The idea of growing a business is romantic. That spirit of entrepreneurship, leadership and scaling have a wonderful image of adventure and nobility. In the trenches, when a firm decides they want to grow, it is messy. It is hard work day in and day out to get the strategy clear and the people and systems moving in the same direction.
That is why the graph above on the valley of death growing firms experience is so vivid and real.
4% of firms reach $1M in annual revenue. Then it only gets harder to scale from there.
Essentially, the hardship comes from complexity. Growing revenue often requires growing teams. Teams of people need to collaborate. This growth may be linear as far as headcount goes, however, the complexity grows disproportionately in an exponential fashion.
One strategy to keep complexity lower is to use technology and systems rather than headcount. Information systems are ridiculously powerful and cheap today. And for growing businesses, they create extreme leverage. You can create information flow and access to make decisions and get things done in an unprecedented way.
Another strategy to grow is to implement strong leadership and use management approaches to foster alignment around clearly defined goals that are important to your company. This takes time. People take a lot of nurturing, repetition and trust, thus the HR systems have to be built, reinforced and robust to create the culture for growing a business past the valley of death.
The pain comes when trying to grow a business to support or create demand and the systems or leadership do not keep pace. Complexity inevitably grows and there needs to be a corresponding counterbalance of simplifying the business. Otherwise, the valley of death at each stage can crush the business. The weight of success becomes too heavy.
When you think about your business, you are never safe. Every comfortable niche is threatened today by technology and competition, which relentlessly pushes you towards commoditization. If you are a commodity, you lose relevance and profitability. Someone is, effectively, eating your lunch.
If you move from your comfortable, or deteriorating, position towards growth, you face the valley of death as you grow headcount. The task of simplifying as you take on exponential complexity becomes critical to manage as you climb.
It’s a tough world out there. But the game of business growth, while fraught with challenges, can be attained when you know where the pain is coming from. Your leadership and systems become your tools for increasing your rewards.
Are you in a valley of death?