Scaling vs. Efficiency: A Common Challenge For Companies That Want To Grow
In my conversation with a seasoned CEO who has successfully operated his company for many years, we discussed a challenge many leaders face. How to break through a revenue plateau?
Despite building a stable and well-functioning business, the CEO found his company stuck at this impasse and was eager to discuss, in his words, “scaling strategies.” As we delved into the details, it became apparent that he conflated operational and organizational efficiency with a targeted strategy to drive revenue growth. The good news is that realigning organizational priorities and a commitment to delivering services that customers value would drive the results this CEO sought.
Of course, I can’t disclose the specific client, services, or industry as that would violate professional confidentiality. Still, the presentation of this discussion with some minor adjustments may be helpful to others who have reached a similar revenue plateau.
Let’s get started.
I had known this CEO socially for several years, and they occasionally requested my advice on specific initiatives. The CEO operated a well-established company that was highly regarded in the industry. Before the meeting, I did some quick research and found that the company’s marketplace, like many others, was experiencing rapid change due to “customer empowerment" or "disintermediation." Their customers were becoming savvier, more technologically adept, and self-sufficient, and their needs were shifting as organizations could now directly create many previously purchased services. This shift can disrupt industries as customers demand greater control, often reducing the role or necessity of traditional service providers.
We met and sat in a quiet area in a coffee shop, and after some pleasantries, I asked if it was ok if I jotted some notes down. I confirmed basic financial information and that the company had indeed reached a revenue level that, for several years, could not break through. We then jumped right into it and, using the CEO’s buzzword of choice, “scale,” asked using an open-ended question, “Please tell me about what actions the company has taken to, in your words, scale?” Scale is a funny word to me tossed around like it has a magical meaning, and just saying it will conjure up actions that will take a company to a new level. I also wanted to see where he would go with the question.
The CEO began by detailing the steps to “scale,” including documenting standard operating procedures, automating tasks, setting up performance KPIs, investing in top-tier enterprise systems for real-time monitoring, refining his hiring process and training programs, and implementing various frameworks to drive the sales process. The company's operations were meticulously optimized, following industry best practices. I listened and took notes, asking for clarification when appropriate. Upon finishing, the CEO asked, “What am I missing here, and why can’t we scale?”
I responded, choosing my words carefully, "It sounds like you’ve done a commendable job building a company primed for growth. Everything you've done to be able to scale is critical to enabling the growth.” With an emphasis on being primed for growth. “What has the company done to ensure its marketplace reputation, quality, and, most importantly, to drive additional revenue?"
The CEO discussed the company’s service delivery processes, quality checks, customer feedback processes, client satisfaction monitoring, and marketing and sales efforts, including implementing a CRM, maintaining consistent social media outreach, expanding the sales team, and heavily investing in new client-facing technology. The CEO beamingly shared the high points of the latest sales retreat and their highly personalized service. The CEO was rightfully proud of all the company had put into place.
After taking notes, listening intently, and allowing the CEO to finish, I asked, “That is a long list of accomplishments that many companies in your industry or any other would envy. What has been the impact of all these efforts?” and paused.
The CEO enthusiastically jumped back in and discussed the company's efficiency and ability to bring on hires faster, keep everyone on the same page, retain customers for a long time, have less chaos and single-person dependency, allow leadership to monitor performance, and be a happier company without lots of drama. The CEO also sprinkled in key performance indicators (KPIs), stats, and industry benchmarks.
After the CEO finished with primarily qualitative impacts, I remarked, “That sounds great. Let me rephrase my question. What has been the tangible impact on the bottom line? Have actual revenue, profit, and margins improved with these efforts? If yes, to what extent?”
The CEO’s body language and tone changed. The response was not as enthusiastic or positive and seemed slightly annoyed, “Not measurably, revenue was up a bit, and profit and margins have declined slightly due to investments in these initiatives.”
I then offered my perspective.
