Entrepreneurs often keep chasing big ideas to sustain fast growth. But as TOM McKASKILL explains, the art of fast growth depends on the entrepreneur’s ability to scale and replicate that one big idea.
By Tom McKaskill
When times get tough, business owners can be tempted to scamble after every idea just to get money in the door. But it is very difficult in business to drive a sustained high growth rate by doing new things all the time. The vast majority of high growth companies sustain growth by doing more of the same.
However, underpinning their ability to drive growth is a very well developed business model built on replication and/or scalability. They achieve high levels of resource productivity by fine tuning their growth around economies of scale and learning curve effects.
There are two fundamental building blocks in the growth process – the ability to repeat a business concept over and over again, similar to a franchise operation; or the capability to generate higher and higher outputs of very standard products through scalable manufacturing or service delivery systems.
The key to the former is to have highly standardised and formal processes underpinned by highly developed performance monitoring and setting systems. The key to the latter is the ability to control costs and quality as the output levels increase.
Both these aspects of scale are difficult to achieve and maintain, which is why few companies are able to achieve high growth rates for more than a few years. At some point, they need to consolidate and re-engineer their systems and their structure for the next growth phase.
A business wishing to drive a growth agenda really needs to choose one of these models, although hybrids do exist where scalable manufacturing is coupled with franchise outlets.
Scalability, however, does not happen by accident. Whereas short-term growth can occur through rapid market demand, the ability to proactively drive long-term growth comes from a strategic plan designed to build capacity and capability to service a demand driven market.
What is very clear from the stages of growth theories is that a business must adopt quite different business models as it expands. What works at a level of production at 10 units can go significantly wrong when the volume gets to 1000 or 10,000. Often fundamental characteristics of the business will change, including choice of customer, distribution channel, location of the business, organisation structure and even the internal culture of the business itself.
The proactive growth plan needs to define what the business will look like at different levels of volume. It then works backwards to define those actions the business needs to take to get to each growth stage. By simulating the impact of higher volumes on the business, management can see what decisions need to be taken about funding, recruitment, procurement, manufacturing capacity, supporting infrastructure and so on.
Just having demand, or being able to stimulate higher levels of demand, will not be sufficient; the firm has to build the capability and capacity to service that demand.
Scalability and replication are the building blocks that enable the firm to meet the projected demand. Understanding how these concepts are translated into action is the key to sustained growth rates.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.
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