5 to 50 to 500: How to Build and Run Scalable Organizations
By Eric Kish
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5 to 50 to 500 - Eric Kish
Introduction
I’ve been a practicing CEO for more than 20 years, leading 12 companies, with only two of them not having major financial constraints. And despite that, most of them thrived, some of them quite spectacularly. Two of them went from millions to billions in revenue with little capital available. But these successes have less to do with me and more to do with the people I worked with. These are people who excelled in their workplace—but only after somebody provided a framework for effective execution.
In retrospect (and to put aside instances of luck), I can see that most of my success began when I started to see patterns, which eventually became a compelling methodology. I would test this methodology with diligence and perseverance and take notes of everything I did. Every now and then I would go back to school to take a break to bring some order to my thoughts.
In this book I use lots of military examples because they show in encapsulated form how decisions, leadership and execution play out in the most intense circumstances we humans face. Being born in a military family and having served in the militaries of two countries by the time I was 30, I was inevitably influenced by military leadership thinking. As CEO, I applied a lot of things I learned in the army to business. There are obvious similarities between the act of command in the military and leadership in modern enterprises, but differences must also be acknowledged, like an acceptable equivalent for the customer or the fact that you can’t court-martial your employees.
I am first and foremost a practitioner. I run small experiments from which I can understand the consequences of taking prudent risks, to see what might work in a certain situation. I don’t believe in best practices. I believe in ideas that need to be tested to specific conditions. And if they work, I incorporate them in Institutional Knowledge, again not as a best practice but as case studies that might inspire future experiments.
Every management idea that I’ve had or has resonated with me has been tested in my immediate practice—and this is across seven industries on three continents.
In 2017 I became a speaker for Vistage, the world’s leading business advisory and executive-coaching organization. Vistage has a unique collaboration model where a group of ten to fifteen chief executives of small- and medium-size businesses meet every month for a full day. In most sessions they invite a speaker to speak on an issue of interest for the group in a three-hour workshop. This format allows the speaker to get an audience’s undivided attention and to closely interact with them. My Vistage workshop on scaling organizations was delivered in front of more than 300 CEOs and senior executives. The subject strongly resonated with my potential audience, and I say this because the demand by other CEOs and executives to attend these workshops continues to grow.
This book grew out of the workshop. Using inspirational examples from the military, athletics, and my personal business experience, you, my reader, will come away with a field-tested method to make any company scalable.
Table of Contents
Scalability
Strategic Intent
Behavioral Fit
Tactical Readiness
Real Time guidance
The Scalable Leader
Appendix
Acknowledgments
Table of Figures
Figure 1 - Choking vs Scaling
Figure 2 - John Boyd’s OODA Loop
Figure 3 - The Business OODA Loop
Figure 4 - The Business Navigation Framework™
Figure 5 - Steps to clarify Strategic Intent
Figure 6 - Strategy Map created with Quickscore by Spider Strategies®
Figure 7 - The history of Temperature Scales
Figure 8 - Licensing Progress Index
Figure 9 - Three-Tier Targets
Figure 10 - Historical Performance towards Targets
Figure 11 - Normalized to Score Metric
Figure 12 - Score to Pay calculation
Figure 13 - Score to Bonus Dashboard
Figure 14 - FAQ page in the Company Crowdsourced Glossary of Terms
Figure 15 - Kanban board managed using JIRA software
Figure 16 - CLE Points Dashboard
Figure 17 - The Daily Planning White Board
Figure 18 - Friction Pain Scale
Figure 19 - Friction Evolution Dashboard
Figure 20 - Evolution of Public APIs
Figure 21 - Cloud based apps ecosystem
Figure 22 - Operations Cluster of Cloud-based Apps Ecosystem
Scalability
All failure is failure to adapt, all success is successful adaptation.
—Max McKeown, English writer specializing in
strategy, leadership and culture
The trap of entrepreneurship
One beautiful morning you wake up with a great business idea. You are so possessed by it that you convince a couple of friends to invest. You come up with your first product, and you sign up your first potential customer to try it. You are fully committed to the satisfaction of this customer and you spend countless hours to make him happy. After a couple of months your customer loves the product and is even willing to pay for it.
That’s nice,
you say to yourself, and equipped with your first customer reference you go hunting for the next customer. You’re already spending all of your days and weekends working, so you decide to hire your first employee. It doesn’t take long for customers to start signing up. You love the fact that revenue is growing fast, and so you hire more people. You don’t even remember when it happened, but you now have 30 employees in a large office and it seems like the faster you grow, the harder things get.
