Advisers looking to grow their businesses should carefully plot the expansion of their practice. They should expect to suffer a little, too.
Business leaders who have succeeded in scaling their companies — growing, say, from two people on staff to 200 — did so with a focus on spreading their convictions, not their geographic reach, two professors at the Stanford Graduate School of Business say in a book due out next month.
In “Scaling up Excellence: Getting to More Without Settling for Less” (Crown Business, 2014), Hayagreeva Rao and Robert Sutton stress the importance of guiding growth and first eliminating “the bad” to ensure it doesn't grow along with the positive elements.
“To spread excellence, you have to clear out the bad stuff first because bad is so much stronger than good,” Mr. Sutton said in a
video on the Stanford Graduate School of Business website.
Bad behavior, such as laziness, cheating and incompetence, is contagious and long-lasting, he said.
Philip Palaveev, chief executive of The Ensemble Practice, said scaling for an advisory firm entails figuring out how to deliver client services without requiring the time or the physical presence of the adviser. That, he said, is one of an adviser's biggest challenges.
Scaling a firm successfully requires advisory firms to examine and refine their processes and systems, and establish how to make the best use of the adviser's time — all before adding staff, he said.
“Before adding any kind of scale, first you have to figure out what is the cooking recipe,” Mr. Palaveev said.
Scaling excellence isn't something that comes easily, but it's essential for owners to pursue if they want to continue building a successful business, the Stanford professors said.
“You've poured your life and heart into your company; if you can't scale it up, you're actually going to essentially get into a dead end,” said Mr. Rao.
The firm's leaders also have to understand that growth may come with some pain. The authors say that the more a firm scales operations, the more its leaders will have to put up with things that may annoy them, and adjust.
One example is not to arbitrarily increase the number of staff members working on a particular team project just because a company grows in headcount.
“Big teams suck,“ Mr. Sutton said. “We have excellent evidence that when you go from four or five people to 10, 11, 12 and 13, all sorts of bad things happen.”
The reason comes down to brain power.
It's not too hard for people to keep track of the emotions of three or four other people and to coordinate activities with that number. But it becomes difficult with more participants.
“Our brains aren't big enough,” Mr. Sutton said. “When you get to 10, 11, 12, things fall apart.”
The authors also remind business leaders that scaling doesn't just require more “stars,” it takes more of what they call the “Sherpas,” or the people who help the firm reach its goals each day.
“If you forget the Sherpas, you're never going to get to the summit,” Mr. Rao said.
