Scaling is not more stores and more staff — The 3 Deadly Poisons

Intro

Ask most owners what scaling means and they'll say the same two things: open another location, hire more people.

I've done both. Sometimes it worked. Sometimes it nearly took the business down with it.

Growth kills more good businesses than failure does, because failure is obvious and growth feels like success right up until the week it doesn't. Here are the three poisons I watch for.

Poison 1 — Growth that costs more than it earns

Revenue goes up. Everybody celebrates. Margin quietly goes down, and nobody notices for two years because the top line looks magnificent.

Every new site, new product and new staff member adds complexity, and complexity is not free. It shows up as management time, mistakes, training, stock, systems and fatigue.

Case in point. In February 2007 Howard Schultz sent a memo to Starbucks' leadership titled The Commoditization of the Starbucks Experience. He blamed the company's growth from under 1,000 stores to more than 13,000 for "the watering down of the Starbucks experience." He came back as CEO in January 2008. By July that year Starbucks announced the closure of roughly 600 US stores and up to 12,000 job losses, with pre-tax charges estimated between $328 and $348 million.

They didn't have a demand problem. They had a growth problem.

The test: if you doubled revenue tomorrow, would your margin percentage go up or down? If you don't know, you are not ready to scale.

Poison 2 — Hiring to patch a broken system

A process isn't working, so you hire someone to handle it. The process still isn't working — now it costs you a salary.

Worse, people hire slightly below themselves. It feels safer. Do it three times and you have an organisation where each layer is a little weaker than the one above it.

Great companies "first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it."

— Jim Collins, Good to Great, 2001

The test: before you write the job ad, write down the process the new person will follow. If you can't, you don't have a hiring problem. You have a systems problem, and a new salary will hide it rather than fix it.

Poison 3 — The owner becomes the bottleneck

This is the one that costs the most and gets noticed the least.

Every decision runs through you. Every relationship is yours. Every fire is yours to put out. From the inside it feels like being indispensable. From a buyer's side of the table it looks like risk, and risk is priced.

Case in point. Martha Stewart Living Omnimedia listed in 1999 and was valued at roughly $2 billion. Its own SEC filings carried the dependency as a formal risk factor — that the business depended on "the reputation and popularity of Martha Stewart." It sold in 2015 for $353 million, below the prior day's close. It changed hands again in 2019 for $175 million.

The brand was extraordinary. It was also fused to one person, and that was on the record.

The test: take two weeks off without your phone. Whatever breaks is the real business, and it is the thing you should have been building instead of growing.

The line that matters

Scaling isn't doing more of what you do. It's building something that does it without you.

Next: selling is where you actually make the money →