But most worrying is that for some strange reason you’re making less money on each additional customer—and you’re still working like crazy to make sure your customers are happy. That’s because you feel responsible for each one of them and you can’t trust your employees yet to take care of them the way you would.
So what’s the problem? A friend tells you that your business isn’t scalable, and you’re not sure what he means by that. My business is clearly growing, and this should be what I’m supposed to do, right?
Scaling
There are many divergent opinions out there about what scaling means. But one thing everybody agrees with is that scaling is a challenge.
Depending on your business there are different perceptions of the challenge. If you’re a fast-growing startup, a growing employee base might represent a scaling challenge. If you’re in a large organization, you talk about scaling as the challenge of replications, like Ikea opening stores in China. Others consider scaling the challenge of finding best practices and spreading them. According to Robert Sutton,¹ Professor of Management science at the Stanford Engineering School and author of Scaling Up Excellence, it is always a problem of more.
If you go to Investopedia, you’ll discover that scaling is the capability to cope and perform under an increased or expanding workload. A system that scales well will be able to maintain or even increase its level of performance or efficiency when tested by larger operational demands.
If there’s a divergence of opinions about what it means, there’s an almost unanimous agreement about the financial impact of scaling. A scalable business is a business that can add revenue at a rapid rate while adding resources at an incremental rate. This means that for every dollar of additional revenue, the business makes more money per unit of throughput.
Figure 1 - Choking vs Scaling
Bob Jordan, the CEO of the Association of Interim Executives, provides a good insight about scalability: The reality of getting to the next stage in its growth and scaling up a business up is complicated, hard, and messy. Part of the challenge is squaring costs with revenues.
²
I call the opposite of scaling choking.
This happens when a business adds revenue at a rapid rate, but the costs grow faster than revenues. This is when organizations hit inflection points, popularly known as growing pains, and then struggle to overcome them.
Inflexion Points
Start where you are. Use what you have. Do what you can
- Arthur Ashe, American professional tennis player
An inflection point is an event that results in a significant change in the progress of a company, and it tends to be more significant than typically incremental day-to-day progress. It’s a turning point after which a dramatic change, with either positive or negative results, is expected.
Imagine your organization is like an airplane that was designed to handle friction at subsonic speeds. But now you are forced to fly faster, rapidly approaching the speed of sound.
You’ll soon realize that the faster you go, the harder it is to go faster. Push your plane through the sound barrier and a huge, cone-shaped shock wave forms at the nose and the tail dramatically increases the drag. The forces acting on the control surfaces will rapidly increase and you will soon lose control of the airplane, hitting the ground in a big explosion. You just hit an inflexion point, The Sound Barrier.
The early designs of fighter aircraft did not anticipate the problems one would have when approaching the sound barrier. Most infamously, in the World War II Japanese Mitsubishi Zero fighter aircraft, pilots lost control of the aircraft and flew full power into the ground after being overpowered by the sound barrier forces.
All of this happens because when an airplane approaches the speed of sound, it approaches this invisible pressure barrier set up by the sound waves just ahead of the plane, resulting in the compressed air in front of the plane, exerting a much larger than usual force on the plane.
Trying to cross the sound barrier forced engineers and scientists to throw away the book about how to design an aircraft and start experimenting to learn. That’s why supersonic (faster-than-sound) jet planes have sharp noses and sharp, swept-back wings.
You can think of it like the aircraft had to be specifically designed to scale to supersonic speeds. The same is with organizations. They need to become scalable by design.
When I hear people talk about their reaction to inflexion points, more often than not they talk about the need for additional resources, money, or people.
So why do we have this reaction to inflexion points? Apparently, people will do much more to avoid pain than they will to gain pleasure. And throwing money and people at a problem is a way to remove temporary pain. But looking back at the definition of scalability, that’s exactly what you try to avoid because inflexion points are known for driving costs faster than revenue.
What’s the alternative? The alternative is to make sure you’ve exhausted all other alternatives before spending more resources. Don’t underestimate the capability of an organization with an adaptive mindset to do more with what they already have.
To make my point I am going to tell the story of the Israeli Air Force (IAF) in its first 20 years of existence.
The IAF was created straight out of the war of Independence in 1948, flying a handful of aircrafts clandestinely purchased out of the scrapyards of WWII. In the following 20 years, they could barely keep up with their enemies because