What Unicorns Know: The Physics of Scaling for Growth
A ScaleUp company is a vehicle for rapid business growth, whose momentum can be likened to that of a professional NASCAR or Formula 1 race car – where speed is a key determinant of success.
There is a notion for SaaS companies 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 trajectory 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 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:
- Does your company have clarity on Where to Play and How to Win?
- Do all business operations and functions have supporting strategies aligned to these choices?
- Does your company have clearly defined and relevant strategic priorities?
- Do all business operations and functions have contributing metrics?
- Are cascading goals in place to deploy strategies and achieve metrics?
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:
- Does senior leadership favor experiments over ideas?
- Is constant experimentation a required core competency?
- Are fresh opportunities and new insights consistently pursued through experimentation?
- Do you have a common method for rapid experimentation with customers?
- Do you have a standard approach for advancing early experiments toward innovations?
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:
- Do customers realize value from your products quickly and effortlessly?
- Do you have documented customer jobs-to-be-done for all key customer profiles?
- Do you clearly understand the job(s) your customers are trying to do?
- Are your products and services aligned to customer/user desired business outcomes?
- Do you have a prioritized list of opportunities to improve the customer experience?
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. It 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:
- Is high priority placed on eliminating all forms of value-destroying waste?
- Do key customer value-adding activities optimize quality, cost, speed, and experience?
- Do you have standard operating procedures for all key processes?
- Is continuous process improvement a company-wide capability?
- Do senior leaders actively champion and participate in process optimization?
Typically, most ScaleUps cannot answer the questions above with a resounding “yes!” A new and effective operating framework is often needed to address the unique way restraining forces manifest themselves in rapidly growing software companies. The framework centers on the concept of “lean.”
Lean should be a grand unifying concept encompassing a concerted effort to reduce the momentum-stealing effects of drag, inertia, friction, and 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.
Ask yourself the questions above, and if you find many apply to your business, read more for how to implement the lean principles of SCALE.
Learn more about applying lean principles to scale by reading What A Unicorn Knows, available now.