When scaling a business, there are three barriers to growth that leaders must navigate.

1. Scalable Infrastructure – The lack of systems and structures to handle the complexities in communication and decisions that come with growth.
2. Market Dynamics – The failure to address the increased competitive pressures that build (and erode) margins as you scale.
3. Leadership – The inability to hire or develop enough leaders who have the capability to manage, delegate and continue to grow leadership underneath them.

This week on the podcast Brad Giles and Kevin Lawrence discuss how each of these barriers affects a growing company.

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EPISODE TRANSCRIPT

Please note that this episode was transcribed using an AI application and may not be 100% grammatically correct – but it will still allow you to scan the episode for key content.

Kevin Lawrence  00:13

Welcome to the Growth Whisperers podcast where everything we talk about is about building enduring great companies. Because that’s something that Brad, my co host and I are very passionate about and enjoy seeing companies do continue to build for future years, generations, decades. So I’m here with my co host, Brad Giles, how you doing today?

Brad Giles  00:35

Very good. Thank you. Things are very good in this part of the world, family’s good. How are you doing Kev?

Kevin Lawrence  00:43

Same, I’m doing quite well. Looking forward to the show – what’s the topic today?

Brad Giles  01:02

Today we’re talking about an interesting subject that is a little bit like the glass ceiling, that many leaders can’t see it. But these are real barriers. So today, we’re talking about the three main barriers to consistent growth.

Kevin Lawrence  01:26

Awesome. So Brad your word of the day today, or phrase, what is it?

Brad Giles  01:32

Its native genius. Native genius comes from a friend of ours, Liz Wiseman, and a book called Multipliers. And it’s this concept where each person has a single thing that they do really, really well without even having to try that hard at it. And I was working earlier today through with a leader talking about one of the team’s native genius.

Kevin Lawrence  02:00

Awesome. Well, interestingly, my word of the day is people power, and how the right people power a business and make just amazing things happen. And I’ve been thinking about it lots, because I look at the, you know, the clients and the CEOs and execs that I work with. And the best ones are such powerful forces of making good things happen. Most of them me like being around them, they bring the best out in you, you bring the best out of them, but just it’s, you know, people power and the power of just awesome people. And you know, to weave that together, Brad, people power and the power of that native genius, when you’re leveraging that, ooh, a whole bunch of people leveraging the native genius, look out. The other thing about it too, though, is it also is infectious. Like it multiplies you, when you’re around the right people. There’s people that dread working with their teams, or the people they work with, because they probably got the wrong people. But people give you energy and inspiration and you lift each other up. It’s awesome. All right, let’s jump into the barriers of growth. And the three barriers, which these are things we see all the time in companies. And when we go into companies that are having a rough patch, often we’re trying to figure okay, what’s really going on here? Yeah, and you know, and really, it’s, which of these three things are at play, that would really get in their way of continuing to grow. And sometimes it takes a bit of digging and a bit of work. It’s sometimes it’s hard to tell. And, and often, we’re, you know, when we go into companies that are thriving and booming when we start working with them, we’re trying to look out and prevent these barriers smacking us and knocking us back and slowing us down.

Brad Giles  03:54

Yeah, and that’s why I use the analogy of the glass ceiling, because you might not even know that these things are slowing you down. Yeah, that’s kind of like you said, that’s what you and I are always on the lookout for what is slowing this down? What are the things that don’t seem to be right, and it can be a little bit confrontational, sometimes it can be challenging for a leader to look and say, Gee, I didn’t think about that. Or I thought that we were doing that really, really well.

Kevin Lawrence  04:27

Yep, yep. It’s really interesting stuff. And the thing is like the glass ceiling, if you can’t see it, you can’t know its impact on you until it’s too late and it really hurt. So let’s dig into the first one and it sounds very industrial and official steel bowl infrastructure. But really, this is about the systems and tools that enable people to work in a coordinated fashion and easily get the important things right. You know, instead of having everyone writing paper receipts seats and paper invoices, they get lost or miscalculated, or you know, all kinds of things, they have this thing called accounting systems, right. And then name accounting systems to make sure things are systematic and done the same way. And then there’s, you know, the training of getting the people to use the system the same way. And again, there’s, there’s multiple layers and tools, but it’s about finding ways to streamline the complexity and create consistently excellent outputs.

Brad Giles  05:28

And that’s the key word isn’t it? It’s complexity, because when you’re doing $50,000, a year in revenue, things might not be that complex, you can get away with a lot of things, the demands, or maybe not that much, but then you go up to a million revenue a year, 5 million, 10 million, 20 million. And at every single stage, there is more complexity, there is more communication that’s required, every time you’re adding a new person, or even perhaps adding a new customer. And all of these complexities require decision making, and that decision making adds to the problems. And if you can’t overcome that, if you can’t, if you can’t ensure that your team are able to freely scale through those with your systems, because you’re using the old systems, going back to your you know, paper accounting, you’re not going to get there, you’re not going to continue to grow.

