A ScaleUp company is a vehicle for rapid business growth, whose momentum can be likened to that of a professional NASCAR or Formula race car – where speed is a key determinant of success.
There is a notion for SaaS companies (courtesy of Neeraj Agarwal) that to get to $100M in 5 years and be valued at $1B (unicorn status), companies need to follow T2D3; that is, they need to triple their revenue growth two times and then double their growth three times. Not all companies will follow this level of growth, and different industries also have varying growth rates. Growth is key for any company to scale effectively, whether it is a startup, ScaleUp, or mature public company.
However, any object moving at a high velocity faces physical forces of resistance that must be overcome to achieve the speed and agility required to win.
These restraining forces have business corollaries that act as inhibitors to scale, the net effect of which, if not minimized, can determine whether a company realizes its market potential.
The following four physical forces work against any body in motion, including a fast-growing company: Drag, Inertia, Friction, and Waste.
Drag. Drag is the resistance of air against a moving object. Drag in the business context is often present at the strategic level, e.g., adverse indicators such as sluggish market moves, inability to change direction with agility, and company-wide misalignment of strategies and objectives.
A few key questions can help you assess whether your company may be vulnerable to drag:
- Do you have clarity on where-to-play and how-to-win?
- Do all business operations and functions have supporting strategies aligned to these choices?
- Do you have a clearly defined and relevant “North Star” metric?
- Do all business operations and functions have contributing metrics?
- Are Objectives and Key Results (OKRs) in place to deploy strategies and achieve metrics?
Inertia. Inertia is the resistance to any change in the current state of motion. Corporate inertia is often responsible for waning product performance and competitiveness, feature fatigue, and a poor innovation pipeline.
The following questions can help you assess whether your company may be vulnerable to inertia:
- Do you have a system for consistently governing and guiding concepts from inception to launch?
- Do you have a product development portfolio with a near-term innovation pipeline and roadmap?
- Do you have the means to prioritize high-potential concepts?
- Do you have a common innovation methodology featuring rapid-cycle experimentation with customers and users?
- Are your feature releases matched with customer and user readiness?
Friction. Friction occurs when moving parts rub against each other and is a common cause of slow adoption speed, poor customer experience, retention/renewal difficulty, and undelivered customer outcomes.
The following questions can help you assess whether your company may be vulnerable to friction:
- Can customers and users pull value from your products quickly and effortlessly?
- Do you have a well-defined customer journey map designed to deliver a seamless experience?
- Do you clearly understand the job(s) your customers and/or users are trying to get done?
- Are your products and services aligned to customer/user desired business outcomes?
- Do you have a clear roadmap of opportunities to improve the customer/user experience?
Waste. Waste is the motion of performing unneeded, unrequested, or unnecessary work, or the byproduct of that activity, which restricts value flow.
Waste is perhaps the most prevalent impediment to value and is present not so much because the work being performed is inefficient, but rather because it is ineffective, defined simply as doing the wrong work. As business strategist Peter Drucker once noted, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
Companies in the ScaleUp stage are often fraught with waste simply because growth has outpaced development of the standardized operating processes needed to sustain the business into the future.
Insight Onsite’s work with dozens of ScaleUps reveals that waste most often takes the form of performing work that no one, especially a customer, is asking for or needs.
The following questions can help you assess whether your company may be vulnerable to waste:
- Are key customer value-adding activities aligned to optimize quality, cost, speed, and experience?
- Does critical information move effectively between functions and process users?
- Are key process performance indicators openly visible and constantly updated?
- Is continuous process improvement a company-wide capability?
- Do senior leaders actively identify, champion, and participate in process optimization?
Typically, most ScaleUps cannot answer the questions above with a resounding “yes!” Insight Onsite believes a new and effective operating framework is needed to address the unique way restraining forces manifest themselves in rapidly growing software companies. Our framework centers on the concept of “lean.”
Lean is the term Google’s Waymo CEO John Krafcik used as a researcher participating in a late-1980s MIT-led global manufacturing study to express what he came to believe (and had observed in his previous role as a young Toyota manufacturing engineer) to be the essence of the game-changing Toyota Production System: “an absence of slack in the system, a.k.a. waste.”
We find lean to be a grand unifying concept encompassing a concerted effort to reduce the momentum-stealing effects of drag, inertia, and friction, as well as waste.
While lean methods are the benchmark in manufacturing settings and have been applied with some success to entrepreneurial startups, broad application of lean-based principles to software technology enterprises remains mostly a counterintuitive concept and rare practice.
In an upcoming article, we will share our lean model that responds to these restraining forces with a framework we refer to as S.C.A.L.E., built on four operating principles supported by a single leadership principle.