A root bound plant has no room to spread its roots, but if you get a bigger pot, the plant can then spread its roots and grow larger above ground. The same can be said for a business. As your business grows, or scales, it reaches a point where its growth becomes blocked by the processes and mechanisms that support your business. CEOs will look for financial, human, and social capital to solve these problems. This is where outside investors come in. Even if the founder finds a willing investor, it is not all sunshine and rainbows; it can lead to both good and bad outcomes for both the business and the founding CEO.
Bad outcomes aside, the fact is that outside investors will create a board of directors that are responsible for monitoring the CEO. This can be a pitfall. If the CEO is not careful, the board could elect a new CEO and fire the founder. This is usually caused by a lack of performance or failure to meet expectations.
This inherently is not bad, but it does demonstrate the power held by the board of directors. With this level of power, the face of your company can change quickly and without your signature. Control centric CEOs will tend to avoid outside investors for the purposes of keeping their control, but unfortunately, if your company generates enough momentum and the board feels that a new CEO is needed to meet operational goals and parameters then the CEO will be forced bout into the sideline if their pride does not incline them to make the expensive choice of leaving the company. In contrast, the wealthy CEO could also step aside before the board gets involved, which would allow them to better set the terms of their transition.
It’s a difficult tight rope to walk. In addition to the political and power moves played in the business you must also keep an eye on your ever-shrinking percentage of equity as you bring more investors into the fold. Investors are not the only way a company scales itself.
As brought out by Lauren Landry, a writer from Harvard’s School of business, there are other ways that are vital for a business to scale correctly. Sometimes investors bring the skills and direction needed to make these changes, but as someone who has seen their business grow from a seedling, it is best to take care of your baby and make sure that your business has A players on your team, a shared values across departments, a clear organizational structure, access how fast your should grow, the scope for that growth, and the financing needed to push the business forward. (Landry, 2019)
Scaling, then, is not simply the pursuit of more customers, employees, or capital. It is the process of continually rebuilding an organization so that today’s structure does not become tomorrow’s constraint. Like a root-bound plant, a growing company eventually needs more room, but a larger pot alone will not make it healthy. Founders must develop the people, processes, culture, leadership, and capital capable of supporting what the company is becoming. Perhaps the hardest part of scaling is recognizing that the organization that created your success may not be the organization capable of sustaining it.
References
Herrenkohl, E. (2010). How To Hire A-Players. Hoboken, New Jersey, United States: John Wiley & Sons Inc.
Landry, L. (2019, March 7). Tips for Scaling Your Business. Retrieved from Harvard Business School: https://online.hbs.edu/blog/post/how-to-scale-a-business
Wasserman, N. (2012). The Founder’s Dilemmas. Princeton: Princeton University Press.
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