What does a company need in order to scale?
Going into September of 2023 I was the Systems Manager at 3M dollar print/fabrication company, specializing in custom events and retail displays. I had joined the company in 2017 as a Project Manager. It was a significantly smaller operation at the time. We had a lot of success in the subsequent years. I know that I was a big part of that. By 2020 we had facilities on two coasts, capacity for full-service metal fabrication, and we were managing a national installation team. That year, enabled in large part by our rapid scaling, I assumed the role of System Manager. In this role I worked closely with the Managing Director, Operations Management, Project Management, and the Director of Human Resources to develop bespoke systems and processes aimed at increasing efficiency and communication throughout the company. This was a job that I loved profoundly. It challenged, rewarded and frustrated me every day.
By March of 2024, after three rounds of layoffs the company was in bankruptcy proceedings. The entire fabrication arm of the company was being liquidated and what remained was fighting to stay alive. Needless to say, this was not the outcome I had ever envisioned, and it led me to spend a lot of time thinking about what went wrong and what might have gone right. I have found myself focusing in particular on the challenges of bringing a small company to scale. Currently I am working on a new ERP system designed specifically for the needs of custom design and fabrication. Concurrently, I have been taking some interviews and looking for a new professional home. Many of the companies I have interviewed with show all the signs of going through the challenges of scale.
What follows then are my observations about scaling a small production business. I believe that these ideas could be extrapolated to most companies that are going through this transition, and hopefully they are of some value.
Describing a small business
* A small business is built on people. Among those people are usually a few heroes. These are critical members of the staff who make significant contributions to the overall functioning of the company.
* A small business hires people. Who those people are and the skills they bring into the job will often go a long way towards defining the role they play. In this way, small businesses are not necessarily filling positions as much as they are adding skills to the team.
* A small business is built on traditions and oral histories. Things are done a certain way because other people are doing things that way. These traditions or systems are passed on mostly word-of-mouth, occasionally involving an SOP document. A training program will often only involve following someone who ideally has done the job with some level of competence.
* A small business doesn't really have a org chart, rather a small business has relationships. The staff is small enough that people generally know each other. A core group of that staff will tend to bring in other people who seem like they will fit in. Authority is based less on roles and more on tenure or even disposition. There is little defined hierarchy. The strength of the working relationships among the staff creates accountability. This is how a small business can easily start to feel like a family.
* A small business "gets it done". Everyone chips in when you need to push a project over the finish line. Again, relationships are critical in a successful small business. People value those relationships and so they have a high incentive to help … to a limit. Fortunately, a small business isn't under enough strain to exceed those limits in part because …
* As a rule of proportion, small projects suffer only suffer small issues. A path to correction is usually clear and comes at a relatively low cost.
Describing a large business (or an enterprise)
* An enterprise is built on systems. It is built to survive the people within it. In a good company good people will always be recognized, but the emphasis is placed on the role more than the person in it.
* An enterprise hires to fill a position. A large company cannot afford to be reinventing a process every time an employee is replaced. Roles are clearly defined, and people are hired to do that specific work.
* An enterprise requires training programs that create accountability. It is not enough to simply tell a new hire to follow someone else. An enterprise needs to create a documented history confirming that the proper skills and support were given to the employee. This creates accountability later on. Clearly defined roles and training allow a company to quickly scale their staff when it is necessary. Clearly defined roles and training also start to create career paths within the company, allowing people to grow and allowing the company to promote from within.
* An enterprise has a defined org chart that establishes a hierarchy in the company. Projects need to move to completion despite the fact that teams will often have little to no personal relationship with each other. Conflict and confusion are an issue if they go unresolved. A good, well maintained org chart (including clearly defined roles) will be critical to achieving quick and decisive resolution to problems.
* An enterprise cannot simply "get it done". The scale of work far exceeds the reservoir of extra man hours. An effective ERP system is critical in order to manage the workload. Some metric needs to compare the available resources against any anticipated project requirements. If that capacity is exceeded, the issue must be identified early so an alternative plan can be developed.
* It is absolutely critical for a large company to identify issues quickly and deal with them before they become problems. Proportionally larger projects suffer proportionally larger issues. A path to correction is often difficult to see or to negotiate, and the cost is extremely high.
