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Top 5 Reasons Companies Fail to Scale

by on March 18, 2016


top-5Running an insanely fast-growing company is a little like playing a game of Whac-A-Mole.  Running a growing company has a little art to it and lots of guesswork. A system that worked for signing up and registering customers last week, for example, might not work next month when the number of customers has significantly increased. As a CEO your job, essentially, is to keep whacking the mole.

Some companies scale and some companies don’t.  The inability to scale will kill any company.  As a tech executive growing and exiting 4 software companies and consultant to hundreds of companies I’ve seen how some companies scale and others fail.  Here are the Top 5 reasons companies fail to scale:

5. Failure to Build World Class Team

As important as any other aspect of your job as CEO is the need to cultivate the best team possible given the limitations of your budget, mission and headcount. Rather than spending time on improving the capabilities of their teams, we find that many chief tech execs spend a great deal of time attempting to compensate for deficiencies within their teams. A very typical example of this is a CEO personally taking responsibility for every decision within a company. While this is a necessary practice when the team is very small, it does not scale into organizations of hundreds or thousands of engineers. All managers must be able to delegate to succeed.

A related issue is a failure to weed or seed soon enough. It’s important to  remove under-performers quickly to build superior teams. You can never eliminate under-performers soon enough and you should always be looking for superior talent. Superior people make excellent technology and develop appropriate processes.

4. Failure to Execute

At the end of the day, our jobs are all about creating and maximizing shareholder value. Failing to bring products to market in a timely fashion, releasing products with unacceptable levels of defects, and failing to meet contracted delivery dates are all examples of failing to execute to the expectations of your customers, partners and, ultimately, your shareholders.

3. Failure to Lead/Motivate/Inspire

Leadership has to do with those things that inspire an organization to achieve remarkable and extraordinary results. Painting a vivid description of the ideal future of your organization and setting aggressive but achievable goals are some of the aspects of leadership most often missing within the office of the CEO.

2. Failure to Manage Operationally

Often, performance lapses by CEOs root to a lack of planning, communication or measurement — the very building blocks of operational management, as taught in business school. But you cannot improve what you do not measure, and you cannot guarantee maximum shareholder value without showing how you are improving results. Planning is an essential management activity as it helps align your team with your vision, mission and goals and helps ensure the efficient use of resources. Communication between and within organizations as well as to your shareholder base helps keep everyone in sync with your progress, needs, accomplishments and corrective actions.

1. Failure to realize what you don’t know

The biggest mistake I see CEOs make is not knowing what they don’t know. That leads companies to focus on the wrong incentives, ask the wrong questions, and over the long run, they are unable to remove the key risks and build a large sustainable business.  That being said, I wouldn’t discount the impact of luck and timing for startups. They both play a large role, and assuming otherwise is folly. Often the single biggest differentiator of success is the CEO and their entrepreneurial skills, their clarity of vision, their focus on only what is critical, on their leadership and their persistence and openness to learning.

Missing these critical points can lead to problems in recruiting, team building (which can manifest years later), sales strategy, product building, etc. There are many tactical and strategic issues that different companies can get wrong (e.g. scale before product-market fit, solve a problem no one will pay for, etc.) but those typically are manifestations of the original issue. I am always surprised how many organizations know what they are doing but have not formally and critically asked why they are doing it and asking is that the most efficient thing to do?


If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

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