The 10 essentials of scalability – Marc Emmer

Marc Emmer

September 21, 2022

In my travels speaking to Vistage groups, I regularly ask members, “What is your top strategic priority?” Often the answer is scalability.

Imagine that a gourmet chef opens an independent restaurant. His talent enables him to cook every night based on instinct, without the need for recipes or measuring. But opening a second location will require written work standards (recipes) and measuring instruments (cups and spoons) for others to successfully replicate his work.

To succeed at scale requires organizations to promote independent decision-making. Scale requires structure, and process can compensate for hiring people with less talent.

Here are considerations for scaling profitably:

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Consider growth rate and life cycle

Early-stage companies have a higher cost of capital than mature companies. Mature companies have better access to financing, but interest costs can saddle cash and growth. Companies with a higher return on invested capital have a competitive advantage because they can raise capital more efficiently.

The pace of growth will dictate how you scale. In a business’s startup phase, the focal point is product.i After the product is adopted, focus shifts to gaining distribution. As an organization matures, it must create systems to sustain its growth. But a company growing at 30% has to make very different decisions than one growing at 7%. For example, it may hire people who are “good enough,” whereas a company growing moderately will leverage personal networks and be selective of every hire.

Build out your team

A highly limiting factor can be founders and CEOs who build a business entirely dependent upon them. In our experience working with Vistage members, there is a clear relationship between a company’s ability to grow and hiring qualified C-suite management. A legitimate CFO demands business analytics, secures cheaper financing, and can make the difference in a successful exit. Similar improvements are seen in other functional departments when you up-level senior management.

But perhaps even more important is building a mid-management layer. For example, accessing a new market may require new sales and operational capabilities. To grow aggressively requires building entire systems to establish a strong mid-management tier, such as leadership development programs and sharing information through reporting and analytics.

Of course, then you will need the labor.

Optimize lead to cash

Business owners are often shocked to learn that the faster they grow, the worse their cash position can be. Some industries have terms of upwards of 60-90 days, and clients often don’t pay on time. Having lengthy lead-to-cash cycles is a killer as a company is trying to grow because the need to add resources such as labor outpaces revenue growth. In such an instance, companies need to focus on business model innovation and velocity (turnaround time). Many of today’s leading technology companies, buoyed by subscription models, are getting paid before they even deliver services.

Unit economics

Reid Hoffman of the popular Masters of Scale podcast points out the need to understand unit economics. For a B2C company, that likely means mastering gross profit for products sold. For a service business, that could be knowing the units of measure you operate within. For example, a construction company opening a new branch might have a branch manager, project engineer and crews equipped with superintendents, foremen, and laborers. Understanding direct and indirect labor costs is critical.

Employee productivity

Over time, you should expect employee productivity to improve as tribal knowledge expands and a company leverages its systems. For example, as companies grow, they can hire specialists to measure quality and train at the point of attack. Some of our production clients combine those roles (training and quality) for this purpose. Utilize employee productivity KPIs such as revenue per employee.

Overhead

During the key stages of growth, investment in SG&A (sales, general and administrative expenses) can teeter up and down. Overhead absorption improves as a company grows. However, management often needs to invest in people and technology, and there are periods when SG&A swells. They then realize their return over time as revenue grows, and overhead expenses flatten or decline as a percentage of revenue. This is one reason companies should have a percentage of revenue on every line of the profit and loss statement.

Leverage software and automation

At a time when everyone is attempting to reduce labor, automation projects have been difficult to implement. Companies are reliant on equipment from Eastern Europe (perhaps more susceptible to supply chain shocks) and the need for engineers, which are almost impossible to hire. All our clients with large automation projects are running behind. But software automation efficiencies should be easier to realize. For example, many members have not fully implemented Microsoft Teams. Work threads are a more effective communication tool than email (internal email should be almost entirely eliminated). I spoke to one member who has banned internal email entirely.

Integrate systems

To promote reporting and analytics, companies must have systems that seamlessly integrate data. For mid-market members, this often comes in the form of ERP (enterprise resource planning) systems. Smaller Vistage members do not have the financial or management wherewithal to implement systems of this complexity.

In the past, many relied on grassroots systems built for niche industries by small, independent developers. Since the adoption of the cloud, solutions are much easier to integrate. For example, the Microsoft Suite includes Office, Teams and Power BI — a popular choice given its simple integration. Salesforce ties together CRM, marketing automation, and many other tools including those enabled by artificial intelligence (AI).

SOPs

Standard operating procedures (SOPs) are a quagmire for many businesses. Part of the problem is some business leaders think they need to create an end-to-end manual for every single process. While having an owner and hub for SOPs (such as a software solution) is optimal, it is often better to just chunk down the work and focus on the vital few. At a minimum, have SOPs for the critical and repeatable work processes within your business. An easier mountain to climb is demanding checklists for all repeatable processes.

