Starting a business is hard work. Creating a successful business is even harder. According to The Small Business Administration, “About half of all new establishments survive five years or more and about one-third survive 10 years or more.” Creating a business that can scale up to be a big, industry-impacting business is harder yet. What makes it so hard? What are the barriers to scaling your business and taking it to the next level?
Many entrepreneurial types assume that money is the biggest obstacle. There is no question that growth consumes cash. Without adequate cash, a company won’t get far. But there are plenty of examples of companies and individuals that threw a lot of money at a business and still saw it fail. Money alone won’t ensure success in scaling your business.
Others assume that the biggest problem is a lack of innovation when it comes to the product or service being offered. Again, there’s some truth to this. “Me-too” products, or products that are incrementally better won’t generate the kind of interest necessary to generate dynamic growth. But the road to success is littered with great products and ideas that never delivered on their promises. And there are also plenty of success stories that feature good (if not great) products.
So what are the real barriers to scaling your business? There are three that I believe are the biggest obstacles to taking a good business to the next level.
- Undeveloped Leadership: As companies grow, some responsibilities and tasks can outgrow the capacity of the people who are supposed to fulfill them. Managing a $1,000,000 marketing budget is dramatically different than managing a $50,000 marketing budget. Managing national distribution is a whole different ballgame than coordinating local or regional distribution. Henry McGovern, co-founder and chairman of Pizza Hut—who saw dramatic growth from a single restaurant in Wroclaw, Poland to a corporation employing more than 18,000 people—said, “We’re more a training company than a restaurant company.” Companies that fail to train their leaders for the new challenges they will face as the company grows are setting these leaders (and the company) up to fail.
- Lack of Systems: When you’re a small business, you can often get by with “winging it.” It can actually be an advantage. You’re quick, nimble, and flexible. Everything is a custom project. You work at something until you get it right. That kind of operation, however, doesn’t scale well. You need systems and infrastructure that allow you to take advantage of economies of scale. As with leadership, the internal systems and infrastructure need to change to accommodate growth. When you only have one or two customers you can take a week to make a widget. When you have 1,000 customers, you may need to be able to make 100 widgets in a day.
- Misreading Market Dynamics: Business today is in a constant state of change. Solving today’s problems is good for today, but it may not be what’s needed tomorrow. What’s important for your customers today may not be what drives them tomorrow. If you’re not constantly keeping your eye on what’s happening in the marketplace, you can find yourself perfecting something that nobody even cares about in a year or two.
In future posts, I’ll expand on these ideas a bit and take a more detailed look at why undeveloped leadership, a lack of systems, and misreading market dynamics are such big barriers to scaling a successful business. And I’ll explore some things you can do to overcome these barriers so that you can take your business to the next level of success.