Scaling Up: How a Few Companies Make It...and Why the Rest Don't (Rockefeller Habits 2.0)

by Verne Harnish

3. Communication rhythm is established and information moves through the organization accurately and quickly.

4. Every facet of the organization has a person assigned with accountability for ensuring goals are met.

5. Ongoing employee input is collected to identify obstacles and opportunities.

We recommend that each senior leader formally talk to one employee each week and ask, “What should the company Start/Stop/Keep doing?”

6. Reporting and analysis of customer feedback data is as frequent and accurate as financial data.

7. Core Values and Purpose are “alive” in the organization.

8. Employees can articulate the following key components of the company’s strategy accurately.

All employees can answer quantitatively whether they had a good day or week(Column

10. The company’s plans and performance are visible to everyone.

Growth sucks cash. This is the first law of entrepreneurial gravity.

Jim Collins and Morten T. Hansen, in their best-selling book Great by Choice: Uncertainty, Chaos, and Luck — Why Some Thrive Despite Them All,

Yet many growth company leaders pay more attention to revenue and profit than they do to cash when it comes to structuring deals with suppliers, customers, employees (think bonus plans), or investors/banks.

“Get it down; then get it right”

The key is lots of iterations: reviewing and updating our Growth Tools every quarter.

“Grow where you’re planted.”

Verne’s Fortune article “Businesses Worth Repeating.”)

This complexity generates three fundamental barriers to scaling up a venture: • Leadership: the inability to staff/grow enough leaders throughout the organization who have the capabilities to delegate and predict • Scalable infrastructure: the lack of systems and structures (physical and organizational) to handle the complexities in communication and decisions that come with growth • Marketing: the failure to scaleup an effective marketing function to both attract new relationships (customers, talent, etc.) to the business and address the increased competitive pressures (and eroded margins) as you scale

There are roughly 28 million firms in the US, of which only 4% ever reach more than $1 million in revenue. Of those firms, only about one out of 10, or 0.4% of all companies, ever make it to $10 million in revenue, and only 17,000 companies surpass $50 million. Finishing out the list, the top 2,500 firms in the US are larger than $500 million, and the top 500 public and private firms exceed $5 billion.

one can lead seven to 10 others, you get some natural clusters: • One to three employees (the majority of home-based businesses) • Eight to 12 employees (a very efficient company with a leader and a bunch of helpers) • 40 to 70 employees (a senior team of five to seven people, leading teams of seven to 10 — in a company where you still know everyone’s name) • 350 to 500 employees (seven leaders, with seven middle managers each, running teams of seven to 10 — actually a very efficient company) • 2,500 to 3,500 employees (more multiples of seven to 10)

Larry E. Greiner’s classic Harvard Business Review article titled “Evolution and Revolution as Organizations Grow,” from July-August 1972 (updated in May 1998).

As goes the leadership team, so goes the rest of the company. Whatever challenges exist within the organization can be traced to the cohesion of the executive team and its capabilities in prediction, delegation, and repetition.

Prediction Leaders don’t have to be years ahead, just minutes ahead of the market, the competition, and those they lead. The key is frequent interaction with customers, competitors, and employees.

free the senior team so they can spend 80% of the week engaged in market-facing activities.

Delegation Letting go and trusting others to do things well is one of the more challenging aspects of being a leader of a growing organization.

To get to 10 employees, founders must delegate activities in which they are weak. To get to 50 employees, they have to delegate functions in which they are strong!

how to delegate, yet it is one of the most important skills a leader must develop.

Abdication is blindly handing over a task to someone with no formal feedback mechanism.

Successful delegation requires four components, assuming you have delegated a job to the right person or team: 1. Pinpoint what the person or team needs to accomplish (Priorities — One-Page Strategic Plan). 2. Create a measurement system for monitoring progress (Data — qualitative and quantitative key performance indicators). 3. Provide feedback to the team or person (Meeting Rhythm). 4. Give appropriately timed recognition and reward (because we’re dealing with people, not machines).

Repetition The leader’s final job is “to keep the main thing the main thing” — to keep the organization on message and everyone heading in the same direction.

Repetition encompasses consistency. Finish what you start. Mean what you say. And don’t say one thing and do something else. Consistency is an important aspect of repetition.

We’ll reinforce the power of repetition throughout the book. Specifically, we will look at: 1. Core Values: the handful of rules defining the culture, which are reinforced through your People (HR) systems on a daily basis 2. Core Purpose: the top leader’s regular stump speech to keep everyone’s heart engaged in the business 3. Big Hairy Audacious Goal (BHAG®): the 10- to 25-year goal that provides constant context for all of the decisions made throughout the organization 4. Priorities/Themes: a handful of three- to five-year, one-year, and quarterly priorities, which require repeated review on a daily and weekly basis to keep them top-of-mind

Regis McKenna, author of the classic Relationship Marketing: Successful Strategies for The Age of the Customer,

Dr. Philip Kotler’s 4Ps of marketing — Product, Price, Place, and Promotion.

Hermann Simon’s book Confessions of a Pricing Man: How Pricing Affects Everything.

4Es — Experience, Exchange, Everyplace, and Evangelism.

Adele Revella’s book Buyer Personas: How to Gain Insight into your Customer’s Expectations, Align your Marketing Strategies, and Win More Business.

the marketplace makes you look either smart or dumb. When it’s going your way, it covers up a lot of mistakes. When fortunes reverse, all your weaknesses seem to be exposed.

The “20-Mile March” lesson from Jim Collins and Morten T. Hansen’s book Great by Choice: Uncertainty, Chaos, and Luck — Why Some Thrive Despite Them

there are 4 Decisions that leaders must address: People, Strategy, Execution, and Cash.

Crucial Conversations: Tools for Talking When Stakes Are High, by Kerry Patterson, et al.

Everybody, Somebody, Anybody, and Nobody. There was an important job to be done and Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry about that because it was Everybody’s job. Everybody thought that Anybody could do it, but Nobody realized that Everybody wouldn’t do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody could have done. Unknown author of condensed version of Charles Osgood’s – A Poem About Responsibility.

Amazon’s “two-pizza rule” — no team should be so big that it can’t be fed with two pizzas).

Divide big teams into smaller ones aligned around projects, product lines, customer segments, geographical locations, etc., based on the idea of getting everyone in the organization into small teams and as close to his or her respective customers as possible.

Accountability: This belongs to the ONE person who has the “ability to count” — who is tracking the progress and giving voice (screaming loudly) when issues arise within a defined task, team, function, or division.

The rule: If more than one person is accountable, then no one is accountable, and that’s when things fall through the cracks.

Responsibility: This falls to anyone with the “ability to respond” proactively to support the team.

Authority: This belongs to the person or team with the final decision-making power.

establishing personal priorities and aligning them with your professional goals.

Relationships In the end, what matters most in life are the depth of your relationships with friends and family; and the sheer number of people you’ve helped along the way.

Financial wealth, then, is seen as a resource for fostering your relationships.