Scaling SmartA Strategic Approach to Growing Your Company Successfully

A Kapta eBook

Identifying problems worth solving and creating a viable product that meets customers’ needs is what all start-up companies must accomplish. In so doing, they must identify how to accelerate growth with limited resources.

Identifying problems worth

solving and creating a viable

product that meets customers’

needs is what all start-up companies

must accomplish. In so doing, they

must identify how to accelerate growth

with limited resources. There are a variety of

effective steps a company can take to mitigate

the growing pains associated with accelerated

business growth. It’s no coincidence that the best

venture-backed companies in history did a great job

scaling. It’s how you turn small amounts of invested capital into

extremely valuable equity in a short period of time.

When companies scale, many startup CEOs are worried about losing

or diluting their culture as they grow. With the right building blocks in

place however, a company can actually maintain and reinforce its values as

they scale. Over the course of 100+ interviews with CEOs, a very clear pattern of

“scaling-up practices and organizational behaviors” has emerged.

Scaling up from a ‘good’ company to a ‘great’ company requires decisive strategic

execution that supports sustained operating leverage with a healthy dose of corporate

alignment to support company culture and innovation. Our findings show that those

organizations that are effectively scaling-up consistently demonstrate the following organizational

behaviors and processes. Those that perform best have proper systems in place to ensure these

behaviors and processes are properly embedded and not left to chance:

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Operating Leverage1

Communication2

Network Influence3

Speed7

Accountability6

Alignment5

Transparency4

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Operating LeverageIf you add operating costs at the same rate you grow revenue, then your business does not scale.

Businesses that scale are businesses with operating leverage.

In layman’s terms, if you add operating costs (sales, marketing,

administrators, R&D, etc.) at the same rate you grow revenue, then

your business does not scale. On the flip side, if additional revenue

requires relatively smaller and smaller additions to operating costs,

then your business scales. It’s a simple formula that is fundamental to

building and maintaining financial health in a company, but far too often, it

is overlooked or ignored.

Operating the business at scale means allocating and optimizing resources to drive the greatest results and volume across

market segments. Often times CEO’s are leveraging their time on innovation, on hiring too quickly or keeping up with market

demand with the product or service they offer. Basic assessment of the company’s balance sheet needs to work in tandem

with other company departments on a regular basis.

Encouraging cross-enterprise collaboration creates more value in aggregate and all participants have an opportunity to gain

more than they had before. When all departments are privy to the corporate balance sheet, it gives incentives for setting and

realizing goals at both a department and company wide level.

It also fosters corporate transparency and leverages trust intra-company.

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In the past, “executives have tended to be wary of cross-enterprise collaboration out of disagreements over the distribution

of rewards or concerns over privacy”, says author and consultant John Hagle. However, “these concerns are largely shaped

by a zero-sum view of the world -- if one party gains, the other parties must inevitably lose.” Working in tandem produces real

results.

Marketing and sales must work together cohesively to generate demand and close business.

Closed deals need to be transitioned to services/support to be nurtured.

Partners need to be leveraged to multiply the company’s marketing, sales and services efforts

to reach new customers and displace the

competition.

Make sure every employee knows how they fit

into the organization and how they contribute to

the company’s success to leverage talent.

Operating the business at scale is about optimization, not duplication,

of efforts. Once a company can optimize resources with a scalable

business model, cross-enterprise collaboration can create more

value to secure bottom line growth and generate financial success.

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The Strategic Advantage of Global Process

[additional reading]

How to know if your business will scale

[additional reading]

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Communication

The command-and-control approach to management has in

recent years become less attractive. Globalization, ever-changing

technologies, and new approaches to how companies create

value have sharply reduced the efficacy of a purely directive,

top-down model of leadership. What new patterning will then

take the place from the old corporate model? “Part of the

answer lies in how leaders manage communication within their

organizations—that is, how they handle the flow of information

to, from, and among their employees”, says Boris Groysberg, a

professor of business administration at Harvard Business School.

“Traditional corporate communication must make room for a process

that is more dynamic and more sophisticated. Most important, that process must

be conversational.”

Groysberg and Michael Slind a writer, editor, and communication consultant, co-authored a book Talk, Inc.: How Trusted Leaders Use Conversation to Power Their Organizations believe that the patterns and processes by which people

communicate with each other are unmistakably in flux. The old “corporate communication” is giving way to a model that they

call “organizational conversation.”

