Scale Up
TLDR Summary
Inflection points are common thresholds where businesses grow beyond the effective scale of key systems, creating organizational stress and loss of momentum. But it’s possible to avoid these traps. Leaders can start now with a step-by-step plan for using the Decision Process Optimization (DPO) framework to align the way your team makes decisions with the speed and scale of your business.
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Great news. You’re growing! You’re one of the lucky organizations that have overcome the big hurdle of finding product/market fit. The question now becomes, how do you seamlessly sustain this growth through the inevitable inflection points that are headed your way.
Inflection Points
Inflection points are key moments where the ways of working that got you to that point won’t succeed any longer in getting you through the next phase of growth.
One of the most famous growth inflection points is known as the Rule of 150. In Malcolm Gladwell’s book The Tipping Point, he highlights the work of British anthropologist, Robin Dunbar. Dunbar’s theory is that when companies grow to over 150 employees, cohesion in business units breaks down and things that worked before simply become ineffective. If not prepared for, entirely new organizational systems need to be created on the fly in order to continue growing. Dunbar posits that this is due to an upward bound in the number of social relationships any one person can directly maintain. Beyond 150 and the organization takes on a different life of its own - one that can fall apart quickly if not managed well.
After organizations grow past 150 employees, weird stuff starts to happen.
“It’s one of the magic numbers in group sizes,” says Facebook chief product officer Chris Cox, who joined in 2005 when the company had fewer than 100 employees. “I’ve talked to so many startup CEOs that after they pass this number, weird stuff starts to happen,” Cox said. ”The weird stuff means the company needs more structure for communications and decision-making.”
While the actual number that creates an inflection point for your organization may vary (higher or lower) from 150, it’s also most likely not the only time you’ll face something like this. Hiroshi Mikitani, the founder and CEO of Japanese retailer Rakuten describes a series of inflection points coming at growing organizations in 3’s and 10’s. For instance, when you hit 30 people, according to Mikitani, everything starts to break and needs to be rebuilt. Communication, decision making, customer management, even basic systems such as payroll. Once you get everything working again, it will all start to break again when you hit 100 people. And then again at 300 and 1,000, 3,000, etc.
This idea of a series of inflection points is further backed up by the work of economist Larry Greiner. The “Greiner Growth Model” identifies a number of distinct growth phases most organizations must evolve through - with each phase creating vulnerability to its own potential “crisis.” The first three potential crisis points in this growth model are described as:
1. Crisis of Leadership
Informal communication starts to fail
Business now too big for leader to get involved in everything
2. Crisis of Autonomy
Business now has functional management
But founder / leader still struggling to let go
3. Crisis of Control
More formal management structures in place
But new levels of process and infrastructure needed to keep control
These “crises,” as such, aren’t fait accompli, but rather points of real danger that you either pass through and become stronger, or stumble over while generating massive stress across the organization with a range of unfortunate effects.
What is at stake?
“Two-thirds of today’s fastest growing companies will fail.”
By definition, inflection points represent a make-or-break opportunity for your growing enterprise - and unfortunately most organizations break.
The Kauffman Foundation and Inc. Magazine conducted a follow-up study of companies five to eight years after they had appeared on the magazine's list of the 5,000 fastest-growing companies. What they found was startling: about two-thirds of the companies that made the list had shrunk in size, gone out of business, or been disadvantageously sold.
Even those that successfully make it through these points are in danger of coming out the other side a very different organization than they intended. How many times have employees of high growth companies complained about a loss of culture as they grew? They seem to forget about the early challenges of insane multi-tasking, working all hours, taking client calls in hallways… and rather rue the loss of the unique spirit that made them fall in love with the company in the first place.
The good news is that these turning points also represent a positive opportunity even more exciting than they are threatening. Managed with foresight, you can come through these points with more profitability, greater sustainability as a business and greater scalability of your unique culture.
Prepare To Grow
“As a business grows, retaining small-team decision making approaches creates organizational stress that makes everything else harder.”
So the next question is: how do you best prepare your growing organization so that these inflection points become significant leaps forward instead of existential threats? The most important investment a growing company can make in the viability of the business and its culture is a focus on decision making. If you look at the various potential crises growing companies face in the Griener Growth Model, they are all directly or indirectly connected to the internal operating system they use to make decisions - particularly in terms of amount of transparency, participation and process involved.
