WHAT’S YOUR BIGGEST CHALLENGE IN SCALING UP YOUR BUSINESS?

The People Decision

People challenges impact your happiness and can be either a source of energy or an emotional drain. People issues can include conflicts with a partner, a customer with too large a piece of your business, a supplier delaying your success, or a key employee or two that’s disrupting the rest of the organization’s effectiveness.. Or you might simply lack enough employees to serve your customers, though we caution executives to avoid tossing more employees at problems.

Until you settle these people issues, they’ll continue to consume a tremendous amount of emotional energy, making it difficult to focus on the other three main decisions.

How do you know you need to make changes on the people part of the business, as you scale up your venture? Here are four powerful questions to ask yourself:

1. Are you happy? We’re not talking about some kind of monklike peace, even in misery. This is a more straightforward question. Do you enjoy coming to work? Or are you experiencing irreconcilable differences with business partners? Is there a specific executive not getting the job done? Is there a team member who disrupts everyone else?
2. Would you enthusiastically rehire everyone, knowing what you know today? This goes hand-in-hand with the questions above. It’s a powerful question that brings clarity to if you have the right people on your team in place to take you to the Promised Land. If you would not enthusiastically re-hire a team member, that is a clear indication they are not an A Player. An equally powerful follow-on question is: Of the team you have right now, how many would you enthusiastically rehire? The percentage of your team that you would not enthusiastically rehire is a pretty good proxy for the business growth you are leaving on the table by tolerating B and C Players.
3. Have you calculated the opportunity cost of your mis-hires? We define a mis-hire as a B Player. According to Topgrading, the cost of a mis-hire averages 15x his or her annual salary, depending on the level of position.
4. Have you outgrown earlier relationships with customers, suppliers and investors?

The solution is to focus on getting the right people doing the right things with clear accountabilities and metrics.

These right people are called A Players. They are defined as:

• People who are in the top 10% of the industry for the salary given.
• Team members you would enthusiastically rehire.
• Employees who are role models for your company’s core values. (e.g. no jerks, prima donnas, fakes or frauds)

You win with people; and you cannot win with average people. Therefore, how can you expect your employees to be extraordinary and differentiate the company if you use the same hiring and training methods as your competitors?

Are you ready to upgrade your team to A Players?

Scaling Up content used under license of Scaling Up Certified, LLC

The Strategy Decision

Strategy challenges are indicated by a slowing down in top-line revenue growth. If revenue is not growing as quickly as you like, then it’s time to re-examine your strategy i.e. what you’re selling to whom. It’s important to have a concise articulation of that strategy so you can get everyone aligned and on the same page without wasting sales or operational energies on activities not useful to the business. Jim Collins, author of Good to Great, calls this precisely articulated strategy a company’s “hedgehog.” Others call it a unique selling proposition (USP), differential advantage, or brand promise. Whatever you choose to call it, you know you’ve nailed it if revenues are growing as rapidly as you want. Turbulent economic times tend to expose weak strategies which are why we’re seeing many companies re-examining their business models.

Here are the indicators that you have a winning strategy:

1. 15-30+% Annual Top-line Revenue Growth (2x Industry)
2. “Software Like” Margins (3x Industry)

Therefore, you know you have a great strategy in place when you are outpacing your industry in terms of both growth and profitability. When you nail your strategy top-line revenue growth and fat margins come almost effortlessly. In other words, these factors are largely on autopilot and they don’t keep you up at night. As you might expect, having the luxury to not worry about these factors puts your business in rarified air. The truth is most businesses do have to worry about growth and profitability because they do not have a differentiated strategy from their competition that is deeply relevant to your customer. In other words, you are largely a commodity who competes on price.

Here are key strategic questions that must have strong answers in order to win in the marketplace:

1. Can you state your firm’s strategy simply–and is it driving sustainable growth in revenue, and gross and net margins?
2. What words does your company truly own in the marketplace (mindshare)? (A simple test of this is you own a top 5 ranking in Google for these).
3. Who is your juicy core customer? (stated in psychographic, not demographic terms)
4. Which sector of the industry do you compete in that offers outsized profits?
5. What is your brand promise, and the compelling guarantee behind it?
6. How is your company truly differentiated in the eyes of the customer?
7. What X-Factor gives you a 10x to 100x advantage versus your competition.

When you have a winning strategy, everything falls into place. Without one, you are destined to struggle. Strategy is serious work that needs the guidance of a trusted partner. It’s a job for professionals, not amateurs.