In 2012, they surveyed a group of leaders from organizations that range from computer-networking giant Cisco Systems to

Hindustan Petroleum, a large India-based oil supplier, to use the power of organizational conversation to drive their company

forward. For these leaders, internal communication isn’t just a process of Human Resources. It’s a fundamental cornerstone

that boosts employee engagement and improves strategic alignment.

Traditional corporate communication must make room for a process that is more dynamic and more sophisticated. Most important, that process must be conversational.

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Groysberg and Slind have found that there are four steps that a company can take to make their approach to leadership

more conversational.

Close the gap between you and your employees.In Groysberg and Slind’s survey, they asked respondents to name the biggest employee communication challenge

at their company. In response, one participant cited the need to “move away from top-down communication.”

Another highlighted a “disparity between the senior management team and middle management due to low

transparency.” Trusted and effective leaders overcome such

challenges by speaking with employees in ways that are direct,

personal, open, and authentic.

Promote two-way dialogue within your company.One survey respondent lamented, “a lack of

understanding in management of the need for

communication,” adding that “the traditional

practice” of communication at his or her company

“has been one-way.” Leaders can show that they

appreciate the value of real communication by

adopting channels that allow ideas to move in multiple

directions across their organization, and by working to

create a truly conversational culture within that organization.

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Leaders can show that they appreciate the value of real communication by adopting channels that allow ideas to move in multiple directions across their organization

Engage employees in the work of telling the company story.The need “to get more participation from employees,” according to one respondent, is a pressing challenge at his

or her company. People in that company “tend to shy away from speaking openly.” The practice of organizational

conversation alters that dynamic. Where that practice has taken hold, leaders encourage broad-based employee

involvement in a wide array of communication efforts.

Pursue a clear agenda.One participant expressed concern about a “lack of consistency” in communication. Another mentioned a

tendency among top leaders to generate “too much communication.” Yet another voiced this complaint: “The

strategy is only discussed at the management level and is never cascaded to all staff.” To deal with such challenges

— to prevent the communication process from becoming

diffuse and ad hoc — effective leaders take steps to

ensure that their conversation with employees unfolds

according to a clear strategic plan. They also seek to align

that conversation with organizational objectives.

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Leadership Is a Conversation

[additional reading]

Changing the Conversation in Your Company

[additional reading]

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Network Influence

Influence Marketing Defined

Influence plays an important role in business. At some point or

another, we are all influenced by someone or something. Students

are influenced by teachers. Friends influence one another.

Entrepreneurs are influenced by their respective mentors.

However, we are only influenced to the point that we can

trust another person. Building trusting relationships takes

time. Chances are that there’s already a group of people

out there who have earned the respect of many of your

potential customers. That’s where influence marketing

comes into play.

Influence marketing is a strategy that targets key individuals

who have influence and trust over your key target market.

It is the next generation of marketing and public relations where

you target the people your prospects turn to for information. These

influencers help generate awareness and sway the purchasing

decisions of those who seek out and value their expertise.

It is the next generation of marketing and public relations where you target the people your prospects turn to for information. These influencers help generate awareness and sway the purchasing decisions of those who seek out and value their expertise.

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If key influences are interested in your message, they will begin

talking about your company, its leaders, and/or products and

services. Key influencers are found in social media, on blogging

networks, at conferences and in online discussion forums to name

a few. These influencers are respected in many networks and they

help build credibility for you in the eyes of your prospects because

influencers are often trusted resources.

Below are five benefits to incorporating network influence into your

corporate DNA from OpenView Partners.

Raise awareness of your brand within your industry/space.When you build relationships with key influencers,

sooner or later you will probably benefit from getting

some kind of “ink.” Perhaps they will share one of your

customer success stories, review one of your products,

mention your company in a case study, or write a

company overview. These mentions essentially create

another mark of your company on the Internet, acting

as free advertising for your business. Your prospects

will see this information and become introduced to or

reacquainted with your company’s brand.

Increase your Web traffic.When an influencer mentions your company, it may cause his or her audience to seek out more information,

usually by going to your website.

If they’re interested in your message, they will begin talking about your company, its leaders, and/or products and services. Influence marketing builds credibility for you in the eyes of your prospects because influencers are often trusted resources.