KPIs

To promote better independent decision-making by mid-management, companies must have a set of key performance indicators (KPIs) that serve to educate and inform their team on the sausage making. Make sure you have predictive indicators in public view (physically or on an intranet). Push key metrics out to decision makers on a regular cadence and review your results in a green/yellow/red format.

As every business is different, you will have to craft your own formula. But a combination of these activities will enable your company to scale.

Austin Business Owners: Small business confidence posts largest gain in 18 months [WSJ/Vistage Aug 2022]

small business confidence cover

We are approaching 20,000 members in the United States and over 1700 are in Texas. As an Austin business owner, CEO or president of a small to mid size business enterprise is now the time to investigate the added value of being in a peer advisory group? You don’t have to go it alone. We provide you a safe, open, honest monthly opportunity in sharpening your saw as a leader with a private coaching session and a full day with a dozen or more like-minded leaders working on being a better leader making better decisions.

Anne Petrik

September 7, 2022

While inflationary pressures persist, small businesses report that the supply chain is improving, and their hiring plans remain stable. All of these things lead to a more favorable view of the economy, which was evidenced by the improvement in small business confidence in August. In fact, the 6.9% increase in WSJ/Vistage Small Business CEO Confidence Index was the largest gain in 18 months. The most significant driver in the increase of the Index was improving sentiment about the future of the U.S. economy among small businesses, which improved 33% from last month despite persistent inflationary pressures.

WSJ Vistage Aug 2022 Slide 1

Inflation persists while the supply chain continues to ease

Inflationary pressures are not easing. In fact, the numbers rose incrementally from last month with wages and compensation continuing to be the top impact small businesses are facing. The easing of the supply chain may be a key driver as the improving trend continues from last month with 50% of small businesses reporting that the supply chain is slowly getting better, a 5-point increase from July. More significant is the proportion of small businesses reporting that their supply chain is worsening, which posted a 7-point decline, dropping to just 13%.

WSJ Vistage Aug 2022 Slide 5

Hiring remains critical for operations

As all eyes are on hiring based on the importance of the labor market to keep the U.S. out of a recession, small businesses continue to show optimism. With 315,000 jobs added in August, small businesses were among those adding to that figure with more than half (52%) planning to increase their workforce in the next 12 months, the same percentage as last month. The economy has impacted hiring plans for very few, with the majority of small businesses hiring the same number as planned at the beginning of the year (70%) and some hiring more than originally planned (13%). Just 17% of small businesses are hiring less than planned, and only 7% are planning to decrease the size of their workforce in the next 12 months.

Filling job openings still presents a challenge for small businesses. Currently, 57% of small businesses report operational challenges as a result of a talent shortage. While that is an improvement from 72% in January, this is the foundation for why hiring plans remain strong.

When asked about whether it was easier or more difficult to fill openings than at the beginning of the year, 56% report no change. Because hiring was a challenge at the beginning of the year, the “no change” response indicates that it remains challenging. Adding to that, 27% of small businesses report that it is harder to fill job openings than at the beginning of the year. With the latest jobs report indicating a slowdown in jobs created and more people entering the workforce, small businesses may soon find it easier to fill roles.

Flexible scheduling options are a key part of hiring strategies

Small businesses continue to innovate how they approach hiring as the workforce revolution has put employees in the driver’s seat. While small businesses continue to boost wages (77%) and add benefits (39%) to remain competitive, small businesses look to other components to differentiate themselves as well. Flexible work options remain a carrot, with 62% offering flexible hours and schedules and 60% offering remote work options. In fact, over the past 3 months, 18% of small businesses have increased flexible scheduling and 16% increased remote working. Other strategies were shared in a recent roundtable where Vistage members shared their hiring best practices.

WSJ Vistage Aug 2022 Slide 10

Overall the increase of optimism among the small businesses surveyed monthly through the WSJ/Vistage Small Business CEO Confidence Index survey is likely an indicator that we can expect to see improving sentiment from the larger population of small and midsize businesses. Opinions collected in Q3 Vistage CEO Confidence Index will reflect a greater scope of how this vital sector of the economy feels and may be a harbinger of improvements ahead.

August Highlights:

WSJ Vistage Aug 2022 Slide 2
WSJ Vistage Aug 2022 Slide 6
  • Inflationary pressures persist with incremental gains from last month.
  • The WSJ/Vistage Small Business CEO Confidence Index grew 6.9%, the highest increase in 18 months.
  • Economic sentiment improves; 23% improvement in the perception of the current economy and 33% improvement in the future economic conditions.

