Scaling a business is not an endeavor to be taken lightly. Once the decision is made, it’s time to seek advice — from trusted business counselors and experts in the field. But that advice is often confusing.
Look at the big picture. Shift from working in your business to working on your business. Think big and act bold. Be proactive, not reactive. Simplify.
How much of that advice do leaders need to follow? At an Enlightened Speaker Series event in Austin, three business leaders with experience in scaling addressed that issue. Joel Trammell, CEO of Khorus Software; Sean Bauld, an entrepreneur and investor with multiple startups under his belt; and Emily Schendel, director of financial operations at Sedera Health, talked about their hits and misses in building up their businesses.
Bauld reminded CEOs that their first job is to listen. That’s the best way to determine the value of the company. “We’re all busy creating, running, deciding, speaking — you’re constantly engaged in all these activities that drive the business so you don’t spend enough time stepping back and listening to what the marketplace is telling you,” he said. But the “signal to noise ratio” — the amount of often-conflicting information that bombards us daily — can make listening difficult.
Listening to the marketplace inspired Bauld and his management team to change the direction of one of his earlier ventures, a marketing intelligence firm called IntelliQuest. It started 20 years ago in Austin and grew rapidly. The number of employees doubled every six months, and the company grew into a multi-million dollar business. “We were having a lot of fun but we were working our asses off,” he said.
At a Sunday afternoon meeting, the team decided to switch the direction of the company. It would become an information
products business. They knew it would be more profitable, but the transition was tough. “We struggled,” he said. “At every turn we ended up firing five of the next six hires.” The problem, he said, was a failure to recognize the company’s capabilities and culture. Many of the new hires didn’t adapt.
Once they learned how to manage the expertise of the new hires and navigate a change in the culture, however, things took off. IntelliQuest went from having a 15 percent profit margin to an 80 percent margin. It went public and remains successful today.
Bauld’s second example was of a failure. The company offered advertising from digital touch screens at hotels and other locations in New York City. They partnered with Verizon and the city government, and became the exclusive provider in all five boroughs. But they got greedy. “We were a bunch of guys who had had some success and we were swinging for the fences instead of hitting singles,” Bauld said. “We didn’t want to grow the business, we wanted a home run. Not a good strategy.”
Verizon sold its digital kiosks to a company that had its own advertising system in place, and Bauld’s group lost its platform for advertising. “We found ourselves sideways,” he said. “We had to manage through that. We did not do that well.”
His current venture is called “BloxMob.” It’s targeted at teens, and lets them create their own smartphone apps. “It can be set up for a calendar, an event, for maps, video and audio—whatever tools you want, you can build your own app on your phone and have it on iOS or Android in an hour,” he said.
But although Bauld calls the concept “pretty cool,” his challenge is to expand and grow the business. “We had 30,000 kids build apps last month,” he said. “That is fabulous, and we have to keep that pipeline growing.” They’ve partnered with groups like code.org, which sponsors an hour of code. The Boy Scouts, Girl Scouts and Junior Achievement are potential sources of new customers. BloxMob costs $30 per year. It’s a low price point for app creation — the cost of developing an app could run as high as $25,000 — but it requires the company to grow quickly because of its huge technical infrastructure costs. Bauld says he’s working to add tens of thousands of kids each month. “This is my current scale challenge,” Bauld said.
Emily Schendel is a former investment banker who worked in internal strategy and mergers and acquisitions in media companies. When she decided to make the move to the operational side, she looked for an early-stage startup on its way to scaling. She noticed two things common to successful businesses: Why and Who.
“Why is your company doing what it’s doing?” she asked. “Having a grasp on your ‘why’ can provide motivation when times are tough, it can help keep you from getting distracted and it can provide direction when you have to make difficult decisions.”
Then, the who. “Founders are very important to a business,” she said. “However, when it comes to scale, building the right team is more difficult and more important.” In the beginning, when the company is still small, it needs a team of generalists. But once it gets bigger, it’s more important to have people who are experts. “Hire people who know more than you do and let them do their jobs,” she said. In fact, it’s a good idea to bring on someone who is an expert at hiring. “It’s worth it,” she said.
Her final point was that companies that scale quickly take risks. In February 2016 her company, Sedera Health, broke even. Immediately, they increased their marketing spend, which she called a “big risk.” But by last fall, the company had doubled in size, and is now triple the size at which it started.
“I’m not suggesting to be reckless, but I am suggesting smart risks,” Schendel said. “In a world where time is money, it is better to fail and fail quickly and learn and move on than to go steady and slow.” The type of risks might vary from company to company, a good grasp of the why and a strong team that is willing to take those risks will go a long way in driving success.
Joel Trammell echoed Schendel on the importance of hiring. “If you’re not good at it, find somebody who is,” he said. “Hiring is so important that there should be someone inside the organization who also interviews everyone — they have veto power.”
He also agreed on the importance of the “why” question, and he called it “organizational alignment.” With aspects of the job now
computerized, Trammell said everyone has a great set of tools to generate data about how hard everyone is working, but that can quickly overshadow the true mission. “The problem is, as organizations scale, everybody gets so focused on doing their job, they forget where they are going,” he said. At Khorus, the company’s goals are precisely defined. “Everyone understands their primary job isn’t to work hard in their functional area, their primary job is to accomplish a corporate objective that’s good for the entire organization,” he said.
Beyond that, Trammell said the CEO must have a balanced attitude. He said many more businesses will fail than succeed, and the CEO must be a “paranoid optimist” — aware of the challenges, but confident the company will succeed. Trammell also described the “cheerleader” who is overly optimistic, and “Eeyore,” the Winnie the Pooh character who always thought the sky was falling.
The cheerleader can fall victim to unmet expectations. “You have to be very careful about what you know you can predict and about the things you don’t know — and be transparent,” Trammell said. “You’ll only get a couple of times to set people’s expectations and then you’ll be judged by those expectations.”
The difficulty for Eeyore CEOs is that people won’t tell them they’re hurting morale. Trammell said it’s up to the CEO to gauge the effect he or she is having on others. “It’s very hard in the CEO role to have the self-awareness to understand — especially if you’re a first time CEO — how you’re impacting the whole team,” he said.
Trammell said the number-one reason a company fails is that it runs out of cash — and businesses that are scaling burn even more cash. If Khorus stops selling, he knows to the day when it will run out of money. “There is great clarity in your mind every morning when you wake up and you know what day you won’t be able to pay people to work,” he said.
Still, the focus should not be solely on the CEO. He reiterated the point that the team is important. “Even Bill Belichick can’t make the Cleveland Browns the Super Bowl Champions next year,” he said. “The first year would be a mediocre season where he might win one more game. Look at the team.”
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