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Test your messaging and value proposition.More often than not, your influencers are on the pulse of trends within your industry. If you can’t sell them on

your company’s competitive advantage and offerings, you may experience the same friction when selling to

your prospects. Influence marketing provides a feedback loop with people who live and breathe within your

space.

Generate inbound leads or inquiries about your company.Influence marketing gives you the opportunity to communicate your value proposition, offerings, and company

back- ground to prospects you may not otherwise have engaged with. Doing so will result in more people

visiting your website, participating in webinars, reading your blog, etc. — some of whom will eventually turn

into qualified leads.

Build credibility/overcome objections/close more sales — faster.When an influencer has given your company his or her “seal of approval,” the people who look to the

influencer trust that person’s word. Your salespeople won’t have to spend as much time selling your value

proposition when the influencer has already helped communicate your message.

The Value of Influence: The Ultimate Guide to Influence Marketing

[additional reading]

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Transparency

Ryan Smith and Golnaz Tabibnia’s recent article, Why Radical Transparency

Is Good Business in the Harvard Business Review Blog, attests that Radical

transparency, the idea of everyone knowing everything, could actually be

a major driver of increased organizational performance.

Private research software firm Qualtrics believes that the biggest reason

companies fail is because people lose focus. Young, fast-growing

companies driving to satisfy investors get off track in order to meet

revenue goals. Qualtrics wanted to take a different route so the company

decided to take a leap of faith to make all employees’ performance data

available to everyone in the company. By doing so, Qualtrics removes

the distractions, fears, and negativity that sap concentration. The entire

workforce has access to a host of information about the performance and

practice of each employee that includes:

Quarterly objectives and results in detail including revenue and satisfaction targets

Weekly snippets of each individual’s goals for the week

Up to the minute performance reviews, ratings, and bonus structures

Noted successes and failures, with notes for everyone to learn from

Career history at Qualtrics

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Qualtrics wanted to take a different route so the company decided to take a leap of faith to make all employees’ performance data available to everyone in the company.

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“Insights from neuroscience underscore that our brains work best when we no longer feel the need to hide, cover up our

mistakes, or dwell on errors”, says Smith. “We do better when we aren’t mentally bogged down in “threat response” worrying

about which of our colleagues is the boss’ “flavor of the month,” getting a hasty promotion, or bad-mouthing our work”.

Focus:At the beginning of each quarter, every Qualtrics employee sets measurable and visible objectives and key results (aka

OKRs). Each individual’s progress and priorities are clear. This helps reduce the noise and clutter that can overload our

prefrontal cortex with a sense of being “overwhelmed” about what our goals are.

Engagement:Radical transparency increases commitment and motivation to the corporate mission because employee data are explicitly

linked to performance, ensuring high levels of fairness. A sense of real fairness turns out to be deeply rewarding to the brain,

especially compared to a sense of unfairness that pervades many employees’ darker thoughts, which activates a strong

threat response. Everyone is benchmarked, all data are available for inspection and analysis, and all employees are treated

accordingly. The reward response leads to increased engagement, from the strong sense of autonomy the approach brings

about, defined as a sense of control over one’s destiny.

Growing Talent:By making the successes of top performers accessible and easy to compare against the department or company as a whole,

newer employees at Qualtrics are motivated to excel through mirroring the best practices of high-performing employees. This

mirroring is extremely powerful in encouraging positive work performance. Another a big plus is that the right people get the

promotions, meaning the people who are really consistently performing are rewarded, not the people just good at getting

others to think they perform well.

The principles of radical transparency improve business performance in terms of focus, engagement, and growing and recruiting talent. Here’s a preview of how they work:

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Qualtrics knows that the transparency process creates winners

and losers, and that environment can be tough for someone

who is not an “A” player. As Marc Effron of the Talent Strategy

Group reports from his global consulting work, “there’s a

pervasive, irrational fear of transparency in corporations

worldwide when it comes to talent issues.” Many leaders

seem concerned that engagement will be compromised when

everyone is told the truth about their potential to advance.

While there may be some rough moments, Effron tells clients,

“here’s the fundamental question: How long do you feel it’s

appropriate to lie to your employees about their future?”

Effron holds that many executives are far more ready for stronger transparency measures than their HR colleagues believe. If

that rings true, they should adopt radical transparency.

How long do you feel it’s appropriate to lie to your employees about their future?