Download the August report for complete data and analysis

For a complete dataset and analysis of the August WSJ/Vistage CEO Confidence Index survey from the University of Michigan’s Dr. Richard Curtin, download the report and infographic:

DOWNLOAD AUGUST 2022 WSJ/VISTAGE SMALL BUSINESS REPORT

DOWNLOAD AUGUST 2022 WSJ/VISTAGE SMALL BUSINESS INFOGRAPHIC

About the WSJ/Vistage Small Business CEO Survey

Interactive data from WSJ/Vistage Small Business survey

The August WSJ/Vistage Small Business CEO survey was conducted August 8-15, 2022, and gathered 566 responses from CEOs and leaders of small businesses with revenues between $1 million and $20 million. Our next survey will be in the field September 7-14, 2022.

Related Resources 

The CEO Pulse: Hiring Resource Center

The CEO Pulse: Inflation Resource Center

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Category: Economic / Future Trends

Tags:  Hiring and RetentioninflationWSJ Vistage Small Business CEO Survey

About the Author: Anne Petrik

As Vice President of Research for Vistage, Anne Petrik is instrumental in the creation of original thought leadership designed to inform the decision-making of CEOs of small and midsize businesses.

How to Build a Corporate Culture That Fosters Productivity

Austinite Maura Thomas shares another meaningful blog for her readership. She’s an accomplished keynote speaker, Tedx, Vistage Speaker, past member and a personal friend. It’s less than a 7 minute read.

This post was updated August 27, 2022

How to Build a Corporate Culture That Fosters Productivity

Handle Distraction - A Great Strategy for Managing Stress in the Workplace
Overwhelmed - A Great Strategy for Managing Stress in the Workplace

Company culture is often the biggest impediment to employee progress and productivity.

Researchers at Harvard who studied creative work inside organizations discovered that progress is a critical source of motivation for employees. They called this “the progress principle.” It states, “Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work.”

In this article, I’ll show you how to improve your company culture, so that your employees can make significantly more progress in their meaningful work. 

Let’s start with some of the most common problems that undermine productivity.

3 Common Culture Problems that Decrease Productivity

I’m frequently contacted by company leaders who are concerned about their employees’ “time management skills.” They cite complaints like not enough time to focus, excessive email, and concerns about burnout. 

I’d call these workflow management skills rather than “time management skills,” but it’s true that employees can often benefit from addressing these issues. However, the solution needs to start with the corporate culture, because productivity can’t be assessed in a vacuum. If you teach employees more effective skills to manage their workload, but the culture interferes with the team’s ability to implement their new skills, then the training can’t stick.

In my work with clients, these are some of the most common problems I see:

1. Constant reactivity squeezes out PRO-active time.

Leaders often share with me that the office seems to run at warp speed. There’s no time to complete important projects, they say, because their teams are constantly reacting to “emergencies” and “I need it now” requests. 

This leaves little time for team members to work proactively toward achieving the significant results you hired them for in the first place.

When you work in a culture of urgency—an environment in which “everything” is considered urgent—real urgency disappears and it becomes impossible to prioritize work. 

So busy professionals end up spending their days doing little else except react to other people’s priorities. This leads to days that are very busy, but not very productive, and, therefore, unsatisfying—”I was busy all day but I got nothing done!” kind of days.

2. Communication is inefficient.

Quiet - A Great Strategy for Managing Stress in the Workplace

My clients and their employees typically get over 100 email messages, plus innumerable chat messages, on top of voicemails, texts, and 3-5 hours of meetings per day.

Knowledge workers’ job outputs are typically the result of brainpower—things like analysis, problem-solving, ideas, and relationships. They can harness the power of technology to support this work. 

That said, when these workers begin to feel overwhelmed by their communication channels, it’s a clear signal that organizational communication is inefficient. The result for the employees is mounting anxiety and increased stress.

The source of this problem is not the tools, but rather the habits that workers develop around using these tools. 

study out of Virginia Tech University shows that office cultures without clear communications guidelines are insidious to the health and well-being of workers. 

The study’s authors conclude that employees need to set clear boundaries around communications, in order to preserve the psychological and physical health of employees and create a culture that’s conducive to progress.

In fact, without communication policies in place, the volume of communication is likely to increase, while worker efficiency is likely to decrease. 

3. Anticipatory stress sets knowledge workers on a path to burnout.

Not only do communication guidelines need to address how team members communicate, but also when they communicate. A company that has no policies around after-hours messaging is likely to make team members feel that they need to be “always on.” 

When leaders don’t think twice about emailing employees at night or over the weekends, their team members are likely to feel compelled to respond to incoming communications as soon as possible.