"You should be proud of the culture and company you have created. Your company has done something most businesses can’t and don’t do. Stay in business, create a company that can run without you, and retain your current book of business. Capacity, efficiency, service excellence, and reputation are all very positive attributes of a well-run company and will make scaling much more manageable and attainable.”
“However, the catalyst for actual scaling is revenue growth and requires a strategy focused on capturing a larger share of your current market or expanding into new markets. That’s the essence of scaling. Do you have a clear strategic plan for growth in that market context?”
I hoped the CEO would ask me what I meant by the question, but he didn’t.
The CEO then gave me a litany of the company’s financial goals and a relatively generic explanation of its target market and prospect and stressed they were different because they had both long-term clients, high customer satisfaction, and low turnover.
These answers were very valuable to me as they provided insight into how the CEO thought of growth and what their growth strategy was or wasn’t.
My initial thought was that financial goals were a wish list. Upon delving more, they were top-down goals, which meant picking a number or growth percentage and working to reach it—the positioning statements applied to many, if not all, of their competitors. The only uniqueness appeared to be that they seemed very good at retaining customers and executing at their current market demand level. That is no small feat, but it’s not a guarantee for growth. Based on my experience, I suspected that I would also uncover a concentration risk, where the CEO and senior leadership maintain and drive sales through a few long-held relationships.
At this point, I was unsure whether existing customers or the marketplace valued the CEO’s highlighted attributes as a differentiator that provided unique value to them. Most likely, they did not. At this point, nothing seemed to be truly distinctive in their offering. I did not want to lose the CEO and have the CEO close down by pointing out my immediate thoughts. I needed to learn more and illustrate that there may be a better path to grow beyond the revenue plateau they kept hitting.
We began slowly, and I explained that I would like to learn more about how the company selected the initiatives it focused on and about its market.
I began by asking about the selection and number of initiatives: " How many were internal business operations and efficiency projects, and how many were related to understanding and driving market growth?”
The CEO’s response was hesitant and a bit defensive. After all, I was starting to challenge the current strategy, and gaps were taking shape. "Most were internal business operations and efficiency projects to support growth and customer delivery.” The CEO continued, “Our focus has been on doing what we do better than anyone else. We know our market. Our customers know us and trust us. We have been doing this for a long time and know the industry better than most.”
I decided to dig deeper to see how well they knew their market and how much the company knew about their customers’ and non-customers’ perceptions of value in what they provide.
A quick note: I like and use the word “market” in many circumstances rather than “industry” because it emphasizes customer value exchange and reinforces the concept that the participants, borders, size, and shape of an industry are not fixed.
Over the next two hours, we covered the following questions in a conversational format. I wanted this discussion to feel like something other than an inquisition or offend a CEO who had done a great job building a respected, stable, well-run company and was looking for answers on how to grow.
These initial targeted questions would provide me with enough information to form a hypothesis about what is going on, make a subtle point, and suggest the start of a path forward. As we spoke and when the questions fit, but not too much to be annoying, I often asked, “How do you know that?” or “Why do you think that?” These qualifiers would help me understand the thought process behind the answer and gain a glimpse into how open or challenging change and innovation might be.
The main questions we discussed included.
What do you consider your current market?
What industries make up your market?
Are there any other ways to segment your market?
What’s the market forecast and trajectory over the next 1, 3, 5, and 10 years? Will it grow, shrink, or stay the same?
Do all segments perform the same?
When was this market created?
What did it look like 1, 3, 5, and 10 years ago?
What has changed?
What do you think will change?
How have you changed during that period in your relationship with the market?
What differentiates you in this market?
Are there any potential alternatives or substitutes to what you provide?
Do you see any alternatives or substitutes coming, why, and who?
How difficult is it to enter this market?
Who in the market do you look up to and why?
How difficult is it to change your position within this market?
What would make this market obsolete?
How big is the total market in terms of dollars and customers?
What is your percentage of the market?
Is the market demand spread evenly or dominated by a few large players?
Are there any benchmarks or norms in your market, such as pricing, margins, churn rate, and growth, and what are they and how have they trended?
How many customers do you have?
