So many CEOs want to “scale” but they really are just growing. Do you know the difference?

Midsize Companies Shouldn’t
Confuse Growth with Scaling

by Ron Carucci
Published on HBR.org

Most management writing focuses on startups or large companies, but
if recent performance is any indicator, midcap companies are the place to
be. U.S. organizations with $10 million–$1 billion in revenue make up the
fourth largest global economy in the world, with $3.8 trillion in private
sector GDP. Over 200,000 midcap businesses collectively employ 34% of
the U.S. workforce. During the 2008 recession, midcap companies proved
surprisingly tough: Fully 82% of them survived to see the recovery (only
57% of small businesses made it through), and midcap companies added an
average of 20 jobs each while big businesses were shedding thousands of
jobs.

The stall point for many midcaps is when they find themselves a $100
million organization trapped in the body of a $30 million company.
Looking much like the teenage boy wearing his father’s suit, they haven’t
quite grown into the size they’ve achieved. Why? They confuse growth for
scaling. Growth means adding revenue at the same pace you are adding
resources; scaling means adding revenue at a much greater rate than cost.
With intensified pressure to keep up, leaders often react to mere
symptoms of poorly managed growth, such as widespread conflict or a
sense of organizational mayhem.
Leaders in this position need to shift from working in their company to
working on their company. Here are three things executives can do to
secure scalable growth for their midcap companies.


• Replace counterfeit “strategies” with real market identity. It’s
astounding how many companies produce a financial plan, customer
segmentation document, or financial forecast when you ask to see their
strategy. Mission, vision, and values statements are other common
stand-ins. But although all of these things are important, they aren’t a
strategy, and they’re insufficient for defining who a company is to its
market, relative to its competitive set. Worst of all, these companies let
their identity be formed by whichever customers buy the most product.
Executives in midcaps sometimes think their companies are too small to
do in-depth strategy work — but they think this at their peril. For
example, Research in Motion, the maker of BlackBerry, lost its market
leadership position because it didn’t move beyond its traditional
corporate customers; it failed to understand the mobile app market.
Companies of all sizes can identify their competitive positioning, analyze
threats and opportunities, consider their unique capabilities and the
investments required to protect them, and create a shortlist of
prioritized work to advance their position. These things are functions of
discipline, not size.

• Build capacity to scale — don’t just replicate. Many smaller
companies are fortunate to find a market niche for a service or product
that grows rapidly. When this happens, “rinse and repeat” (or “ride the
wave as long as we can”) becomes the plan to manage growth. This
approach ignores the reality that one day the wave will crest. Being able
to quickly multiply successes is not the same as building for sustainable
growth. Taking the time to design an organization that can sustain
growth is what distinguishes great executives from those that eventually
get swept away by the wave. Scaling up to manage growth involves
constantly questioning how your organization should look — in advance
of intensified growth. A client of mine in the energy sector required
regional executives to discuss scenarios once a year that explored rising
energy costs, lowered commodity costs, and alternative energy sources
gaining or losing ground. For each scenario, they built responses to
competitive threats and their organizational implications. The process
was powerful and proved beneficial when the opportunity arose to
expand into natural gas from traditional fossil fuels. The company
diversified its portfolio, mitigated longstanding risk, and captured new
markets it would have otherwise ignored, all while building an
organization that could scale without replicated costs.
• Welcome standardization — you won’t lose the “entrepreneurial
vibe.” Of all the words that make entrepreneurial leaders shudder, few
do it more than “process.” They associate the word with corporate
bureaucracy. They fear that standardizing approaches to work will
neuter entrepreneurial freedom and stunt creativity. But this is rarely
the case. Standardized processes liberate creativity because they free up
distracted energy that’s consumed by reinventing approaches every time
something is done. Over time, organizations without standardized
processes become a mass of confusion, redundancies, and cost overruns.
Smart executives prepare the organization with processes that promote
creative freedom while defining repeatable approaches to work — that
way, maturity increases as size does. When advertising firms Draft and
FCB merged, the new company, DraftFCB, wanted a new model to give

it a competitive advantage in a crowded market. The model brought all
the disciplines within the company together like the spokes in a wheel,
with the client as the hub. Within a year, DraftFCB, now simply FCB,
was making headlines for its approach, and clients were so impressed at
the power of separate but fully integrated disciplines that they were
asking for demos so they could take the model into their own
organizations.
Midcaps that grow through effective scaling are seeing greater results: 65%
of growth-minded companies are enjoying new markets, and 61% are
finding new opportunities in international markets. As a leader, if you
mature with the discipline to build an organization that can grow and
scale, you too can gain the advantages of leading a growth company that
can go the distance.

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