However, work messages that interrupt personal time are not only bad for employees, but also bad for their families

Even if a worker doesn’t receive an email at night or on the weekend, knowing that they potentially could receive a message, prevents them from fully relaxing. 

The knowledge worker remains on constant alert in a state of “anticipatory stress,” just in case a message from work might arrive.

Similarly, companies that expect workers to respond to incoming internal or external emails immediately create the same anticipatory stress in their employees during the workday. 

While it’s true that a customer service rep may need to respond to an incoming email within a set amount of time, responding to every email immediately prevents thoughtful, undistracted work. 

Company cultures that create anticipatory stress set their employees on a path to burnout. This is a costly proposition, since it’s much more expensive to hire a new employee than it is to fix the current culture and retain employees who might otherwise burn out and leave. 

How to Improve Corporate Culture to Increase Productivity

Working around the clock can help meet a short-term deadline, but a practice of doing so won’t serve a team’s long-term goals. For sustainable success, if companies don’t want employees to burn out and quit, they need to cultivate a culture that promotes the optimal state for knowledge workers to do the work they were hired for in the first place—think.  

There is a productive and fulfilling state of mind that workers can achieve when they bring the full power of their knowledge, wisdom, and experience to the job, along with other important characteristics, like empathy, kindness, diplomacy, and passion. This is the optimal state for productive work and it requires what I call brainpower momentum.

So how can corporate leaders build a culture that cultivates brainpower momentum so that each unique knowledge worker is in the ideal state to unleash their genius? Here are three strategies to get your company started:

1. Empower employees with decision-making power.

To create a more proactive company culture, you need to alleviate the sense that everything is an emergency that requires everyone’s help all the time. 

One effective strategy to help achieve this goal is to define the decision-making powers held by each job function. Then encourage direct reports to make the decisions that fall within their roles without consulting you.  

The time to advise direct reports on their choices is after they’ve taken action, usually during a 1:1 meeting. I call this “mentoring in hindsight.” This strategy is based on the fact that people learn much less when advice is given on the front end than they do when they have the opportunity to experience their own successes and failures and discuss them with their boss later. 

Empowering your team to make their own decisions, and then mentoring in hindsight, provides you with more thoughtful proactive time to do deep focused work. This is because your direct reports won’t constantly check in to be sure you approve of their choices. 

It also gives your employees more control and clarity, which makes them happier and more productive. Over time, by delegating decision-making, your team members will learn, grow, become more independent, and be more accountable. Win-win!

2. Make information self-serve.

Away from the Office - A Great Strategy for Managing Stress in the Workplace

One communication habit teams can work toward is shifting from mostly synchronous to mostly asynchronous communication. 

Synchronous communication, such as meetings and live chats, happen in real time. A person asks a question and expects an immediate response. (Too often email is treated as a synchronous form of communication when it shouldn’t be.)

Asynchronous communication occurs on a platform when the expectation is that the person making the request will wait some amount of time for a reply. 

There are a variety of tools you can use to communicate asynchronously with clients or colleagues.  You can record a message on Zoom or on a voice recorder on your phone, and then attach the recording to an email. You can upload a document to a shared server and ask team members to post comments.

While traditionally, offices have relied more on real-time synchronous communications, the pandemic and resulting remote work has shifted the balance a bit. 

I encourage leaders to lean into more asynchronous communications, since this allows employees to respond to requests or provide information at a time that works for them.  

3. Take advantage of reputation capital.

Most likely, your corporation has worked hard to build up its reputation capital, which is the positive buzz on your company. Anyone interested in your services has done their research and heard about the reputation of the organization, or a specific team member, before contacting you. Since there is only one of you, they are likely willing to wait a reasonable amount of time for a reply. 

By eliminating the requirement for employees to respond instantly, leaders can slow down the pace of the organization, creating more room for thoughtful, proactive work.

And by clearly outlining what sorts of communication are acceptable after-hours, as well as defining response times to incoming messaging during the work day, you can eliminate anticipatory stress, protect personal time, and reduce burnout.

Build a Corporate Culture That Supports Productivity

If there’s one thing that’s clear to me from my two-plus decades in the productivity industry, it’s that knowledge workers need to use their unique combination of skills and personality to be productive and satisfied with their work.

Too often, a company’s culture undermines the ability of employees to do the deep-thinking analytic or creative work you hired them for in the first place.

However, there’s good news: No matter how entrenched your company culture is, once you apply the right strategies, you can build a culture that better supports employees to make meaningful progress each and every day.

I’ve trained thousands of leaders to do this using my Empowered Productivity System. If you’re interested in learning more, reach out to me here.

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Reach out to either one of us and let us assist you in becoming a better leader, making better decisions. Have a productive day.