Scaling a business is hard, really hard! Sometimes, the “do nothing” option can be really attractive. Sailing a boat in a harbour is easier than taking it out to sea and that is a great metaphor for scaling a business. When you do set out to sea, you often find that things seem to conspire against you. In business every new employee you hire is hard to hire, every new client you win seems to be a struggle, every new product you develop and launch takes much longer than planned. You are working harder than before but your profit has gone down just as you thought things would be getting easier. Sometimes it just seems easier to retreat back to where you were before you started scaling.
What is happening here? There is a very simple phenomenon known as the “Valleys of Death”. These are the stages of business where the dynamics of the business shift (for various reasons) but the end result is the same – they are just really hard to push through.
You can see this very clearly when you look at the number and percentages of businesses of various sizes.
There are approximately 2 million registered businesses in Australia (Canstar) of which about 96% turn over less than $1 million annually. Most of these businesses are one person businesses (and many of these may well be overstaffed!). This means than there are only about 80,000 businesses that turn over more than $1M in Australia. If we look at businesses turning over more than $10M we are now looking at only 0.4% of Australian businesses (8000) and only 0.06% of businesses (1200) at over $50M revenue.
The reason that the balance of businesses fall at the smaller end is that it is incredibly hard to push through these “valleys of death”. Often when businesses try, after a period of trying they retreat back to where they started and decide that actually being a $2M business isn’t so bad after all.
So, where do these “Valleys of Death” occur?
Well these “Valleys of Death” are well documented and you might well have experienced them yourself. They normally occur between the following business stages:
· 1 – 3 employees or $120K to $300K revenue (most home-based businesses);
· 8 – 12 employees or $800K to $1.2M revenue (a small company with a leader and a bunch of doers);
· 40 – 70 employees or $6M to $12M revenue (a leadership team of 4 – 7 each leading teams of 7 – 10);
· 350 – 500 employees or $70M to $120M revenue (a leader, a leadership team of 4 – 7 each with 4 – 7 direct reports, each leading teams of 7 – 10);
Any business that falls in between these ranges is likely to be experiencing stress. Getting from $120K to $1M requires investment in people and systems that suck cash out of the business - because as we know “Growth sucks Cash”. More specifically, you have to invest in greater management, sales, operation and distribution capability, then product refinement and then development and then brand refinement. These cycles continue as you move up through these black holes and if you don’t have the right people and strategy, great execution and sufficient cash to push through these “Valleys of Death”, you will either become unprofitable or you will (consciously or unconsciously) slide back to where you started, sometimes falling back further behind than where you started.
To leap over these “Valleys of Death” quickly and scale up, you need a clear vision, passion, bags of energy and drive but you also need a Strategic Execution System that gives you the confidence you need to embark on your voyage.
Do these “Valleys of Death” ring true to your experience of trying to scale your businesses? If so, I can help you get your business to where it needs to be to start the journey and help you leap the “Valleys of Death”. Give me a call on +61 415 534239 or email me at email@example.com.