Scaling Up is a Problem of Both More and Less
February 9, 2014 Editor 0
Huggy Rao and I like to refer to scaling challenges as the “Problem of More” because they always involve getting some existing seed of excellence to take root in more people and more places. The language of “more” pervades discussions of the topic. Ask any group of executives or nonprofit leaders about scaling, run a web search on “scaling” or “taking to scale,” pore over articles, cases, or research on the topic, you’ll find the dominant words and phrases have to do with addition and multiplication: grow, expand, propagate, replicate, amplify, amass, clone, copy, enlarge, magnify, incubate, accelerate, multiply, roll it out to the masses, and so on.
Venture capitalist Ben Horowitz of Andreessen Horowitz kicks off an inspired post on scaling by quoting the rapper Dorrough, who tells anyone with “a dollar in your pocket, a twenty in your wallet” to focus on one thing: “Get big. Get big. Get big. Get big.”
Yet scaling is also a problem of less. A hallmark of skilled leaders and teams is that, as their organizations grow larger and older, as the footprint of a change program expands, they keep looking for signs of once useful but now unnecessary roles, rules, traditions, processes, products, strategies, and services. To borrow a phrase from author Marshall Goldsmith, they remain vigilant about “what got us here, but won’t get us there.”
A simple example is the all-hands meeting. When an organization is small enough that each member can have a personal relationship with every other, or at least recognize their faces and names, gathering everyone for regular meetings strengthens social bonds and bolsters the feeling that “we are one company.” But an intimate gathering with, say, 500 of your best friends isn’t feasible. My colleague Andy Hargadon noted this when he did an ethnography of the renowned innovation firm IDEO in the 1990s. When the company had 60 or 70 people working at its Palo Alto headquarters, founder and then CEO David Kelley (now Chairman) did a masterful job of orchestrating the “Monday morning,” a weekly 9:00 am gathering. After a brief opening with perhaps some news about the company, a self-deprecating story about himself, or a bit of indiscreet but juicy gossip, Kelley, a skilled facilitator, spent the rest of the meeting calling on people to describe new projects, introducing newcomers, recognizing birthdays, and asking if anyone had seen a good movie or discovered a new technology. Week after week, the field notes revealed that nearly every person in the room contributed at least one comment or joke during these 60-minute gatherings. But once IDEO grew to hundreds of Palo Alto employees, even Kelley couldn’t sustain the intimacy. The Monday all-hands meeting became a vestige of the past and was replaced with smaller gatherings organized around studios and design practices.
As an organization or project grows, and as its challenges change, it not only needs to recognize new priorities, it needs to delete or deemphasize old ones. Scaling becomes a problem of less because humans and human organizations can only handle so much cognitive load. In other words, successful scaling means finding ways to limit the number of things that people are expected to focus on and execute.
A company that Huggy and I have been studying in recent months called BuildDirect uses an intriguing approach to help its people do this. BuildDirect was founded in 1999 by CEO Jeff Booth with his good friend Rob Banks. Booth and Banks each invested $20,000 to start a company that could ship heavy home-improvement products more efficiently. The company has adopted an Amazon-esque strategy; it now owns and operates twelve large warehouses well located to deliver loads of flooring, roofing, and other heavyweight building materials to do-it-yourself homeowners and contractors. The average order size is 1,500 pounds. Early on, BuildDirect had its setbacks and near-death experiences, but in each of the last four years growth has accelerated. Sales doubled in 2013. And after withering down to 40 employees during the 2008 housing crisis, the company now has 175 employees. Just a couple of weeks ago, BuildDirect received $30 million in additional financing led by Venture Capital firm Mohr Davidow. It intends to open two more warehouses and add 300 more employees in 2014.
My conversation with CEO Jeff Booth, and especially, interviews conducted at company headquarters in Vancouver by Stanford graduate student Rebecca Hinds, revealed that BuildDirect uses a dynamic approach to setting priorities. It was inspired by author Steven Covey’s “five rocks” lesson: If you have a fishbowl, five large rocks, sand, and some pebbles, the only way to fit everything in the bowl is to place the five large rocks in first. If you try to fill the bowl with pebbles first, the larger rocks won’t fit on top.
BuildDirect actually displays its “fishbowl” in a central location, so everyone in the organization can be reminded what its five rocks, or key areas of focus, are. These are revisited every two months, and when a new set of rocks is announced, any employee, regardless of the division they are part of, is able to recite the five priorities that should be guiding their thoughts and actions. As Booth explained to Hinds, “Once we make the decision for the five rocks, right or wrong, we’re going to live them for the next 60 days.” (Until 2013, the rocks were reevaluated every 90 days. But BuildDirect’s rapid growth forced a change to that because “90 days was an eternity for us.”)
Each 60-day stretch is followed by a short period of “white space,” including an offsite meeting where employees think strategically and propose new rocks. BuildDirect encourages its people to propose imaginative, off-the-wall, and even downright weird ideas. After all, the company would never have survived the housing crisis if it had been afraid to change its accustomed ways of doing things. Recently, a “white space” brainstorm yielded a clever new idea for marketing, to cobble together a system that could combine customer-behavior insights gained through email, social media, pay-per-click marketing, and other sources. Implementing the model would cost only $100,000 – so the project was quickly declared one of BuildDirect’s five rocks. Based on better customer retention alone, management estimates this innovation has boosted annual revenues by $10 to $20 million.
But obviously, to create space for any new rock, BuildDirect must remove an old rock. In 2013, after people there identified an inefficiency in the order fulfillment process, a plan to automate part of the process was formulated. But the team later determined that implementing the solution would place such a great burden on the small company that it couldn’t be a top priority at that juncture. Without denying that the inefficiency was a problem, BuildDirect decided to take that rock, at least temporarily, out of the fishbowl.
To help more people go about scaling in the way IDEO and BuildDirect have, Huggy and I have created something we call “the subtraction game.” When we do scaling speeches or workshops, we ask people to think (first individually, then in duos or groups) about a few questions: What was once useful but is now in the way? What is adding needless friction? What is scattering your attention? Then we ask them to pick one or two targets that are ripe for subtraction.
We’ve played the subtraction game with groups as small as 16 and as large as 250. These include “high potentials” from a large retail chain, hospital administrators from Norway, and groups of managers and administrators at Stanford University. And while this is just a quick 10- to 15-minute game, we’ve already heard back from teams that followed through. For example, a Fortune 500 company decided to continue it for a month (with the group of 50 executives we initially worked with sending their ideas to the CEO). As a result, many meetings were eliminated and shortened, payment processes were streamlined, redundant work was driven out. On the chance you might try this yourself, I should probably reveal the added motivation, which might have mattered more in a huge company than it would in an entrepreneurial setting. Right before the brainstorming began, the CEO announced that each executive had $5,000 of bonus money riding on what it produced. Evidently it was worth it to him to put a lot of twenties in their wallets to get big. Get big! Get big! Get big!
A big thank you to Rebecca Hinds and Jeff Booth for their help with this post.
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