Are you ready to develop an industry dominating strategy?

Scaling Up content used under license of Scaling Up Certified, LLC

The Execution Decision

Execution challenges surface when your increasing revenues are not generating increasing profits. Many firms triple their revenue, because they have capitalized on a differential advantage, only to see their profitability drop because of the sloppiness of their execution.

The other indication of poor execution is pure hours spent delivering your products or services. When execution is haphazard, the organization has to rely on the “heroics” of their people– putting in incredible hours to just keep the wheels from falling off the organization. By simply tightening up your execution habits, you can dramatically improve gross margins and profitability while reducing the time it takes for everyone to complete their work.

Here are the key questions to ask yourself regarding execution at your firm:

1. Are all processes at your company running without drama and driving industry-leading profitability?
2. Is your executive team healthy and aligned?
3. Do you have a defined and effective meeting cadence that generates “rhythm” and “pulse” throughout the organization?
4. Is everyone on your team aligned with the #1 thing that needs to be accomplished this quarter to move the company forward?
5. Your team is on the “same page” regarding strategy and execution?
6. If you asked 10 executives what your company’s vision and action plan is for this year or the upcoming year, could they tell you, or would you get 10 different answers?
7. How happy are you regarding the accountability and execution at your firm?
8. Do you hear few excuses for missed assignments? Do your executives make the excuse they are “too busy” to do the strategic work that will drive your firm forward?

Scaling Up has a list of ten disciplines called the Rockefeller Habits Checklist™ that will reduce by up to 90% the time it takes you to manage the business, freeing up your leadership to spend more time on market-facing activities. These habits have been used by well over 40,000 businesses to scale their companies to new heights of revenue and profitability.

Fundamental to mastering the Rockefeller Habits is literally getting your entire management team “on the same page.” Scaling Up invented the famous One Page Strategic Plan. Today, the Scaling Up One Page Strategic Plan has evolved into a world-class online strategic planning and execution platform that allows every management member on the team to both contribute and access the strategic execution plan simultaneously and from any device. This online process and platform literally becomes the Management Operating System for your business–making accountability and execution far easier by transforming the invisible into the visible!

Are you ready for a more strategic, aligned and accountable process that drives results?

Scaling Up content used under license of Scaling Up Certified, LLC

The Cash Decision

Revenue is vanity, profit is sanity and cash is king. Cash is the oxygen that fuels growth. The first law of entrepreneurial gravity is “Growth Sucks Cash.” We encourage companies to calculate their Cash Conversion Cycle (CCC) which measures companywide in days how long it takes between when you spend a dollar (marketing, design, rent, wages, etc.) until you get that dollar back.

In the early days of Dell Computer, the CCC was running 63 days and caused Michael to almost run out of cash. By focusing on decreasing this cycle, today they are running close to minus 35 days. This means they generate more cash the faster they grow, which is why they have over $9 billion in the bank, up from $6 billion when they got in trouble. We believe all growth firms can accomplish this or at least dramatically improve their CCC giving them sufficient internal cash to fuel their growth.

Here are the key questions to ask yourself to improve your profits and cash flow:

1. Do you receive a comprehensive financial review from your CFO consisting of the Income Statement, Balance Sheet and Statement of Cash Flows with your entire executive team within 5-7 days after the end of the prior month?
2. Does each line item on the Income Statement, Balance Sheet and Statement of Cash Flows have the name of the executive accountable for it assigned to it?
3. Do you have all elements of the CCC calculated in days (Days Receivables, Inventory Days and Days Payables)?
4. Do you calculate and use Labor Efficiency Ratios (LER) to drive efficiency and profitability in your business?
5. Does the entire executive team understands the sensitivity of a 1% improvement in each of the 7 key financial levers (Pricing, Volume, COGs, Overheads, Days Receivables, Inventory Days and Days Payables) to improve your business?
6. Are you are above 15% pretax profit?
7. Have you have built core capital–over 2 months worth of operating expenses sitting in the bank as cash reserves?

The Scaling Up Cash software tool outlines the cash cycle as well as reconciling profits to cash flow and develops concrete strategies to double operating cash flow in the next twelve months. This powerful tool will be used with your coach to identify the 7 key financial levers to additional profitability and cash flow while simultaneously calculating the growth in valuation of your business.

Are you ready for more profits and cash flow in your business?

Scaling Up content used under license of Scaling Up Certified, LLC

Praise for Rick and The A Player advantage