A Tool to Crack the Code of Scaling Your Company.
In this previous post, I cover a series of background ideas on what it means to scale a company. The key points are:
- I propose a new definition: Scalability = Fuel – Friction
- Scalability is a company’s inherent ability to grow frictionlessly
- Scale and Scalability are different things: Scale is found in operations; Scalability is found in business model design
With these basic ideas in place, I would like to introduce the Scalability Canvas, a tool to help teams think through the scalability of their company and develop strategies which can take them to the next level of growth.
Introducing the Scalability Canvas
The Scalability Canvas is a framework and planning tool designed to help companies improve their ability to scale. It’s a tool for discussing the competing forces of Fuel and Friction and to prioritize which action to take next.
The framework contains 6 boxes across 3 sections:
Section 1 = Focus – If you’re going to increase velocity and momentum of your company, it’s really important to be aiming at something! Otherwise you could find yourself aboard a rocket ship to the wrong place. Achieving hyper-focus is a competitive advantage and plays to the strengths of smaller entrepreneurial companies. This means the starting point of the canvas is to select 2 goals: an Immediate Goal, and an Unlockable Goal (explained in more detail below). Creating clear, measurable and tangible goals will create the focus necessary to point the scalability efforts in the right direction. You can think of this as the compass that’s help navigate while a company picks up speed.
Section 2 = Growth Engine – The top half of the framework relates to growth or sales engine of the company. On the left side are Fuel forces, on the right side, Frictions. This section acknowledges that to scale a company, it must be able to find new customers and scale revenue. This section can be thought of as the ‘external’ or ‘market’ forces affecting revenues, and all Fuels and Frictions that affect the way the company attracts revenue should be considered here (e.g. marketing, branding, customer acquisition, channels, partnerships, etc).
Section 3 = Execution Engine – The bottom half of the framework relates to how the company executes on the its value proposition, it’s ‘internal’ forces. Again, Fuels are on the left, Frictions are on the right. These forces relate to the operational workings of the company that help it to deliver the product/service to customers (e.g. culture, leadership, systems/procedures, skills, hiring, infrastructure, etc).
Note – I know that specifics are important here. In my next post I’ll put the canvas to work on a classically unscalable business model.
How to Use This Canvas?
The Canvas is designed as a tool for strategic decision making. Every company will have different forces at play, so the framework will apply differently in each case.
Here’s an illustrative example:
Step 1 – Choose 2 Waypoints
In my interaction with Inc5000 company owners, one thing I’ve observed is they are hyper-focused. Hyper-focus helps immensely when you’re moving fast.
The first step in completing the canvas is to choose to “goals” or “waypoints”. The first waypoint is an “Immediate Goal”, the second is an “Unlockable Goal”. Together, they’re a deceptively simple way to achieve hyper-focus.
When playing Chess, the best players think several moves ahead, and each move unlocks future moves. The Immediate Goal and Unlockable Goal work together to create strategic hyper-focus to guide the scaling effort. They help the whole team think two steps ahead.
The Immediate Goal is a specific, measurable and tangible achievement the company can focus on in the near term. It is also strategically significant enough that the whole company should focus on it at. (Note, this is in contrast to other goal setting approaches, like the One Page Strategic Plan used in the Rockefeller habits, where multiple goals can coexist at once). The Immediate Goal is a single unifying objective to be achieved by the whole company in the short term.
The Unlockable Goal is the second waypoint. The Unlockable Goal is one which can only be achieved after the Immediate Goal achieved. However, they are not on the same continuum, e.g. “get to $5.0m revenue”, when the Immediate Goal is “get to “$3.5m revenue”. If this were the case, the company should set the Immediate Goal of $5.0m. Instead, the Unlockable Goal is enabled by the Immediate Goal. For example, the waypoints might be “Achieve $5.0m in the US Market”, and the Unlockable goal is “Enter the Chinese Market”. They are sequential, but not on the same continuum.
