4 trade-offs during scaling and how to balance them

During scaling, founders/CEOs often face trade-offs as they balance improving efficiency with the increasing pressures of a larger organisation and rapid customer growth.

So how can founders and leaders reduce the downside of trade-offs during scaling?

Full article available here is based on our recently published research: From digitalized start-up to scale-up: Opening the black box of scaling in digitalized firms towards a scaling process framework (Technology Forecasting & Social Change)

I feel the need. The need for speed...

The road between start-up and scaled was once measured in decades, yet innovation in digital technologies have significantly accelerated this to months and years.

Digital start-ups tend to grow at high rates in more compressed time. However, rapid growth can be both a blessing and a curse.

The pressure of scaling leads to new tensions for digital founders and management they must learn to balance from start to subsequent scaling stages.

Digital technologies are central to scaling. They enable cost-advantages and scale economies of growth without significant increase in operational costs.

They also enable innovation and new business models associated with rapid replication, early internationalization, and infinite scalability.

Rapid product iteration in short-product development cycles helps to find product-market fit quickly and continue to innovate to improve value to customers.

Just think about any shopping experience you may have had before retail moved online. You will have a perfect example of how search and discovery, range, transparency, informed decision making, ordering, paying and convenience has improved over the past 20 years.

4 Trade-offs and Scaling tensions

During our research among digitalized scale-up founders, we uncovered four trade-offs or scaling tensions which are significantly challenging to founders as they transition between start-up and scale-up.

#1 Structure vs. Culture

The scaling process in digitalized firms commences in many cases with building the organizational capacity to drive and manage growth. At the start of scaling, digitalized firms shift from lean teams, working at maximum capacity, to investing in new people (leaders) and capabilities (specialists), creating some "slack" in the organization to seize new opportunities.

With new leaders and people comes increasing structure which inevitably puts pressure on culture, particularly on it’s entrepreneurial culture such as being agile, proactive, flexible.

You know, the cultural alignment, the cadence of how fast you work, the work ethic. All of those were major issues and was the biggest challenge, right? But actually, I would say the cultural and mindset issues were even larger than the technical infrastructure issues.” [Interview 9] 

#2 Short-term wins vs. long-term outcomes

How resources are allocated between short-term wins vs. long-term growth outcome forces trade-offs. For example, decisions in which technical effort is prioritised between product innovation (which tends to result in more long-term growth outcomes) and process innovation (more short-term outcomes).

Often times, founders are faced with the decisions of what to "sacrifice" as they are still operating relatively lean. For example, when referring to the decision to invest in new platform capabilities

“I would have sacrificed growth in the business for a year completely … in order to get it done in a year and get it fully done.” [Interview 5]

#3 Balancing Moving Fast vs. Performance

During scaling, the pressure to make fast decisions which directly or indirectly affect inputs may be perceived to be riskier than at start-up stage. Decisions concerning, for example, price, customer demand, unit costs, operations have larger impact on sales, customer satisfaction, margin, cashflow, and returns to capital, in the larger firm.

 “how to balance between structure and repeatability versus moving fast and being entrepreneurial and doing things in a quick and dirty way.” [Interview 9]

#4 Delegation vs. Staying Connected

Perhaps the trade-off that was most challenging for founders to manage at the start of scaling is the tension within the founders themselves.

The tension between delegating of more decision-making to specialist leadership they have hired, and a founders' need to stay connected to the operations and decisions (i.e., having appropriate level of oversight and control when and where needed).

“Being able to train the more junior guys, to escalate things at the right time and make sure the leadership was aware of those things before things went south and make sure there was a certain level of quality.”

How to minimise trade-offs and balance tensions

For 'how to' strategies and practical actions you can take to reduce trade-offs during scaling and relieve pressure and stress on founders and their leadership teams, more resources and info is available here.

Key Points

• Successful scale-ups strike a balance between improving cost advantages and efficiencies and staying entrepreneurial that delivers higher and higher levels of growth over-time.
• Minimising the pressures and trade-offs on the journey requires balancing tensions associated scaling.
• Founders and leaders can and should learn the methods and develop the capabilities that help them more intentionally and proactively balance the four scaling tensions to minimise trade-offs during scaling.
• These scaling tensions evolve and change from early to later stages of scaling and some scale-ups continue to scale both efficiently and entrepreneurially (i.e., innovative, agile, flexible, competitive etc.) for long periods (think today's Apple or Amazon).
• Mastering how to manage trade-offs and balance the tensions, is likely to not only improve start-up to scale-up transition liklihood, but also help relieve some of the pressures and stress on founders and leaders during scaling.

If you would like to receive a "founder-friendly" presentation of the research, feel free to reach out to me here: claire@madeforscale.net