Kevin Lawrence  06:31

And then the other part is, and you know, everyone talks about ERPs, for example, to manage the back end of the business, the thing is, you get to a point where you get bigger, and if you’re on too simple of a system, you actually can’t get the data, you need to make decisions. And it’s just to say that, you know, you’ve got a couple of 100 different skews that you sell. And during a couple of different states or provinces or regions. And in different types of customers with different pricing mechanisms, and discounting mechanisms, you start layering all these things in, and you try to want to understand profitability by a SKU, or by a customer or by a sales rep. Sometimes you can’t get that you actually can’t even get the information. And you can have millions of dollars of additional costs or losses or opportunities that you can’t even see. Yeah, and so that’s why it’s as companies get more complex. Basically, as things get more complex, we need systems to make it more simple. And that’s all it all sounds great. But you know, most people have been a part of a Salesforce implementation or an ERP implementation, or that has gone absolutely wrong. They install what should be a great system or tool, but it’s not built properly. And it actually builds in way more complexity and puts the business backwards, assuming it doesn’t fail. And then you know, that there’s one problem sometimes, or sometimes they do install, and they set it up perfectly, but then people aren’t trained on it. And people don’t understand. I mean, these back end systems, it’s serious, serious work to get them right, and to get the value out of them. And that’s why, you know, there’s programs like, you know, Lean and Six Sigma that become popular, they in themselves can become their own cluster bombs, because they themselves can become additional complexity if they’re not done. Right. And they can be awesome if they are particularly lean if it’s done, right. There’s just it’s good.

Brad Giles  08:30

There’s a client that I work with here. Now, he’s expanded into state and he’s is continuing to do that. And he’s now his roadmap is saying that we’re going to expand internationally. And it comes with a whole set of complexities that his infrastructure might not be able to efficiently handle. Okay. So rather than doing 1 million in the new country that we’re looking to go to, he might only be able to do three or 400,000. And that’s kind of what we’re talking about. And that’s not because the sales team or the product isn’t competent. It’s because there’s a whole range of new requirements in that region that the infrastructure that he’s got can’t deal with.

Kevin Lawrence  09:18

Yeah, and for example, with some businesses, because of the complexity of operating in a different country with different policies and requirements and reporting and all of these other things. Some also say that, you know, like one of my clients is making the move into another country. They know unless they do 30 or 40 million, if they can’t do it, because the systems the cost of setting up all the systems that they need in a new country. I think I think was 38 million was the point. If we can’t do that volume in the first couple years. We can’t we just can’t do it. It won’t work because they can’t give the right investment to get it off the ground. It’s fascinating and So the within scalable infrastructure there is the tool set. That’s one piece. Yeah. Then the other piece is the humans mastering the toolset and agreeing on, on how we’re going to use this consistently. So that’s a second piece. And then the third is actually streamlining and refining systems. Because if you’ve got crappy systems, but you automate them in a toolset, and then everyone uses them in the old way they used to, you’re just kind of systematizing garbage. So you often need to streamline and simplify the system. So there’s a lot of different variables in this, and generally, the leaders need to dedicate time to getting this stuff, right.

Brad Giles  10:58

And then continuing to dial it in to make sure that it works, and spend time training and troubleshooting and working together being really observant. Like where are the rocks are the blockages that are stopping our systems, our processes, everything that we’re doing, from being as efficient and effective as they can. You know, the, you said, the tools that we use, I mean, we talk about people strategy, execution, and cash as being the key tools that you’ve got to get right. And then when you apply those back to that scalable infrastructure, that’s what we’re talking about, right? If your people aren’t right, if your strategy, your execution, and your cash system isn’t right, that you’re not going to be able to have that scalable infrastructure, within the context, it’s the tools in that set that make it work.

Kevin Lawrence  11:49

It is. Yeah, and last thing, I’ll just show you the other pieces. And this drives me crazy, because the people that lead these projects need to be masters and appreciate simplicity. And unfortunately, when the software people come in to give you the demo of all the cool stuff that your software can do, if you implement half of their ideas, you’ll generally have a horrible system, because it’d be really cool and way too complex. And the idea of all of these things and systems, what is the minimum, we need to do a great job for the customer? Right? The minimum to do a great job for the customer and man, do I ever see people blow the stuff up, and it’s usually the people that get so excited about the systems, because they want to do all these cool things. And they generally, you know, they can easily make a mess. And, you know, one of my clients and another country, we’re doing an Oracle implementation. And, you know, everybody wants to get in there, and customize and do all this cool stuff. He said, we’re basically going I think he called it a white label out of the box, what Oracle does out of the box, we are going to make the fewest revisions possible. And try and like basically, Oracle’s figured out how to set up a pretty good system. Yeah, it was vanilla, I think was vanilla, would he call it? And basically is to, to basically not try and show how smart we are and how special we are by over complicating the system. Try and do it the absolute most basic possible.

