Scaling a business can be a time full of growth and excitement, but it also comes with its fair share of challenges. In fact, 92% of businesses fail to scale, which is why we (along with partners at AstroLabs) spent the 2nd week of the 2023 #CosmicConference sharing insights and experiences to help leaders be part of that 8%.
While leaders can't control external factors like the economy, timing, or partnerships that affect business scaling, our main focus was on preparing the organization internally for growth. In this article, we list 4 common organizational challenges leaders face when scaling a business, along with insights, tips, and advice on how to overcome them.
1- Premature Scaling
One of the most significant pitfalls leaders encounter is scaling too early, often before the operations and products are ready. In fact, it’s the #1 cause of startup death according to Forbes. As leaders, it's important to be aware of the signs of premature scaling: team burnout, premature market expansion, and an imbalance between profit and expenditure.
Product/Market Fit: this can be assessed by viewing customers as “cohorts” each month. Are the KPIs slowly growing each period?
Product/Channel Fit: Experiment with different channels to see what works best for your product. You can use a tool like Google Analytics to track your traffic sources and see which channels are driving the most conversions.
Targeting a big market: Identify a large addressable market by studying industry trends, analyzing customer data, and talking to potential customers.
Technological infrastructure: Invest in cloud-based infrastructure or use a managed service provider to ensure scalability.
Strong unit economics: Track your customer lifetime value and customer acquisition cost to make sure that your revenue per customer exceeds your cost of acquiring new customers.
“It's about taking it a little bit slower at the very beginning to validate that there is a business model, that the customers are satisfied, that you have a channel through which you can distribute products. That your technology is scalable. Once you can say, ‘okay, that's all working’ only then do we invest heavily [in scaling].” - Patrick Flesner
2- Lack of a clear vision and strategy
A well-defined vision and strategy serve as a compass for a scaling organization. Without a clear purpose, a scaling organization lacks direction and unity which can lead to fragmented decision-making and operational inefficiency. This is in addition to the loss of market and investor attention and worse, dilution of the purpose that sets the business apart in the first place.
The solution: To address this challenge, organizations must establish alignment by integrating their strategy, goals, and purpose. Leaders should communicate the strategy explicitly, regularly share progress updates, and role model commitment. Reinforcing the purpose at various touchpoints along the employee experience ensures that the organization's values remain a central focus, promoting effective scaling.
3- Ineffective Communication and Collaboration
86% of employees and executives cite the lack of effective collaboration and communication as the main cause of workplace failures and scaling organizations are no exception. Poor communication can lead to misunderstandings, duplication of efforts, and missed opportunities.
The solution: Establishing foundations for open, two-way internal communication promotes transparency, and encourages collaborative problem-solving. We believe in clarifying the organization’s communication channels and the use case of each one of them and we have a simple worksheet to help.
4- Rigid or Outdated Processes
Processes that work effectively in a smaller organization may not be scalable as the company grows. According to Forbes, companies lose 20-30% of revenue annually due to inefficient processes. Rigid or outdated processes can hinder efficiency, slow down decision-making, and create bottlenecks.
The solution: Identify the inefficiencies in your processes and document them to gain clarity on areas needing improvement. Then, where relevant, introduce technology solutions to streamline these processes and enhance operational efficiency but also encourage alignment with the company's scaling goals.
5- Underestimating the Need for Talent Acquisition and Management
Scaling businesses often need to rapidly build a team that can support increased demands and drive innovation. This can result in a struggle to attract, hire, and retain the right talent, particularly in competitive markets. In fact, 77% of companies report talent shortages. Failure to address this crucial aspect can result in a workforce misaligned with the company's goals, giving rise to inefficiencies and missed opportunities.
The solution: Invest in training and L&D programs. According to InStride, most HR managers believe training is beneficial to attract talent by 83% and 94% of employees say that they would stay at a company longer if it invested in their learning and development. Implementing a talent pipeline strategy, utilizing data and analytics, and fostering a culture of continuous learning through reskilling existing employees optimizes talent acquisition, reduces time and cost, and enhances decision-making and outcomes. This proactive approach empowers the workforce to acquire new skills, adapt to evolving roles, and contribute significantly to the expanding business.
6- Lack of a Data-Driven Culture
A data-driven culture entails collecting, analyzing, and leveraging data to comprehend customer behavior, market trends, and operational performance. McKinsey reports that data-driven organizations are 23x more likely to acquire customers and 19x more likely to be profitable. For scale-ups, it is a critical component to tracking steady, healthy growth.
The solution: CEO of Infosysta Edmond Tehini spoke at our opening event about the importance of management systems saying, “Regularly evaluating these factors and signals allows managers to take a proactive approach to adjusting strategies and foster a culture of continuous improvement within the team. This enhances adaptability and resilience and paves the way for informed decision-making. “
While he was speaking in the context of strategy execution, one strategic imperative is growth. Leaders of scaling organizations should set up the tools needed to collect and use data to inform decision-making, and track progress, and growth.
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