Why Radical Transparency Is Good Business[additional reading]

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If your company is like many other high growth businesses, your

employees represent both your organization’s biggest line

item expense, and your most valuable asset. This means your

company’s productivity-and ultimately, its profitability depend

on making sure all of your workers perform up to their full

potential.

“Studies show a dramatic increase in both worker and

business performance when an organization effectively

sets and closely ties individual employee goals to the

company’s overall strategy”, says Robert S. Kaplan and

David P. Norton. “Yet amazingly, a mere 7% of employees

today fully understand their company’s business goals

and strategies and what’s expected of them in order to help

achieve company business goals.”

Alignment

of employees today fully understand their company’s business goals and strategies and what’s expected of them.

7%

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In a recent study, researchers found a strong correlation between a

company’s financial performance and a goal setting process. Their

results illustrated that companies that more closely aligned goals

across their organization enjoyed much higher levels of financial

success. The study also found that employees in the weakest-

performing companies did not clearly understand the connection

between their individual efforts and the overall goals of their

employers. These same people also reported feeling confused

as to their roles at the company, which naturally resulted in

unfocused-and therefore less productive-work activity.

These findings underscore the critical importance of

effectively setting and closely aligning employee and

business goals to drive the success of your company. In

addition to feeling fairly compensated for their efforts, your

employees must clearly understand how their work connects to

and serves both the short- and long-term goals of your business.

What are the

benefits of clearly

aligning strategy

with action?

You will drive better business results, your employees will feel more engaged, and you will move faster.

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Accountability

The most common reason a plan fails is lack of ownership. If people don’t have a stake and responsibility in the plan, the

plan won’t prosper. People need to have a strong and positive relationship with their direct manager and an inherent trust

in the organization in order to feel accountable for their results. The relationship between an employee and their employer

needs to be “reciprocal” for the building the blocks of accountability to fall into place. Mihnea C. Moldoveanu writes much

more about this in his Harvard Business Review Article, The Promise: The Basic Building Blocks of Accountability.

Some guidelines on how to promote accountability and responsibility in your organization:

Leaders must model accountability.Leaders must take stock and accountability for their own mistakes and give credit where credit is due.

Do not create silly policies in your organization.Most of the people do the right thing most of the time.

Communicate and share information.It hard for people to feel accountable if they do not understand what is happening in the organization.

Create a safe learning environment.People need to not be afraid to give feedback and share mistakes or missteps. This is how people learn.

Focus on the relationship managers have with their teams.Create systems, tools and training that help managers develop better relationships. This is the foundation for driving

accountability in the organization.

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While managers generally agree on the importance

of managing and understanding an organization’s

culture, there is far less agreement on how to

manage one.

In their paper, “In Managing Corporate Culture

Through Reward Systems” John Slocum and

Jeffrey Kerr suggest that the managerial reward

is a powerful means of influencing corporate

culture. After interviewing 75 high-ranking executives

in 14 of Fortune’s largest 1,000 firms, they found two

distinct reward systems, each linked to a very different

culture. “In the hierarchy-based system, performance was

defined in qualitative terms and evaluated subjectively, and subordinates were dependent on their superiors for evaluations

and rewards. This system is associated with the clan culture, characterized by long socialization, high commitment,

peer pressure to conform, and the

importance of superiors as mentors.

In the performance-based system,

performance was defined

quantitatively and evaluated

objectively, rewards were

based on formulas (ROI,

ROE) connected to results,

and subordinates were far

less dependent on the opinions

of superiors for guidance.”

After interviewing 75 high-ranking executives in 14 of Fortune’s largest 1,000 firms, they found two distinct reward systems, each linked to a very different culture.

In the hierarchy-based system, performance was defined in qualitative terms and evaluated subjectively, and subordinates were dependent on their superiors for evaluations and rewards.

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This system is associated with the market culture, characterized by short-

term commitment, independence from peers, little socialization, and

superiors as resource allocators. The authors find the first system (the clan

culture and hierarchy-based reward system) to be useful for firms pursuing

single-product, capital-intensive strategies, while the second (the market

culture and performance-based system) is useful in firms pursuing acquisitive,

high-diversification strategies.

Kerr and Slocum realized that significant strategic or structural realignment

couldn’t occur if it is not supported by the organizations values and

behavioral norms. The reward system represents a powerful means for

influencing an organizations culture. “The reward system defines the

relationship between

the organization and the

individual member by

specifying the means

of the exchange.”

