The perils of premature scaling and how to avoid it

I’ve been learning important business lessons of late that are well captured by the concept of ‘premature scaling’. So I thought I’d share my experiences in case they help you avoid my mistakes.

The vanity of team size

The first mistake I made was to equate the size of our team with success of the business. It is from this root that many future issues stemmed.

I can see why I made this mistake. When people ask you about your business you assume they are sizing you up. Perhaps they are?  ‘Is this guy for real?’ they seem to wonder.

This is particularly the case in the world of website development because anyone can set up shop. So I drew satisfaction from telling people I was part of a ‘decent sized team’ (the team at White Fuse has been around or over the 10 people mark for the last couple of years). I was gratified by responses like ‘ooh that’s quite big’. ‘Yes’, I thought, ‘I have a team of ten people and therefore I have a substantial business’.

While the size of your team demonstrates that you are a serious player – it shows revenue – it falls foul of the well known adage that “turnover is vanity, profit is sanity”. Team size is a good proxy for turnover but not for profit.

Put another way, staff = salaries = overhead = inefficiency (or at least the starting presumption of inefficiency until proved otherwise).

Hiring to fuel growth

The problem of team-size-vanity can be quickly compounded. When you are busy that creates problems: you can’t do things fast enough, you stress. The natural response to that problem is to hire someone. The decision to hire also has the seductive quality of growth. So when you are busy you hire more staff because you’ll then be able to get more done and reduce stress and you’ll also have ‘grown’ your business.

There are problems with this approach you should consider carefully:

  • hiring people takes time;
  • once hired, inducting and then managing people takes time;
  • it’s easier to hire than to fire;
  • more people makes communication more difficult;
  • more people means more expenses – equipment, desks, software licences.

Scaling

In a business context scaling refers to either increasing the speed of delivery (allowing you to deliver more widgets in less time) or increasing the size/complexity of your deliverables. It’s about doing a similar thing but getting bigger.

Doing a similar thing but getting bigger is difficult. In fact it’s one of the major challenges businesses face. Certain business models are inherently ‘difficult to scale’. Examples of this are hairdressing salons or second hand car sales.

There is often (though not always) an overlap between businesses difficult to scale and ‘lifestyle’ businesses. A lifestyle businesses is a valid goal but it need not see scalability as a necessary or desirable trait. Such businesses must be sustainable and fun, but they need not scale.

However, for most people starting businesses they want to make a bigger difference. They want to revolutionise their marketplace with new and better products that transform the lives of their customers. For these types of businesses, scalability is indispensable.

How to avoid premature scaling

Inherent in the concept of premature scaling is the notion that there is a right and wrong time to scale.

At White Fuse (one of my companies) we increased quickly to around 10 people about two years ago. In retrospect I think this was an example of premature scaling.

About a year ago we hit a peak of 13 employees and while it felt like progress I now believe that it was the culmination of a series of bad decisions. We hired good people and we were working on interesting and potentially profitable projects so I took a while to figure out what was wrong.

Partly, we were just suffering the common issues associated with hiring new people (a few of which I set out above). However, growing too fast can also expose structural issues in the business easy to miss when you are small. Exposing these issues is not bad. The problem arises because as you grow it becomes harder to fix these problems and they sometimes get worse.

Here are key questions to ask yourself to help avoid the trap of hiring for vanity and therefore scaling prematurely:

  1. What is our engine of growth? If our sales have recently increased do we know why? If you don’t know why there’s a good chance that projecting continued growth or even continued sales at the same level is pure speculation. If you don’t understand where the growth came from you won’t know what to do if the trend turns downward.
  2. Do you already have processes that allow you to deliver your core products or services independently of your current core staff? Especially if you are growing from a small core team (of say 4-6 people) its very likely that you rely heavily on their institutional knowledge, passion for the business and general experience. It’s unlikely that a new employee will match this so you must have a high level of confidence in your processes. It is prudent to test this using contractors first.
  3. Can you solve your problem a different way? Can you use software or processes to save time rather than getting another pair of hands on the team?
  4. Will hiring increase your growth potential in the long term? Sometimes keeping small is the right thing to do. Small teams are more adaptable and efficient. If you are still figuring out whether your product or way of working is right you may slow down this learning process by hiring. Turning down work is always unintuitive but can sometimes serve the long term interests of the business.

These are just a few thoughts from my experiences. I’m very much still figuring out how scale well. Please feel free to share your own experiences below.