Process-based Tips for Scaling Start Up Business Operations

Your start up company is in a desirable position: you’ve developed a product that customers want and will pay for and you’re getting ready to start scaling up and growing your business operations.

But going from a small 20 person start up to a multimillion dollar business requires a whole new set of skills, systems and operational processes that many start ups fail to anticipate. Indeed, most business experts caution against scaling up too quickly or prematurely. According to Start Up Genome “more than 90% of business startups fail, due predominantly to self-destruction rather than competition. For the less than 10% of business startups that do succeed, most encounter a handful of near death experiences along the way.”

As start up companies scale up, suddenly they find themselves confronted with a whole new set of challenges that can include rapidly rising costs, increasing customer complaints and support issues, more media scrutiny, miscommunication between employees, decreased agility (it’s more difficult to roll out changes when those changes affect more customers and employees) and the list could go on. Effectively, anything that doesn’t work all that well at the moment can easily become amplified to the point of self-destruction.

In a poignant blog post about the challenges he’s encountered while scaling up his business, Alex Turnbull, CEO & Founder of Groove, writes that “scaling is, without a doubt, the hardest part of building a business.”

So, given that many experts say that scaling is one of the most dangerous times for a start up company, what can entrepreneurs do to avoid the common traps? Here are 7 processed-based tips to get your business operations on the right track.

#1: Divide and Conquer

Economist Adam Smith wrote about the efficiency improvements brought by the division of labor back in the 18th Century and his insights are no less relevant today. By breaking tasks down into manageable chunks, it becomes very easy for people to perform specialist roles with greater efficiency than generalists.

As a company moves away from start up mode where founders and employees usually have to wear multiple hats, more formal structures and processes need to be put in place.  “Moving from many individual contributors to cross-functional teams is an essential aspect of scaling a startup. Teams produce more for less when they are working to a well-defined, well-understood process,” writes Joel York, a software entrepreneur. “You can’t just throw a bunch of new people in a room and hope that they will figure it out, no matter how talented they may be.”

York argues that scaling up a business is 10% strategy and 90% execution, which is where processes come in. Your processes – the way you do things – can even be a source of competitive differentiation. For instance, Snap Kitchen, a Texas-based startup that sells healthy prepared meals, has been experiencing explosive growth since it was founded in 2010. In the last year alone, the number of stores it runs has nearly doubled and its workforce has increased by 43 percent.

It has adopted a “small batch production process” to support its growing network of retail outlets. “Traditional restaurant kitchens strongly emphasize culinary skill, their operations tend to be hectic and messy behind-the-scenes.  On the other end of the spectrum, assembly line or {very} traditional commissary kitchens tend to operate more efficiently but lack in quality and taste,” writes Harvard Business School Student Lauren Roberge. “To realize the benefits of both, Snap utilizes a small batch production process to maintain consistency and quality, key company value propositions, while still maintaining a culinary edge.” (Dale Easdon, Snap Kitchen's COO, will be presenting more about what it takes to move out of start up mode at PEX Network's upcoming Business Performance Excellence summit in San Francisco this September.) 

#2: Keep it Simple

It’s a principle that’s well known in engineering: the more moving parts, the more points of possible failure. As your business grows, so too do the so-called moving parts. You start to accumulate more variables – whether these are customers, new employees, new technology, new suppliers, new processes, etc. Along with these you also get new problems, which could include technical limitations or failures, system conflicts, misunderstandings and miscommunications. As systems and processes grow in complexity, it becomes more difficult to anticipate everything that will happen when you make changes.

“As a system scales, whether it is a manufacturing plant or a service like ours, the enemy is complexity,” writes Kent Beck, Facebook programmer, in a company blog post. “If you don’t confront complexity in some way, it will eat you.”

Processes and systems often evolve organically in start up companies. But this organic approach can lead to a maze of different working practices, system work arounds, and yes, you guessed it, unnecessary complexity. That’s why it’s critical to continually evaluate working practices and remove unnecessary steps and waste from the process. 

Uber, one of the world’s fastest growing companies, has scaled up from a San Francisco based start up to operating in 26 countries globally in a period of just over 6 years. But they spent about a year perfecting the technology on which the business is based using it to hail taxis in San Francisco. Once the technology was solid and the company had learned important lessons about what it took to roll out the technology and get customers in one city, it was relatively easy to replicate the model in multiple US cities and then abroad. Had they started with a big expansion plan too soon, they may have found themselves with scaled up problems and spent all their time fire fighting and less time growing.

#3: Invest in the Right Infrastructure

The building metaphor is an oft-used one, but still a useful way of thinking about growing a business. If you build a house on shaky foundations it can lead to all sorts of problems down the road. In a similar way, the foundations you are putting in place now - in the way of processes, systems, partnerships and other infrastructure – is what will determine whether you can continue to provide a high quality product and service to your customers as you grow. (Or whether things will start to fall apart as soon as they start to deal with the strain of increased numbers.)