Brad Giles  13:25

Yeah, yeah. So that’s number one scalable infrastructure, you’ve got to have systems and structures that can handle the complexities as you grow. So number two, is market dynamics. So as you grow, there will be increased competitive pest pressures, pardon me. That, that may erode margins as you continue to grow. So you’re able to handle the market dynamics with all of the systems and the tools and the people strategy execution cash that you’ve got.

Kevin Lawrence  14:05

Yeah, and it’s basically what we’ve talked about in past episodes, can you maintain your competitive advantage? Yeah, right. And, you know, a lot of people because of desire to growth, have to grow. And, and particularly because salespeople want to hit their targets, and then they start going from instead of, we’ll call it trophy hunting, the cool core customers, they just start trying to take anything and I remember one of our clients, um, owned a very premium brand in the clothing industry, very premium. And, and they were so aggressive on their growth targets and everything. I started seeing this these things show up in, you know, these low end they’ll a step up from $1 store in the mall. Wow. And I would see this premium product in there, and I saw it everywhere. And basically, they just sold it any anyone would take it, they sold it. And when you’re in the premium space, you can’t have your premium product showing up in a discount store. It doesn’t work that way now, but they got so excited and it was selling like hotcakes. But I said to him that, hey, you got to watch it, you’re killing your brand. Because if it’s available there, the customer who’s gonna buy it in a premium location and sees it there, it’s it takes away that takes the shine off the brand. So the point of it is, is that to maintain that competitive advantage and to keep true to who you are? Yeah, people start chasing volume and that sort of like any customers a good customer, and they can easily when you start, you know, commoditizing yourself, there’s more pricing pressure and all those other issues. And it can really hurt a business because you can’t sustain your sales growth because you kind of lose your way.

Brad Giles  15:56

And, and that’s an example of the glass ceiling. Yeah, you can’t sustain the growth, right. And that’s what we’re talking about here. Another way that plays out, again, to your point, if the strategy isn’t strong enough, is that you put an offering out in the market, it feels different, you’re excited about it. And then you kind of as you continue to grow, you pop up on the radar of others, sales teams, in your competitors. Meetings, let’s say, yeah, and then they pull their favourite lever, which is discounting, so then they drop the price, and then they in suddenly, they’re trying to establish a price war between the two of you, because they want to maintain their market share. So if you’re starting to take market share off your competitors, they’re going to begin to pay attention. And then they’re gonna perhaps try to erode margin, right.

Kevin Lawrence  16:51

And if you’re undisciplined enough to follow them down that rabbit hole of a price war, you’re hurting yourself, right, you need to find a different way to fight a battle. And sometimes you might need to do it short term, but it’s a dangerous, it’s a sign that your strategy is weak. And one of the things you know, I’ve seen in companies, as you grow your margin, your gross margin percentage. And considering same type of business, you know, because acquiring similar amounts of overhead and support and everything else, your gross margin should stay the same or go up as a percent. That means your strategy is on target. You know, truly, if you had more sophisticated systems to measure it, we would look at more of the profitability taking in allocating the overheads. Because you can have a business that normally generates 38% gross margin, you could have business that you’re doing at 20. If it’s a paper transaction, wholesale, and you don’t ever touch it, you could make more money on the 20% wholesale deal than you can on the 38% regular deal. That’s getting a little more complicated. That’s like a different type of business. But generally your mark your gross margin should sustain. But often as people go with, you can watch their gross margins start to fall. And it’s a bad sign that you’ve lost your strategy and lost your discipline and your business. I mean, that’s, or there’s not enough market to demand your growth, you have to find a market.

Brad Giles  18:19

That’s one of the primary stress tests of a strategy, will it sustain or grow your gross profit margin? percent? You know, if you’re not considering that, then is it really a strategy? You know, like, that’s, that’s what we’re talking about. So, yeah, number one is scalable infrastructure. And number two, is market dynamics. Okay, these are the three main barriers to growth. So what’s number three Kev?

