Five Reasons Companies Fail to Scale

So I get asked quite a bit what causes a company to fail or what causes a company to not be able to scale. And what I would say is there could be a thousand reasons why that's the case, but they really all ladder up to about five reasons. Number one is a dysfunctional leadership team. And if any of you have ever been part of a group of dysfunctional leaders that don't trust each other, that can't have good debate, and can't get to the best decisions, that is usually reason number one.

Because as the leadership team goes, so will go the rest of the organization. It also usually means it's a non-A player leadership team. They can't live the core values, which is one of the reasons that they're probably dysfunctional. Number two, they're not hitting KPI driven goals often.

Those are usually the combination of factors that make up your A players. And you usually have a leadership team sort of devoid or not at a 100% A player leadership team. So that's number one, dysfunctional leadership team, non-A player leadership team. Number two, Tolerating poor performance.

Everyone hires like absolute crap. And that's the truth. So if you look at all the research that's been done over the years, most organizations, and I can back this up with data in the companies that I've worked with, most organizations only have about 25% A-players. And that's generous in a lot of cases.

But 25% A-players, that means that 25% of your team is dragging the other 75% behind it. And that's brutal for that 25% that causes people to leave like crazy. And no one focuses on growing that A-player percentage in organizations. And it can be done if a company can consistently coach its team members, if it can subtract C players, and if it uses a structured interview process like top grading or ideal team player to hire.

But in addition, you cannot tolerate people that have great performance but violate your core values or it will kill your culture. So being able to get those human beings that are killing the organization, if they're back on track or out of the organization as quickly as possible, is critical to maintaining your A players. Also kind of a surprising thing as well is the way that we continue and perpetuate the process of tolerating poor performance is we tend to hire from within our industry. That shocks a lot of people, but do as much as you possibly can to not hire from within your industry.

And the reason why is it's not because there aren't A players in your industry. It's because one, we are probably getting a B player if we're looking at someone from our industry. A players tend to be sticking around if those are good organizations. And number two, it's, you tend to be, if you take two resumes, you put two in front of you and you have one that has someone that's got 10 years of experience in your industry and 10 years of success on their resume, meaning they've consistently been able to drive and move initiatives forward, they've hit goals, they talk about that by showing KPIs in their resume.

By the way, there's a strong correlation between people that have KPIs in their resume and people that will be A players. You'd think it would be opposite, but it's not. But if you have those two resumes in front of you, our brains will gravitate to the one with 10 years of experience in our industry because we don't think we have to train them. And I always say, no, we'll raise you one.

You'll have to untrain their bad habits. Number three, not being able to follow a really simple execution rhythm. And by that I mean, does the company have goals? Does it have goals that it's driving to every quarter, every year, and several years down the road?

Does it have priorities that drive us toward those goals? A handful of key priorities that the company can look at and focus on every month and every year that drive the organization forward, that team members are aware of and they have priorities that are tied up to that so that we all push in the same direction. Do they use data regularly? KPIs, numbers that are able to measure the progress in these priorities so that we can see if we're doing well or we're doing not.

And the third part of that, after priorities and KPIs, is do we have a really simple communication rhythm, a meeting rhythm throughout the week, daily, weekly, monthly, quarterly, annually, that drives the organization forward. So we We get prepared for our days and we eliminate wasted time by getting together and communicating as groups in a really consistent basis. If you want to learn more about those three things you can read Scaling Up by Verne Harnish or Metronomics by Shannon Sisco. Number four, and it's funny because I had organizations that had mastered those three things and a couple of them still struggled and I would say there are two other things that really jumped out to me over the years.

Number one, not having a coherent strategy formulated around price, quality, speed. Remember the old adage around the rule of two, you can be pricing the quality and the speed, you can be two out of if you can't be all three, that tends to be true with really successful organizations, even at the smaller level, the mid-market level. And what you find is organizations, their CEOs, especially kind of that mid-market level, that five to seven to $10 million plus level, they believe they're competing to be the best. And what they're really competing to be is unique.

And once they understand that they're competing to be unique, that changes their perspective about trying to be the best at price, the best at quality, the best at speed. And what they really try to be is one thing in the mind of the consumer. Am I priced Am I quality and my speed? Am I known for one of those things in the mind of the consumer?

And then what's the variable? Which one price, quality, speed do I use to get to that single thing that I'm in the mind of the consumer every time? Do I master price, quality, or speed to get there? And then which one do I intentionally suck at?

Which one am I going to be bad at so that we can make sure we deliver on the single value in the mind of the consumer? And you can see this example sort of a play in a lot of cases, the most obvious one, it's a bigger organization, but again, these all start small and they become big at some point. Look at Walmart. Walmart's one thing in the mind of the consumer, it's low price.

They get the low price by being able to manage speed. They were the first one to set up distribution centers that could manage 150 stores simultaneously. That allowed them to do faster inventory turns, which allowed them to get to the lowest possible bidding price with suppliers, which allows them to offer the lowest price to the consumer. And they're terrible at quality.

And that's what they have to be in order to be successful to drive the organization forward. They're able to rationally trade off on quality. You can look across the spectrum of other great organizations and most are able to do this. And the last one that's really interesting to a lot of people is we've got to be able to go, it's not having a focused business model.

And what I mean by a focused business model is we have to be able to go deep before we go broad. So one of the worst things for business owners are just going through life on a day-to-day basis and seeing menus. And I mean that the nice way possible because yes, a menu of items, whether we're choosing something at a restaurant or going to a service and choosing from a multitude of items can be very very beneficial. But early on, we want to be able to do is master one or two key things.

We want to have one or two key offerings to our customers before we have a whole bunch. And that's usually what makes us the most successful organization possible is we're masters at a couple of things. So I had several organizations that were part of the Inc. 5000 list recently, and all of them were great at one thing.

And it's a lesson that we as business owners need to learn, because what happens is we start adding multiple things to our menu, to our offering without being best in the world at one or two things. And it starts to harm our offering all the way around because we just don't have teachable and repeatable processes that our organization has mastered in one area to be able to extrapolate over into how they run a different kind of product or service. So being able to eliminate those things that make us unprofitable, that we're not best at, if we have them, are critical to being able to grow and scale the organization. So it's really those five things.

It's dysfunctional leadership team. It is tolerating poor performance. It is not being able to follow simple execution rhythm. It is no mastery of price, quality, speed.

Speed paradigm and it is having an unfocused business model. And somehow if you're a CEO or a founder of an organization that's either SMB or somewhere in the mid-market and even honestly big businesses all need to really think about those five areas and how they can look at their organization in such a way where they can truly conclude if one or more of those areas is truly hurting them. Those are the things that really hinder organizations and their growth. So anyway, feel free to leave your comments.

I'd love to hear what people think. Thanks.