This article is an excerpt from the Shortform book guide to "Scaling Up" by Verne Harnish. Shortform has the world's best summaries and analyses of books you should be reading.
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What strategies can help you successfully scale your business? What practical actions can you take to keep your organization growing?
Scaling Up’s Verne Harnish offers four strategies for scaling your business. He discusses how to form a strategic thinking group, adapt to changing circumstances, evolve the structure, and move beyond the founder.
Read more to learn these strategy tips to successfully scale your business.
4 Strategies to Scale Your Business
According to Harnish, a strategy is the means by which a company brings its vision to fruition and outlines the multiyear benchmarks that it will need to reach to make the vision a reality. He writes that a clear strategy puts a company’s daily actions into perspective and orients everything toward that singular vision. Indeed, the strategy informs everything that goes on in your company—from marketing decisions to hiring, workflow processes, and accounting practices.
This can have great clarifying power. By driving toward a vision whose fulfillment requires buy-in from every sector of the company, your strategy should instill in your team the belief that they are part of something larger than themselves. Harnish writes that anchoring day-to-day functions within a broader strategy in service of an ultimate vision also helps reduce turnover and boost productivity—both of which in and of themselves are crucial to successfully scaling your business.
| Defining a Vision and Strategy In Traction, Gino Wickman highlights some key factors that go into crafting a vision and strategy—a company’s defining values, its main focus, and its long-term goal. Wickman writes that creating a vision starts with defining three to seven core values that serve as guiding principles for your company, defining your culture, and identifying who you are. When your core values are clear and compelling, you’ll attract people who share them—and discourage those who don’t from sticking around. The second step in defining your vision is determining your company’s main focus—the job your company excels at. Wickman writes that it’s the responsibility of your leadership team to establish your company’s core focus and make sure nothing distracts from it. This might mean streamlining the business, eliminating unrelated product lines, positions, or even divisions that don’t fit. Finally, Wickman writes that companies need long-term goals so they know where they’re heading and whether they’re on or off course. He urges leaders to focus on ends not means: Define the goal first and then build a strategy that gets you there. The path to the final vision may very well transform your company into something entirely new, but that’s good! Don’t constrain your company by limiting it to only those goals that your company in its current state can achieve. |
Form a Strategic Thinking Group
To guide and direct your strategy, you need to build the internal structure that will monitor progress along the way and address implementation problems as they arise.
Harnish recommends designating a strategic thinking group to meet weekly. This should be a group primarily—although not exclusively—composed of members of the senior leadership team. This is important because your strategic thinking group should have the power to actually implement their ideas and not just issue recommendations.
The group should also be cross-departmental and/or cross-functional, Harnish says. It needs to have input from all departments and divisions within your company. You may have difficulty securing commitment if the effort to scale your business is seen as being led by just one department.
(Shortform note: However, cross-functional teams are by no means guaranteed to deliver results. According to the Harvard Business Review, a whopping 75% of cross-functional teams are dysfunctional and often have problems sticking to their allotted budget, delivering results on time, and—perhaps most importantly for the purposes of this guide—aligning their work with the company’s strategic goals.)
Adapt to Changing Circumstances
As you begin to put your strategy together, Harnish writes that it’s important to build flexibility into it. Things change so rapidly that a 10- or 15-year plan to scale your business is going to have to be adaptable enough to respond to changes in your industry.
Harnish recommends looking at broader industry trends. Instead of just comparing what you’re doing versus what your competitors are doing, look at where your industry as a whole is going. Is your entire business model even going to exist in five or 10 years? What kinds of technological changes might completely reinvent what you do?