When you’re just starting out, leaders get together, discuss things organically, get on the same page, and move forward. This is exactly as it should be for small, tight teams - and leaders often count this informal decision making process as a reason why they are successful.
But as the organization grows, resistance to evolving this informal approach actually becomes a root cause of the organizational stress that creates crises. Rather than maturing their decision making process in line with the scale of the organization, leaders will often try to run around working harder to make their informal, small circle approach work. “We are too busy.” “We have too many decisions to make.” “Now isn’t the time.” This is how inflection points turn into crises. A failure to proactively mature the way you delegate decisions, broaden participation, and structure decision processes in line with growth creates those very situations Hiroshi Mikitani refers to as “the point where everything starts to break.”
Follow A Framework
“Turn the fuzzy concept of “decision making” into a tangible, manageable and intentional process.”
Another hurdle facing leaders is a lack of clarity on exactly HOW to attack decision making in the first place. Decision Process Optimization (DPO) provides a step-by-step framework for answering this very question.
DPO is based on the insight that decision making is a business process - just like any other critical process in the organization. And like other processes, it needs to be documented, managed, and optimized over time. DPO turns the fuzzy concept of “decision making” into a tangible, manageable and intentional process.
So what are the advantages of DPO that make it the right fit for growing companies that have so many other priorities vying for their attention?
Speed. Ironically, one of the most common push-backs against DPO is fear of slowing down or over-complicating decision making - right when the company needs to be moving as fast as it can. Yet these same companies struggle with protracted decision (and re-decision) cycles precisely because they don’t have the transparency, participation and structure they now require. DPO helps to ensure the right people, data, and best practices are brought to bear at the right time and within the right time parameters. This is critical to scalable decision efficiency.
Clarity. DPO brings documentation, transparency and explainability to decision making. While this kind of structure isn’t necessary when you’re a small, tightly knit group, as you grow, it becomes fundamental to a universal understanding of goals, direction and rationale.
Delegation. One of the common themes of growth-related stress is the ability of leaders to let go of direct involvement in all decision making. DPO makes this delegation process far easier as leaders are able to ensure the quality of the process and retain visibility without having to be directly involved in every step of making decisions.
Participation. An executive once told me that any growing organization is immediately in danger as soon as people start saying “they decided” as opposed to “we decided.” As you grow, the number of stakeholders for each decision grows as well. Without a clear process and tools to make these stakeholders feel included, the resulting shift from “us” to “they” can have a serious impact on engagement, culture and performance.
Focus on KPI’s. As organizations grow beyond the point where leaders have direct line of sight on all activities, KPI’s become a critical management tool. The DPO approach ensures that even delegated decisions are aligned with strategy and focused on connecting to the measurable KPI’s that drive value for the organization.
Culture. As we’ve discussed, successfully managing growth isn’t just about profitability. It’s also about protecting and nurturing what makes your organization so special in the first place. DPO initiatives are focused not only on efficiency and outcomes, but also on encoding culture (not just the what we do, but the HOW WE DO IT) into standard operating procedure going forward.
Start Now
“What are the top (5-10) decisions that account for 80% percent of the time and stress in the organization right now?”
What can you do now, this quarter, to make progress in scaling your decision making operating system in line with the scale of your business? The DPO framework calls for beginning with an audit process that incorporates insights from multiple levels of the organization to determine where to focus first. The main question: What are the top (5-10) decisions that account for 80% percent of the time and stress in the organization right now? While the answer may seem obvious to you at first blush, you may be very surprised to see how that same question is answered differently across the organization.
For each priority decision, it becomes a matter of leveraging stakeholders to map how that decision has been handled in the past (Discover), how it ideally should be handled (roles and process Design), enabling the new process (Launch) and optimizing it over time (Improve).
This whole approach can be facilitated by an objective, 3-rd party consultant and aided by some basic infrastructure. But it doesn’t have to take massive amounts of distraction, time and/or budget to generate quick wins that begin building transparency, participation, and process where it’s needed most.
For your growing organization, inflection points are coming. How soon you make real progress on maturing decision making to meet the demands of your scaling business will determine if those points turn into disruptive crises or powerful slingshots forward.