What is the average relationship duration of a customer?
How many new customers do you add in a year?
How did you find them, or did they find you?
How many customers do you lose in a year?
Why did they stop being your customer?
Why did these new customers purchase from you?
What do your customers value most in what you provide?
What don’t they value in what you provide?
What don’t they value that you invest heavily in?
What do the market and your customers “really” care about regarding what you provide?
How do you compare your competition in the market and your customers’ eyes?
What do they believe your competitors do better or offer that you don’t?
Who doesn’t buy from you today that you want as a customer? Think about it in terms of customers, segments, and markets.
What is preventing these non-customers from buying?
What would these non-customers value and not value?
What are the most significant pain points customers and non-customers have in your market?
If you were a non-customer, would you consider buying from you, the competition, or some other solution altogether, and why?
Are there non-customers who don’t buy from you or your competition, and what do they do to meet their needs?
Do you have a formal strategy and plan to capture more of your market or expand into other markets to reach non-customers?
We finished discussing the last question.
Along the way, the CEO offered many generalized answers, mainly mirroring those on the website, industry reports, publications, or off-the-cuff answers. I asked, “Is there anything else you feel is important?” The CEO reflected momentarily and responded, “No.” I then asked, “What are your thoughts right now?” The CEO sighed and remarked, “It is clear by this exercise that we need clearer, data-driven insights, answers, and analysis to many of these questions. There are questions about competition and the market we don’t have a strategy around and should. What do you think?”
I could tell the CEO had started understanding the point I was driving to. I shared my perspective that the company strategy and investment need more emphasis on what customers and non-customers would value, or scaling is just a hollow goal tied to a wishful number.
I reassured the CEO that this is a common scenario, particularly for companies their size that hit a growth ceiling. "To truly scale revenue or simply grow, you need a deep understanding of your market, its growth potential, and your position in the market. From there, you can better see what is not working and develop a strategic plan to capture more of that market and expand or create new markets with significant expansion potential. This might require adjusting or changing your current offerings to differentiate yourself in a way that creates demand to reach those not buying from you today. In short, to go where the competition isn’t.”
The CEO then asked how to go about this.
Drawing from my experience, I outlined five (5) foundational steps. Knowing that while I was not going to solve this in a two-hour meeting in a coffee shop, I could provide some data and research-backed suggestions that may spark a new way of thinking and new results.
We discussed each of these steps within the context of the company’s business and culture.
Step 1: Build a Profitability Tree
This will allow the company to visualize and blend key accounting and financial reports to see what drives profits—learning what really drives and doesn’t drive profit can be incredibly eye-opening. As a strategy is developed, the company can use the tree to model the impact specific projects or investments will have on revenue or profit. In short, it will help determine what levers to pull to drive the desired results.
Hint: Unless you are a commoditized manufacturing or distribution company, operational and efficiency projects often affect the bottom line in most businesses less than revenue-focused ones. Before my inbox is flooded with comments about this statement, I am not saying these efforts don’t matter. I am suggesting you know the impacts of your decisions. Customers buy first because they want or need your product or service, so balance investment wisely.
Step 2: Analyze your Market and Position
Apply one or more time-tested frameworks to help the company better understand the market's dynamics and the company's position in that market. These could include Porter's Five Forces, SWOT Analysis(Strengths, Weaknesses, Opportunities, Threats), PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental), and Competitive Positioning Analysis.
The company could bypass this step and jump right to the next step; however, in my experience, there is much to learn by completing this step.
This step provides a foundational baseline for the company and the market. It helps make the next steps, "Step 3 - Value innovate", "Step 4 - Strategy and Planning", and "Step 5 - Execute and Be Flexible," more efficient, reinforcing the why and providing the ability to monitor, identify, and react to future market changes more swiftly.
Step 3: Value Innovate
If the company were to take only one step, it would be to develop a Blue Ocean Strategy to create and find uncontested market spaces and convert non-customers to customers by increasing customer value and decreasing the costs of things that don’t add value. The core concept of creating a Blue Ocean Strategy is to make the competition irrelevant and leave them behind by simultaneously pursuing differentiation and low cost.