For example, in 2004, Blockbuster’s leadership surely thought that there would still be a booming market for in-store rentals of physical VHS and DVD movies. But because they weren’t looking at the sweeping changes to the home entertainment market wrought by the internet, they failed to see the trend toward streaming media distributed through platforms like Netflix. As a result, Blockbuster went from being the undisputed king of the home video rental industry to virtually non-existent in a decade.
| Industry Transformation During Covid-19 Although Harnish is primarily focused on technological and market-based changes, industry trends can also be shaped by entirely external forces. The Covid-19 pandemic, for example, shook many industries that relied on in-person contact to the core, rendering their entire business models inoperative. The film industry, in particular, had to reinvent itself almost overnight to deal with this unprecedented threat to its entire way of operating, including putting film production crews into isolated pods that limited their interaction with one another, using computer-generated images (CGI) to create crowd scenes instead of relying on human extras, and instituting rigid masking and social distancing protocols on set. |
Evolve the Structure
Harnish cautions that whatever organizational structure you set up at the outset of your strategy, it’s bound to change as you evolve and grow. Typically, he writes, small companies start out with a functional structure. Teams are organized based on the function they perform, usually with a VP or SVP leading a department. So there might be a VP of Marketing, a VP of Sales, a VP of Operations, and a VP of Accounting reporting to the CEO.
But as you get bigger and more complex, that structure often proves to be unworkable. Often, Harnish notes, growing companies evolve beyond a functional structure into what’s known as a matrix structure. A matrix structure has cross-functional strategic business units (SBUs) handling different facets of your business, often organized by geographical area, market segment, or product line. For example, a large company might have separate Asia, Europe, and North America SBUs (each of which contains all of the functional leadership positions) or a consumer electronics SBU (overseeing that product segment everywhere in the world the company operates).
One of the earliest and most famous practitioners of this matrix structure is the global consumer goods giant Procter & Gamble. P&G owns 65 of some of the world’s most famous consumer goods brands, organized through six SBUs, each of which has responsibility for a family of product categories and the brands that serve those product categories. Each SBU is responsible for sales, profit, cash, and value creation within its sector in P&G’s primary markets in North America, Western Europe, and Asia, with responsibility for those functions in emerging markets in Latin and Central America, Eastern Europe, Africa, the Middle East, and Oceania assigned to a separate emerging markets unit.
| Pros and Cons of the Matrix Structure There are some important benefits to a matrix structure. Because functions are not housed in siloed departments, there is often greater ease of communication between employees. This leads to a more cohesive work environment. Because SBUs within matrix structures share common resources like accounting or human resources, there can also be significant savings that accrue to a company by using this structure. Lastly, matrix structures can be good at fostering employee growth and skill development. Because employees in an SBU are faced with a wide variety of projects, challenges, and customers, they tend to become more versatile and agile. But there are also drawbacks. Because of overlapping reporting hierarchies, employees often report to more than one boss. This can lead to confusion for the employees and conflicts between bosses of the same employee if their priorities don’t align. And because matrix structures tend to make people responsible for multiple projects at once, the system can quickly lead to burnout, discontent, and turnover if not managed properly. |
Move Beyond the Founder
Lastly, Harnish argues that as you grow and your strategy progresses, you’ll have more product lines, more physical locations, more expenses, more employees, more competitors, and more marketing needs. Naturally, this requires the founder to delegate some functions and bring in new people who are experts in the company’s emerging and complex functions. Harnish warns that this can often be difficult for founders and entrepreneurs who may be reluctant to let others have input on the future course of “their” company.
But, writes Harnish, having a strategy in place helps prevent these kinds of power struggles and turf wars because it creates a results-driven process rather than a personality-driven process—bringing clear focus, policies, and procedures that keep the company on track, regardless of the whims of the founder.
| Beware the Cult of the Founder Founders perceived as visionary or unique creators often present problems for their companies as the firms grow. In Silicon Valley, the “cult of the founder”—a sort of reverence for perceived rule-breaking, creative-minded, visionaries in the mold of Apple’s Steve Jobs, Microsoft’s Bill Gates, and Facebook’s Mark Zuckerberg—has frequently led to investors pouring money into enterprises with ill-conceived business models and/or incoherent paths to profitability, based on little more than the charisma or salesmanship of the founder/CEO. In fact, one study showed that companies led by their founders tend to rate poorly relative to other leadership structures on a host of management criteria—including setting intermediate growth targets and rewarding talented employees. |
Scaling your business is crucial for long-term success, and these strategies can help you spur and navigate that growth.
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Here's what you'll find in our full Scaling Up summary :
- Advice on how to guide your company as it grows from a small company to a large firm
- Why founders need to eventually give up some of their input and power
- How to build an all-star team—from senior leadership to rank-and-file