Step 2 – List the Forces
In each of the Fuel/Force quadrants, your team should develop a list of 3-5 forces affecting the company. You may find that you can list many more than 5, but converting a longer list into an action plan is harder, so ideally the list should be constrained to include only the most significant forces.
Keep in mind the canvas is a living breathing tool. The list of forces will frequently change. Every time a company grows, it will hit new friction points. The Canvas should be iterated upon as a company evolves and grows.
As you use the Canvas, you are likely to redefine items on the Canvas and shift them around the different quadrants as you deepen your understanding of each item. That’s actually the whole point: the scalability formula is always the same, but the different forces at play will always be in flux. Growth creates new Frictions, and when a Friction is fixed (eg inefficient management practices), it can turn into a Fuel (eg culture of ownership and accountability).
Step 3 – Debate and Prioritize
Developing this Canvas is not a solo exercise; it’s designed for teams. The best approach is prepare a draft, then hold a team meeting to discuss and debate the finer details. The team should ask: “Are the all the relevant forces captured and are they correctly defined?” and “Which is the most important force to focus on next?” The only way to do this properly is to have a variety of people with different perspectives on the company, involved in an open debate. With that debate, the team can rank and prioritize the Forces in each quadrant by their degree of impact and importance.
Step 4 – Develop an Action Plan
The Fuel/Friction balance is unique to every company. Your team should prioritize the most important Fuels and Frictions, and stay focused on them until they are resolved or the priorities change.
The common language in entrepreneurial circles about scalability is focused on tactics (eg this article). With a proper understanding of the Fuel/Friction balance, you’ll be in a position to choose the most appropriate combination of tactics for your specific circumstances.
Changing the scalability formula takes work (and plenty of blood, sweat and tears), and may require fundamental changes to the business model. Just remember, even the smallest improvement will improve the velocity of the company. In the long run, this is good for everyone: staff, customers and shareholders alike.
Key Principle: Get to the Root Cause
To use the canvas correctly, the crucial step is to get to the “root cause” of each Fuel or Friction. This is tricky, but essential for using the canvas properly. Be careful not to define symptoms of Fuel/Friction; you need to get to the heart of where and why they exist.
For example, it is pretty easy for most companies to say that “Investment Capital” is a valuable Fuel for the Growth Engine, but it’s not the right way to use the canvas. The true Fuel for the growth engine is what that investment capital buys and why you should buy it.
To illustrate, consider Uber. Their growth engine is currently focused on entering new markets around the world. Every time they do this successfully, they scale. If they can enter a large market (Cairo, 15 million people), that market will add more growth than a small market (Asmara, 650k people). So “Launching in Cairo” would be the correct entry on the Canvas (External Fuel quadrant). Now, if Cairo is the next market of choice, the fact that there is social unrest in Egypt will represent a significant Friction to the growth engine. The original idea of Investment Capital is just a tool that might help in some way.
Another example might be a manufacturing business that have reached the capacity of its factory. What is the Friction? The Growth Engine is constrained by the inability to make more product. But when evaluating the issue, the company could evaluate raising capital to build a new factory, building a partnership to outsource some manufacturing, increasing the efficiency of the existing factory, or discontinuing one product to liberate production capacity for more profitable one. Defining the issues and getting to the correct root cause is critical.
In a previous post, I talk about a technique to properly diagnose an issue: using issue trees. In this case, you’d want to use a “diagnosis tree”, one that answers the question of “why is that happening?” I encourage you to visit that post to get a full appreciation of the technique.
The Scalability of a company can be thought of as the function of Fuel – Friction: the forces that can drive the company forward or hold it back. The Scalability Canvas is designed to help teams deconstruct how Fuels and Frictions are affecting the Growth and Execution engines of a company. It’s purpose is to focus discussions in management meetings so teams can prioritize which forces to affect first, and iterate on their strategy as circumstances change and the company evolves. Any small change in the Fuel/Friction balance will improve the ability of a company to pick up speed and momentum on the path towards its vision.
In my next post, I will apply the framework in detail to a classically unscalable business model to bring the framework to life.
Let me know what you think.
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