The steps in developing a Blue Ocean Strategy include tools and frameworks that facilitate and build change, and all have benefits on their own. The list consists of creating a Pioneer-Migrator-Setter Map, a Strategy Canvas, which is a diagnostic tool that helps companies visualize their current strategic position and identify opportunities, a Buyer Utility Map, Identification of the Three Tiers of Noncustomers, a Six Paths Framework, a Four Actions Framework, an ERRC Grid (Eliminate-Reduce-Raise-Create), and more.
Don’t expect this to be easy. This step is where the most challenging work and biggest potential breakthroughs will take place. It will require the ability to often see beyond the comfort of many long-held beliefs about your company, customers, and the market.
Leadership will have to reflect on tough questions like this one presented in one of my favorite business strategy books, Blue Ocean Shift: Beyond Competing – proven steps to inspire confidence and seize new growth, “Do your existing customers keep you focused or what is, instead of what could be?” [1] This question highlights the complicated and often counterintuitive challenge leaders face if their business is not growing and, at the same time, is not experiencing a rapid decline.
Hint: In today’s fast-changing business world, you can’t really expect to stay as is and survive forever - let alone grow without finding the courage and path to create the future. Countless industry leaders have become industry laggards or casualties by thinking they could.
Step 4: Strategy and Planning
Develop a Strategic Plan Tied to Reality. Craft a clear strategy and action plan based on market analysis, value innovation activities, and ability to execute on and finance the future.
Some excellent frameworks that may support this effort include McKinsey’s Three Horizons of Growth and the Ansoff Matrix (Product-Market Growth Matrix). The goal is to emphasize balancing immediate business needs with long-term opportunities to ensure impactful and sustainable growth in alignment with strategic objectives.
Model any initiative using tools including a profitability tree, paying attention to Return on Investment (ROI) and payback Period, and factoring in time to potential obsolescence or the introduction and impact of market copycats.
Big ideas are important, but as the saying goes, “There are mouths to feed and bills to pay.” The strategy and plans must be right-sized, with the ability to invest, finance, and execute.
Step 5: Execute, Monitor, and Be Flexible
Implement the strategy with precision and agility, monitoring progress and adjusting as necessary. Remember to balance the investment in quick wins with big long-term revenue and profit movers and revisit the underlying market assumptions regularly. Review and update all significant assumptions and the market regularly. This will help the company stay one step ahead and spot changes and trends.
I was now all coffeed out and had provided more than enough free consulting for a day. We shook hands, and the CEO thanked me for my time and said, “This was truly enlightening, and I have much to consider after our conversation.” I advised the CEO that I would send a recap of our discussion with an outline of the suggested actions and more details about the steps and frameworks we covered. I wished the CEO well in breaking through their revenue plateau.
A few days later, the CEO called to thank me for the information and to discuss whether I would be willing to help them embark on this journey.
Fast-forward a few years, the company was acquired at an attractive multiple for its unique market position, innovative product and service portfolio, and, of course, operational excellence and personalized service.
Over my career, I’ve had some form of this conversation many times with business leaders. I have never encountered a business that could not improve its operating efficiency. It is a never-ending quest. While operational excellence is essential, without a growth strategy driven by a clear differentiation linked to the market’s perceived value of your offering, even the best systems and processes won’t translate into significant revenue scaling.
If you find yourself in a similar position to this CEO, remember that while efficiency and reputation are the foundation of growth and scaling, moving beyond a revenue plateau requires executing a market-based strategy that provides value to your existing customers and wins over non-customers.
Best of luck,
Greg
References and Citations
Kim, W. C., & Mauborgne, R. (2017). Blue ocean shift: Beyond competing – proven steps to inspire confidence and seize new growth, (P. 63). Hachette Books.
Blue Ocean®, Blue Ocean Shift®, and Blue Ocean Strategy® are registered trademarks and intellectual property owned by Kim & Mauborgne.
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