On startups, growth and scale
When Vance Breshears and I first launched the company that would become Idibri, we had no clue about running a business. We were two guys in a rent-by-the-month office who qualified for an AMEX card with our business name on it.
We knew our craft. We did good work. But in those early days, the only business strategy we had was to avoid the mistakes of the companies we had worked at before.
We learned something we didn’t expect. Start-ups are awesome at forging relationships between employees.
There is shared joy when you win that first big client.
Connection deepens during all-nighters as you strive to make sure that you deliver more for the client than the company they didn’t hire.
The camaraderie that produces culture gets shaped in the early days when everyone is taking off without a flight plan and figuring it out in the marketplace as they find clients and deliver the work.
Transitioning from start-up to growth
Eventually, you start bringing in more business than you and your small band of start-up adventurers can handle, and then you have to come up with a strategy.
Startups are forced to make decisions about the type of work they pursue and the type of people they bring on board to deliver the work. And most stop there, focused on those two variables. In the world of professional services that looks like a one-to-one formula. Every employee does a certain dollar amount of work and your profit is determined by your size.
This growth ratio runs wild in the world of M&A. Large firms have to continue to get larger and larger in order to deliver a rate of return for their investors. They can’t add staff fast enough. So, they buy more and more companies to ensure the value to shareholders is increased.
On a spreadsheet, this looks fantastic.
For employees, however, it doesn’t always look so great. People get lost in the transition, disconnected from the original mission they were connected to. Senior staff wear golden handcuffs that keep them performing, but often at the expense of personal goals and with a high tendency for burnout. This isn’t to say that every large firm suffers this malady — more that there is an art to doing it well, and not everyone gets it right.
Most good professional services firms grow to a rate that produces a comfortable lifestyle for their employees, and then they stop growing. In good economic climates, they thrive, and in poor economic climates, they cut back.
Moving from growth to scale
Growth does nothing to produce scale. Crowdsourcing platform, Fundable, captures this concept well:
Growing means you are adding resources at the same rate that you’re adding revenue. This model occurs constantly in professional services business models — they gain a client, hire more people to service the client, and add revenue at the same exact rate at which they’ve added more costs. While they’ve technically “grown,” they haven’t scaled.
On the other hand, scaling is about adding revenue at an exponential rate while only adding resources at an incremental rate. Google has clearly demonstrated this concept by adding customers at a quick pace while adding very few additional resources to service those customers. That’s why they were able to increase their margin at a rapid rate in just a few short years.
No matter what your utilization, there is a very real cap to how much money you can make based on a growth model.
The question is — can a professional services firm break this model and truly scale?
Facilitating scale for professional services firms
Professional service firms sell expertise — which means that the knowledge lives in the heads of the employees. While support staff and good processes can make those employees more efficient, there is a limit to what can be achieved.
The “experts” become the bottlenecks restricted by their time, energy and commitments.
But what if the expertise didn’t only live in the heads of the experts?
In 2012, I spent a lot of time thinking about this and my team and I launched an experiment to see if we could achieve scale in a way that defied the 1:1 growth model. We uncovered four principles that would empower people to act exponentially:
- Collate the wisdom of the group.
Not all input is wisdom; however, wisdom comes from all sources. Young and old, high and low in position, those with longevity and those who have just joined. We believed that companies who invested in capturing and sharing knowledge beyond historic silos could achieve scale.
2. Automate the automatable.
While craftsmanship can’t be automated, there are tons of non-skilled tasks that can be. We worked to build data relationships which could be used to improve the accuracy, speed and consistency of our daily work.
3. Democratize the intelligence.
For maximum impact, information and tools have to provide free and instant access to everyone in the team. Having this freedom requires a culture without hierarchy or boundaries between disciplines — and that democratization acts as a force multiplier when it comes to accelerating ideas.
4. Empower the team.
With democratized access to the intelligence, this places a higher responsibility for individuals to act wisely with the power at their fingertips. Having a successful, empowered team requires diligent hiring practices so that you acquire not just people with expertise but also people with character.
What did our experiment produce?
Since putting these principles in place, Idibri has increased revenue by 60% without increasing staff.
The makeup of our staff changed. For example, when my long time-assistant left to care for aging parents, we brought a programmer on board to help us implement these ideas. (No one could replace Nancy anyway.)
We started meeting internally to look at our work process and identify what could be automated. We started looking for silos and tore them down as we uncovered them. We invested in software and databases so we didn’t lose time looking for and processing information.
While it isn’t perfect, and we are still developing, this shift toward “collate, automate, democratize and empower” has allowed us to deliver more to clients on tighter timeframes. It has made us the preferred consultant for fast track projects.
What it costs you…
If the idea of scale for professional services firms sounds revolutionary, it is. It also isn’t free. Here is what it will cost you:
1. Your ego. Achieving scale requires a shift from command-and-control leadership to connect-and-collaborate structures — which means getting the ego out of the way and giving up some control. (If you build a culture where the best ideas win, chances are that only a small percentage of those ideas are going to come from you.)
2. Your hiring process. You can’t outsource the hiring process in building a team that can scale, because this only works when you have people on the team you can trust. Growing the staff isn’t the thing. Finding the right people is…and that is slow. Which means you will put way more money and time into it than you would like to.
3. Your bonus. It costs money to get and keep good people. The profit scale produces isn’t just for the leadership. It has to be used to create culture, and to support the families, and personal development of the people who are part of the team.
4. Your sense of safety. Trying new things isn’t without risk, and we’ve invested money and time into developing solutions that ultimately weren’t part of our core business. It is far safer to hold onto proven techniques and business as usual. However, for organizations that take the leap, what you accomplish can be amazing.
I remember the startup days fondly. (Well, maybe not the 80-hour weeks…)
But I am much more engaged in where things are going. The digital world makes it possible for companies — even professional services companies — to revolutionize how they deliver services.
I’m excited to see where things go next.
//Craig Janssen consults with leaders and organizations in the the architecture, engineering and construction industry. Connect with him at Idibri.com.
