It's an immutable truth that in business success is measured by growth. The buzz around new partnerships, capital raises, and revenue spikes continually dominate our feeds, painting a picture where higher revenue is synonymous with formidable leadership and company strength.
Yet, beneath this veneer of prosperity lies a harsh truth many learn too late: unchecked growth can be as destructive as cancer. Although difficult to quantify exactly, it's often stated that 70% of companies falter due to complications from unmanaged scaling - a figure that, while elusive in research, echoes the painful experiences of numerous businesses overwhelmed by their expansion.
The reason we don't hear about this more? The ever present survivorship bias which feeds us the great news stories while inadvertently hiding everything else under carpet.
Drawing from extensive experience in both the tech and hospitality sectors, I've seen the allure and dangers of unchecked growth firsthand. These industries, driven by a fervent desire for expansion, often leap before they look, blinded by the dream of becoming a unicorn, where revenue is mistaken for profit.
Personal Experience and the Pitfalls of Scaling
My journey through the realms of technology and hospitality has afforded me a unique vantage point on growth. In both sectors, I've seen companies thrive and falter under the weight of their ambitions. The common thread? A misalignment between the desire for more growth and the professional maturity to plan adequately for the company's needs.
In the tech world, startups sprint towards market dominance without fortifying their operational foundations. Everyone drives towards the coveted unicorn status. The valuation of tech companies is even based not on profit or sustainability, but on revenue and growth thus feeding this addiction. There are countless examples of startups failing by chasing this addiction.
Similarly, in hospitality and franchise systems, rapid expansion of outlets often precedes the establishment of a robust management system, leading to service inconsistencies, diminished brand integrity, financial instability and even operator burnout.
Franchise systems unintentionally reinforce this by dangling new restaurants to franchisees as the main reward for strong operations. Supporting this psychological push is the commonly heard question at franchise meetings of “how many locations do you have?” among franchisees. This metric perceived to be the main indicator of success even though the franchisee may in fact not be profitable.
“What got us to here will surely get us there?”
This is truly one of the most dangerous thoughts a leader can have. The evolution of a company necessitates a profound transformation in leadership and operational approaches. A startup run by a handful of people operates on passion and agility, but as it grows into a 20, 50, or 100-person organization, the foundational structures must evolve.
Financial planning becomes more complex, necessitating detailed forecasts and budgeting strategies. Leadership must pivot from informal directives to structured goals and metrics, such as OKRs and KPIs, to guide the company through significant growth phases. These aren't mere adjustments but pivotal shifts at key intervals, ensuring the organization's evolution is not just reactive but strategic, preparing for future challenges rather than just responding to current ones.
“I will work harder” aka Boxer Syndrome
In George Orwell’s “Animal Farm” Boxer would respond to every challenge on the farm with “I will work harder”. Leaders facing the overwhelming nature of rapid scaling are not so different than Boxer - and sometimes the outcome is sadly similar. Overwhelmed by scaling challenges, leaders often double down on growth, a reflex that almost always metastasizes the problem.
This drive to grow is rooted in a psychological need to validate success through expansion which leads to acquiring more unprofitable clients or opening more locations, just accelerating cash burn. The result is not just financial strain but also burnt-out teams and a cascade of operational mistakes, illustrating a dangerous cycle where more growth equates to even faster decline.
The Need for Experienced Planning
Transitioning to a mature company demands more than increased headcount; it requires leadership metamorphosis and strategic foresight. This acknowledgment is often delayed by the intoxicating promise of rapid growth, overshadowing the disciplined approach necessary for intelligent scaling. Matching company expansion with capabilities, investing in supportive systems, and evolving leadership styles are crucial steps in this journey and cannot be overlooked.
Growing Intelligently Requires Discipline above all
Intelligent growth is sustainable growth. This principle, while straightforward, demands military-like discipline to resist the allure of expansion for its own sake. My experience underscores the importance of strategic operational shifts over time versus micro corrections - which are often "too little, too late" and confusing for team members.
This approach isn't about curbing ambition but about realizing it within a framework that prioritizes longevity and sustainability.
Conclusion
Reflecting on guiding companies through various growth phases, the balance between ambition and sustainability is delicate and leaders need to be militarily disciplined in order to weather the storm. The narrative that champions growth at any cost is dangerously misleading. Like a body ravaged by cancer, a company cannot withstand uncontrolled expansion indefinitely. Success, therefore, is measured not by the rapidity of expansion but by the ability to manage and sustain growth thoughtfully. As leaders, the challenge is to steer our companies towards growth that is ambitious yet measured growth. We need to thrive within the boundaries of strategic scaling or we risk ending up like Orwell's Boxer.