs (and would-be entrepreneurs) often hear how difficult it is to start a business. The truth is, starting a business is simple. And, eventually, running an enterprise is easy. The hard part is the step that lies in between: building and growing organization. Determining how to scale, and executing on that, is damn near impossible.

Consider what it takes to start a business: The founders fill out some paperwork online, get a bank account, and that’s more or less it. Pretty easy. Even the first phase of growth is fairly straightforward: the founding team more or less does its thing, closes a few sales, maybe begins to hire a few people, and refines their offerings.

And if only the company can grow large enough, fast enough, it’s possible for the business to become self-sustaining. Specialization within the team, longer development cycles, and better returns all come without management’s intervention in every task. Yet, very few businesses hit this point. Even in the case of fast-growing companies on the Inc. 5000 list: within eight years, two-thirds are out of business.

Fast-growing companies that fail do so for one reason: inability to scale effectively. Founding teams intuitively “get” their business, and are often capable of directly relating its importance to prospects or employees. But scaling is the period where most direct connections to the founding team cease. They’re not a part of most client conversations, rarely see work product, and directly manage very little of the workforce.

Effectively scaling is an exercise in transferring the knowledge, passion and culture of the founding team to others who can internalize and expand on it  — all in a way that’s consistent with the company’s vision. To engender the level of trust and autonomy needed in the team, and founders must focus on three elements:

  • Purpose
  • Process
  • Perfection

Scaling is essentially a dual exercise in alignment and surrendering control. The company must get each person working toward the same objective, regardless of department. At the same time, the team must be empowered to do so without constant oversight. Those who don’t will forever be limited by leadership’s bandwidth – not a recipe for success.

Here’s how these three items set a team up for effective scaling:

Purpose is the most foundational element for the business, and presumably exists before scaling becomes a priority. The organization began for a reason, and that “why” is what propels it forward. In the early days of the organization, there’s an almost magical transfer that occurs: by rubbing elbows with the founding team, newer hires intuitively understand why their work matters. When the business begins to scale, however, new layers of structure separate the founding team from new hires.

As obvious as purpose might be to the earliest team members, it’s essential to codify it as the organization grows. When Woden crafts a StoryKernel for a client (which spells out this process in the form of the brand narrative), we strongly recommend it be placed prominently in the office to remind people why they’re there. Even a simple, visible reminder helps keep the entire team focused.

Likewise, aligning the small things the team does daily—from the introduction they give the company on a sales call, to the way they frame the business in their emails, or the ways they discuss the product internally—with the purpose (story) firms it into people’s minds. Once the explicitly written story is fully internalized, it becomes easier for leadership to trust team members to independently apply it in the best way for the organization’s growth.

Even if the purpose is consistently understood, scale won’t happen if the company is a Wild West-type environment with individuals each doing their own thing.

Process is often thought of as a controlling mechanism to ensure standardization: repeatable steps needed to execute the business. Ironically, clearly defined process is actually what provides the structure for creativity, collaboration, and furthering of the organizational purpose. Clearly defining how a customer is onboarded, or how service gets delivered, has the obvious benefit of ensuring a consistent standard for all. In making processes clear and consistent, it frees the team’s mental bandwidth to think about how to tackle real problems, instead of “reinventing the wheel” on every customer call.

How is someone treated when they call with a customer service question? How are individual team members expected to respond to feedback? Items like these may appear situational, but having clear expectations for these challenges is as important to define as the approval phases for a new product launch.

Process is the building block to scaling that is dangerously easy to put off. Because it requires careful deliberation, and is incredibly time intensive, it’s easy to defer in favor of managers just winging it in the short term. When process is eschewed, though, it consumes and defines the company culture. Since the team is merely focused on keeping their heads above water, they never think critically about moving the purpose forward. It results in fracturing and inconsistencies that can cause the high-performing companies previously mentioned to fail.

Perfection is the final element of any business that’s going to scale effectively. Perfection is not expecting everyone to be flawless in their individual work product, or to never make a mistake. But it does mean holding them accountable, without exception, to the company’s purpose, values, culture and processes. If the team is not perfect in buying into those elements, the company will never scale effectively.

Netflix is especially famous for this. The company culture at Netflix is clearly defined, and hugely empowering to individuals. But, it’s also universally understood that even talented people who don’t exemplify the purpose of the organization and accept the responsibility it gives people won’t be a tolerated. This often means proactively turning over some members of the team to facilitate growth, and having the courage to separate from a high-performer who is not aligned with the culture, or insists on playing by their own rules.

The first, easier phase of a business is an exercise in control: exacting standards for your first team members, rigorous vetting of the product, and obsessive management to bring the idea to fruition. Growing to the next level is so difficult because it’s a complete reversal: it involves letting go, giving up control, and providing the right framework for others to advance the purpose that brought the company forward originally.

The companies that do this best, from Apple to Starbucks to Amazon.com, are able to strike the balance between management’s exacting control of the above, and the team’s complete empowerment to achieve virtually everything else. For those who aspire to that level, the key is to put the right framework in place from the beginning — and allow it to propel every element of the business forward.