Two major issues,

performance and

rewards define reward

systems, “performance

includes defining and evaluating performance and providing employees

with feedback. Rewards include bonus, salary increases, promotions,

stock awards and perquisites.”

Managing corporate culturethrough reward systems[additional reading]

The Promise: The Basic Building Block of Accountability[additional reading]

Kerr and Slocum realized that significant strategic or structural realignment couldn’t occur if it is not supported by the organizations values and behavioral norms.

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Speed

In business, there’s always an issue of speed and how quickly

a company can get to market. The notion goes, if you can win

the race by bringing your product or service to market before

anyone else, you win. But there is a speed gap: It’s the difference

between how important a firm’s leaders say speed is to their

competitive strategy and how fast the company actually moves.

“That gap is significant regardless of region, industry, company

size, or strategic emphasis. Organizations fearful of losing their

competitive advantage spend much time and many resources

looking for ways to pick up the pace,” says Jocelyn Davis and Tom

Atkinson.

Paradoxically, they should try slowing down instead. In their study

of 343 businesses (conducted with the Economist Intelligence

Unit), the companies that embraced initiatives and chose speed to

try to gain an edge ended up with depressed sales and operating

profits than those that paused at key moments to make sure they

were on the right track. In addition, “the firms that “slowed down

to speed up” improved their top and bottom lines, averaging 40%

higher sales and 52% higher operating profits over a three-year period.”

Companies that embraced initiatives and chose speed to try to gain an edge ended up with depressed sales and operating profits than those that paused at key moments to make sure they were on the right track.

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How did they defy the laws of business physics, taking

more time than competitors yet performing better? They

reframed what “slower” and “faster” meant. “Firms

sometimes confuse operational speed (moving

quickly) with strategic speed (reducing the time

it takes to deliver value)—and the two concepts

are quite different.” Simply increasing the pace of

production, for example, may be one way to try to

close the speed gap. But that often leads to decreased

value over time, in the form of lower-quality products and

services. Likewise, new initiatives that move fast may not

deliver any value if time isn’t taken to identify and adjust the

true value proposition.

In their study, higher-performing companies with strategic speed made alignment a priority. “They became more open

to ideas and discussion. They encouraged innovative thinking. And they allowed time to reflect and learn. By contrast,

performance suffered at firms that moved fast all the time, focused too much

on maximizing efficiency, stuck to tested methods, didn’t foster employee

collaboration, and weren’t overly concerned about alignment. Ultimately, strategic

speed is a function of leadership.” Teams that become confident in taking time to

get things right, rather than recklessly move forward for speeds sake, are more

successful in meeting their business objectives. That kind of assurance must

come from the top.

They became more open to ideas and discussion. They encouraged innovative thinking. And they allowed time to reflect and learn.

Need Speed?Slow Down[additional reading]

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Our case for scaling companies strategically with clearly defined goals

and objectives in place paints a clear picture: growth capital alone will

not unlock the problems and caveats associated with scaling high

growth companies successfully. Because of the extreme challenges

facing those who are scaling new business models, a blueprint for

success is in order.

The Blueprint model provides opportunities for Business

Executives to stimulate the creation of promising inclusive

business models. Our findings show that those organizations

that are effectively scaling-up consistently demonstrate

success in: achieving operating leverage, in implementing a

company-wide communication that is conversational, identify

network influencers to enhance brand image, open up the

performance history of each employee for all to see through

transparency, establish company-wide alignment and accountability

and ultimately they all slow down to speed up. Those companies

that have historically scaled successfully have had these systems and

organizational behaviors in place, which provided them the blueprint

that enabled their companies to scale with success.

Because of the extreme challenges facing those who are scaling new business models, a blueprint for success is in order.

About Kapta Kapta provides executives with a cloud-based sys-

tem to clearly communicate company goals, track every employee’s expected

contribution and review overall status through a real-time dashboard. Headquartered

in Boulder, Colorado, and founded in 2011, Kapta gives executives a clear line of sight

into each team member’s performance and the system’s easy-to-use alignment tools keep

employees on track in less than five minutes each week. Kapta’s intuitive input process

virtually eliminates “work about work” and instead provides employee alignment

and executive feedback to successfully scale your business.

For more information, please visit

kaptasystems.com