Is your internal IT infrastructure solid enough to support your growth from 50 to 300 employees? What about your company’s website, how will it handle 1,000 times the current amount of traffic it gets? How will your suppliers be able to cope with increased demand from your customers?

Groove's Alex Turnbull says that making sure he’s got the right infrastructure in place to support his rapidly growing customer base is one of the lessons he’s learnt along the way:  “While it ties up cash and keeps us from tackling our product roadmap as aggressively as I’d like to, we’re making long-term investments into ensuring that we’ll have the resources and stability we need to be a strong business in the long run. [..] We’ve spent time rebuilding our IT infrastructure from the ground up so that our product can be more stable and reliable for our customers. We’re thinking hard about future situations that we may not be expecting (like outages) and making sure that we’re prepared for them.”

#4:….But Don’t Get too Carried Away

Investing in the right infrastructure doesn’t mean going out and spending loads of money on heavy systems or developing bureaucratic processes that don’t fit with your company’s ethos and culture. What it does mean is coming up with some assumptions around your growth and looking at how long your current systems – or those that you’re looking at putting in place – will be able to cope with the increased numbers. Most business coaches recommend dealing with those issues that are right in front of you or around the next corner rather than trying to figure out what you’ll need ten years down the road.

While this is good advice, it is also necessary to balance present demands against the future needs of the business to avoid a lot of rework and headache. For instance, you can consider how easy it will be in the future to scale your systems. Will you be putting all your data in a system that you’ll outgrow in two years time? If so, how easy will it be to port that data to a more robust system?  As long as you’ve put some thought into what systems and processes you need to support the near future as well as an understanding that this will need to evolve as you grow, you should be better equipped to deal with the operational challenges that growth throws at you.

#5: Automate and Outsource

The more that you can focus on your core business of delivering an exceptional product or service to your customers, the better. This means either automating or outsourcing as many non-core business processes and functions as you can.

The good news for small businesses is that there are so many easy, lightweight software solutions for automating many parts of your business – accounting, payroll, sales, customer details – that it is easy to find software that will fit your purposes. You also have the advantage of being able to use the latest technology while many large established companies struggle under the weight of outdated legacy systems.

Meanwhile, outsourcing is not just for big companies either. Whether that means outsourcing for your legal requirements or your marketing function, outsourcing allows you to focus on your core competency (and improve the systems and processes to support it) while your business scales.

#6: Start Documenting Your Processes and Other Useful Information

Think documentation is a pointless exercise in futility? For agile start ups, driven by the personality and knowledge of its core founders, documentation can seem bureaucratic and unnecessary. But, as the company grows, a certain amount of documentation is critical to maintain the company’s stability, save time and share knowledge.

British anthropologist Robin Dunbar proposed that there is a “cognitive limit to the number of people with whom one can maintain stable social relationships” of around 150 people. Beyond that point, “restrictive rules, laws, and enforced norms” are required “to maintain a stable, cohesive group”.  That insight was popularized in Malcolm’s Gladwell’s best seller Tipping Point and entrepreneurs would be well advised to take heed.

When you’re a relatively small company, it is easy to maintain a system of tribal knowledge. You want to know how to get that done? Go talk to Sally. Want an understanding of that customer segment? Robert is the expert. But as a company grows and new people join, tracking that information down can become a complete waste of time for everyone involved. Imagine you have thirty new employees who all need to know how to submit an expense claim and the only person who knows how to do it is Sally. Assuming it takes each new employee 15 minutes to track Sally down and get her to show them how to submit an expense claim you have lost 450 minutes of new employee time; assuming it takes 10 minutes of Sally’s time each time someone requests her assistance and she will have individually lost 300 minutes of her time. That’s a whopping 750 minutes – 12.5 hours! – of productivity lost on something so trivial when your employees could be working on actually growing your business. The effect, of course, gets amplified the more time that gets spent by more employees on trivial tasks like this.

That doesn’t mean that you need to document everything – especially if your internal processes are in constant flux – but identifying key processes and information that employees (especially new ones….if you’re growing you’ll have a lot of them!) will need to know and committing them to paper (or better yet, automate them so that employees are simply guided through the process) will save time in the long run.

#7: Learn From Other Companies

Apart from the practical experience you learn by doing yourself (which is, of course, your best school of business) the second best way to learn is by talking to others who have “been there, done that.” For this, you actually have to get out there and meet others in your industry or industries where the lessons are applicable. And you don’t want the glossy PR version. You want the real war story about what challenges they actually faced and what they wish they had known when they were going through their growing pains.