What to expect when a small company tries to scale without properly considering their systems
* First off, the rule of proportion comes into play. Even if the work is the same, it is larger in scope and there is more of it. Mistakes, particularly towards the beginning of a project have more dramatic consequences. When your projects are small, pushing one build back through the spray booth might cost you a few hours of overtime and the issue can be resolved in a night. Pushing sixty builds through the same correction is a far more painful and difficult task.
* ERP becomes of critical importance. I believe that an argument can be made that good morale can often be mistaken for good ERP in a small company. A small company can typically assume that they have the resources to "get it done". They can throw a project into the mix and "figure it out" once the project is there. A large company can no longer assume that they always have the resources to do the work. Pumping work into production is great for the sales team, but none of it will matter if production is over-capacity. Effective planning and communication are required to to make sure that the client expectations are realistic and that the work is manageable. This requires having a better handle on what exactly is happening on the production floor. A good ERP system allows everyone in the company to understand the workload and the strain on available resources. This gives the sales team the knowledge to make good decisions while good decisions can still be made.
* You now have more work to do, along with more issues to deal with, but all of those little issues are not so little anymore. This leaves you with less flexibility to reallocate resources. The only thing to do is push your staff into overtime but there is only so much overtime you can ask of your staff before …
* People will start demanding higher pay. Your management staff in particular will feel that they are not adequately compensated for the sort of pressure they are under. They will also realize that you cannot afford to be replacing managers in the middle of so much work. Some of them are going to start demanding more compensation to stay with the company. If someone can walk into your office and leverage more money to compensate them for their suffering, it is an indictment of your systems. By all means pay people for the work they do and compensate them for exceptional work, but if you are paying people to suffer you need to re-evaluate your systems.
* People will start leaving. People don't want to work 60 hours weeks with no end in sight. People have families and friends they likely want to spend time with. Your staff will start to leave and when people start leaving you will have to replace them except …
* You now start to realize that you have no training program in place, and little time to make one. It used to be enough to assign a new hire to follow someone who had been with the company for a long time. That is no longer adequate or even possible. You increasingly have fewer people who have been with the company for any amount of time. Those who do qualify as "trainers" have little time to spend training. New hires are not getting trained well and they are not afforded enough of it. You will find yourself simply hiring people and throwing them at the work while hoping for the best. You will rarely get the best outcome here.
* Your company is now in a negative feedback loop where turnover causes more problems, leading to more overtime and more turnover.
* The numbers will stop adding up. Your labor cost just went through the roof because your production staff is making time-and-a-half for all those extra hours. Your management staff is getting more expensive just as it is getting less effective. It is very doubtful that your project budgets accounted for this additional cost, or that they can absorb the cost.
* Your clients are unhappy, and your staff is unhappy. You can't see a way out and you don't have time to try. All of your little fires are now a firestorm inevitably leading to …
* Failure. You will not get it done. The project will not get done on-time or in any acceptable way. At best, you lose a significant client. Very likely you lose several clients. Quite possibly your company could find itself subject to contract penalties and legal action.
What to consider before scaling
* You'll need a rock-solid ERP system that has the faith of your management staff and will clearly do the work you need it do. If you can't find an acceptable system, then build one.
* Little is more important than the relationship between your accounts management and project management teams. It is absolutely critical that you have processes in place which make it easy for everyone to understand estimated revenue vs estimated resource capacity.
* You need a training program that can enable you to start rapidly hiring (or promoting) if you need to expand your resource pool. This cannot be overstated.
* You need a clearly defined and stable organizational hierarchy.
* You'll want data network that allows everyone to benefit from the common work. Nothing should be done twice. Nothing should be done in isolation. Good data management eliminates siloes of information that promote replication and redundancy. Systems that encourage replication and redundancy increase the opportunity for miscommunication and error.
* You'll need "safety valves" that allow you to relieve pressure on critical departments. Do you have a list of freelancers who could take on some of the design work? Do you have a good relationship with several other facilities in the area? Does your management team have any option to move some of the work away from your facility?
I am not bitter or angry about what happened at my last company. I consider those seven years to be some of the most successful and formative years of my life. For seven years I worked with some of the most dynamic and creative people I have ever meet. I know that all of them were doing everything they could to bring us to that next level. I am grateful for those years, and I honestly feel that this experience will in help me immensely in my next chapter. There are always lessons and we keep learning.
April 11, 2024