Kevin Lawrence  18:49

is the one we spend all of our time on. The first two, you know, they’re challenging, but it’s People Power man. It’s enough of the right people in leadership positions to lead the company ahead. And, you know, it’s, it’s challenging. And, you know, it’s where we put a lot of energy with our clients, making sure that we’re always developing leaders and then recruiting externally when we need to, but if you can not, I was having a great chat with a friend over the weekend, who’s got an awesome business. He’s doing really, really well with it. And we were just, you know, this is the after dinner party, late night chat digging into it, and he’s like, he can’t find the leaders. He doesn’t have enough leadership pipeline growing in his business based on the stages and what he’s doing, mostly because they’re there. They have a very wide footprint, they’re not concentrated. And, and we’re talking about, he can’t get them. You know, I was sharing with them some of the strategies that some of our clients use and generally, our clients invest heavily in recruitment and development. and there’s no other end. If you’re not just like investing in your CRM or your ERP, or dialing your strategy, it’s, it is a serious investment to build the army to build the team, whatever you want. And, and those that, don’t you, you tap out because you can’t sustain the growth. And when you have the right leaders, they become part of the growth engine like they power the growth. Yeah, yeah, that is, it’s a very hard one. I was, you know, chatting another client on the weekend as well, who, you know, we built that growth engine, and we helped them to recruit onboard. 20 new leaders in this company. Yeah. And we were screening them all the talk reading and dialing it in and build a world class team took a few years. But it was a heavy investment. Yeah, it’s a lot. It’s very exciting. But otherwise, you can’t, you can’t, the growth won’t work.

Brad Giles  20:56

It won’t. And the key here is that these people must have the capability to delegate and predict, okay, that you’ve got to have enough leaders in the business as you grow. It reminds me I have a friend of mine who lives in San Francisco in Silicon Valley, she was the CEO of a tech company there. And we studied together in Boston, she, she was growing her company so fast that they were adding one new country every month. And she Yeah, it was It was outrageous growth. And she said, we can, we’ve got everything else dialed in, we’ve got a ton of money behind us, we’ve got the strategy and the execution and the cash and the systems and the tech and everything is right. But the biggest bottleneck becomes being able to hire enough people. Now you can go to a country, and you can pay the most amount of money. But that but there’s no, there’s no guarantee that these people will be excellent at being able to delegate and predict, you’ve got to be able to get this bit right.

Kevin Lawrence  22:18

And that’s why in our organization, we put so much energy in both talent reviews, reviewing the existing team, and every 90 days doing things to enhance and develop the existing team. And getting it so that we’re always pushing to build a stronger, more capable team. And then secondly, using top grading, to for the process of identifying what great looks like, and then screening people against that insanely thoroughly. So that we, you know, end up with 7080 90% hit rate on putting the right person in the job who’s going to be awesome. And it takes a little more rigor upfront. But poor lead, you end up when you have a better process for building the right team. And even with your project you’re working on around onboarding, and then onboarding them really well. You get better results. And you eliminate that barrier to growth. But generally, people don’t invest enough time and energy in this at the smaller stages. That’s why they don’t grow. For our clients that are larger, they invest heavily in this stuff, because they know it’s what’s required. But some people don’t get that lesson. And they kind of hold themselves under the glass ceiling. And instead of smashing through it by just heavier investment and capability and support to get this stuff done. I mean, in terms of building and building the internal leaders and sourcing them externally, when they can build them enough.

Brad Giles  23:40

So one way to think about the barriers to growth might be if your firm grew 5 or 10%. Last year, maybe the barriers to growth are preventing you from effectively growing and profitably growing at 20, or 25%. Maybe that’s the kind of difference that we’re talking about here, which when you then add it up across a number of years can be a massive difference. Yeah.

Kevin Lawrence  24:08

And the other one would be is the amount of stress on you as you grow. Because if you have a spectacular team around you, the growth isn’t as stressful because the load is being shared meal is that many hands make for light work. A load is being shared across the team. The other variable could be you might not have the team structured, right? You might have great people, but it might not be structured right to leverage the strengths of the team going back to people’s native geniuses and they’ve been leveraged in it. Yeah, yeah.

Brad Giles  24:39

It’s very interesting. And so three main barriers to growth. Think about a glass ceiling. These are the things you might not be able to see them. These are the things that might be stopping you growing, number one, scalable infrastructure, the lack of systems and structures to handle the complexities in communication and decision that come with growth. Number two market dynamics, the failure to address the increased competitive pressures that build and erode margins as you scale. Then Kevin’s going to walk us through number three.

Kevin Lawrence  25:12

Leadership, as we’ve been talking about, and which I’m very passionate about. You just don’t have enough of the right people. You can’t grow them, or source them in the market. People that can be great leaders and manage work, delegate work and make things make sure things that are done amazingly well. And ideally, at the same time continuing to grow leaders underneath them. Very good. Very good.

Brad Giles  25:35

Good episode. Good to chat. Hopefully, as a listener, this has helped you some way to think about what might be slowing your growth. So this has been the Growth Whisperers if you’d like to see us, you can watch us on Youtube. Obviously, just search the growth whisperers there. You can find Kevin and his very interesting newsletter at Lawrence and co.com you can find myself in my equally interesting newsletter, that evolution partners.com.au This has been the Growth Whisperers with Kevin and Brad, lovely to chat to you today. Have yourself a great week.