Resilience Talk

Every growing business moves along an S-curve: slow growth, dynamic growth, then a plateau. In this episode of Resilience Talk, I walk through the stages from zero to $500K to $1 million and beyond, why a business naturally falls back to the capabilities of its system, and why you can't build your $20 million company today. If you've been stuck at the same ceiling for a while, this is a framework for understanding why, and for deciding how to evolve.

Connect with Paul

Chapters
(00:00) Evolution and the S-curve
(03:29) From zero to $1 million
(09:36) Plateaus and falling back to your system
(13:33) Why you can't skip to $20 million
(17:09) Capacity planning and simplifying as you grow
(21:11) Stop asking your team to pedal faster
(25:04) Know your aim

Creators and Guests

Host
Paul Spencer
Family Business Advisor

What is Resilience Talk?

From Paul Spencer of Second Nature Solutions, a conversation about the complexities and nuances of building resilient family enterprises, especially in the face of economic and political uncertainties that loom on the horizon. See more at secondnature.solutions.

Welcome to Resilience Talk hosted by
Paul Spencer of Second Nature Solutions.

Let's dive in.

The evolution of our business is
something that we often take for granted.

We don't really pay a lot of
attention to how changes are being

made around our business, how
we're evolving, why we're evolving.

Um, and the reason why we don't pay much
attention to that is because we don't have

an aim, an aim of where we're going and
where our destination is, where we want

to go, and what does our business have
to be What does it have to look like?

How does it have to run in order
to get to that destination?

So, when we're thinking about evolution
of a business, I think of the S curve,

which we've talked about before,
and it's a known pattern, right?

You have the, the, uh, adoption rate,
which is, which is an S curve, which

basically means you have, uh, slow growth.

Uh, actually, an, an easier
way of thinking of it is

adoption rate in innovation.

So, you have slow adoption rate.

So AI is a perfect example of this.

So, 'cause we're living it right now.

So AI has a slow, uh, slope, right,
if we're looking at a graph, and

it has a, a low adoption rate.

And right now we're in this dramatic
growth of adoption, and so that comes up.

And we'll get to a point where,
uh, that growth will slow down,

and it'll plateau again, and
the slope, uh, goes flat, right?

And when you look at that from a
chart perspective, that looks like

an S, and that's the adoption rate.

You can, you can think of that
in lots of different ways.

You can think of it as
electric cars and Tesla, right?

Only a few people, um, would have a Tesla.

Low adoption rate.

There's lots of innovation that's
going on within, say, the electric car.

Um, and, uh, and so that adoption rate
is l- is low, but the cost is also high.

It's, it's expensive to buy a Tesla
back in the early, early models, right?

And then as the technology starts
to improve, it starts to get, quote

unquote, cheaper most of the time, right?

Adoption gets more and more dramatic,
and then, uh, adoption starts to plateau

because it becomes more of a commodity
rather than a, um, an innovative product.

Another cool one, example, I'll
just give you one other one.

Um, iPhones.

Actually, I'll give you two more.

iPhones, right?

The smartphone.

Now we're, we're in this
flat line for smartphones.

There's not a lot of
innovation in a phone.

Everybody has a phone, even
your 12-year-old has a phone.

I don't know if that's good or
not, but they have a phone, right?

And so they all have smartphones.

Uh, our flat screen TVs when they,
when we went from the, the tube to

the flat screen, the plasma, right?

Buying a TV was 10, $20,000 and
now you can go to Walmart and get a

flat screen TV for 400 bucks, right?

So, that's the S curve.

So, we also have an S curve-
when it comes to our businesses.

So I'm gonna go through these in stages.

So even though most of you are not
startups listening to this, you've been

around for 30, 20, at least 20 years, some
of you more than that, f- more than 50.

Um, so but bear with me because,
uh, I think it makes sense to

kinda walk through the stages.

So when you're zero, meaning you're
inventing an idea, and however you

can kinda th- put yourself into your
shoes when you started your company

back in the '80s or back in the '70s,
or 20 years ago in 2003, or whenever,

whenever you started your business.

And think about the time
At that time, right?

So what was the economy like?

Um, what was your idea?

What was your life like?

Um, who, what were your
relationships like at that time?

Probably, I would imagine, uh,
you thought maybe you were smart,

um, but when you look back on
it, you were very naive, right?

Relationships-wise, uh, you, maybe
you had a family, or you were single,

or you were starting a family.

Um, just life is much different.

And you were willing to…

You were in this slow growth phase.

You were willing to work and do
whatever to make some money, right?

To sell a deal.

Um, you may even lose some money on
some things that you, um, that you sold,

um, maybe because you weren't smart
enough to make the money, right, to

price it accordingly, but also because
you were eager to do some work, right?

To bring in some revenue.

And so when you're in that slow growth
phase as a startup starting from zero, um,

there's a lot of stress in there, right?

A lot of anxiety, and
there's a lot of unknowns.

Unknown unknowns, which we've
talked about w- with, uh, with,

um, what Deming talks about.

And so there's not a lot of, in that,
in that space, not a lot of process.

Um, you're willing to, uh, play
with what will work, and you're

willing to take these risks,
sacrifices, whatever those are.

Once you start to get a little more
traction, right, you get some more growth.

And let's say that growth is $300,000,
and you make $300,000 in eight months.

And, uh, and now you're gonna
make 500,000 for the year.

Um, that $500,000 at the end of the
year is much different than the $0

that you had at the beginning, say, of
the year or, say, two years in, right?

And what…

And so the context of our conversation
here is the evolution of your business.

And so what does that mean?

Uh, can I run a $500,000 company all on my
own as I was doing back when it was zero?

Uh, probably.

Um, you're probably, depending on
what your services are, what your

product is, uh, you've probably
hired somebody to help you, whether

that's on the back office piece or,
uh, doing some of the work itself.

Um, but if you have, it's
probably only a handful of people.

I mean, we're not
talking 10 people, right?

We're talking probably more
one, two, maybe five, right?

Um, and that's the
evolution of the business.

So what you'll get to is
a next plateau, right?

So you'll get to 500, and getting
up to a million dollars can't tr-

can't seem to figure that out, either
in the sales or in the delivery.

And so what that means in the,
again, in the evolution is I have to

reinvent what I think my business is
and what it is that I think that I do

Again, from zero, I'm just doing it.

At 500, I'm capable of managing it.

At one million, I don't know what
I'm doing anymore, and I can't…

I'm struggling to deliver.

So I'm using extreme words here.

But you'll know that when you get to the
million point, it is, it is different,

and I have to think about it differently.

I might have to hire differently, and I
might have to do the work differently.

So the jobs that I'm doing at a million,
the projects that I'm engaged with, the

customers I'm working with are probably
different or at least a variation of

the ones I started out with at zero.

Okay, I think everybody gets that.

So, uh, when we get to the million
point, w- now I'm starting to

create a structure of people.

Maybe I…

Now I have a manager.

Maybe now I have a PM, project manager.

Maybe now I have an office manager.

Maybe now I have, uh, a crew, a team
of people who are doing work out in

the, in the floor on the factory.

Or maybe I have a team of people, uh,
who are out writing software or out

doing, doing whatever services that we
provide or products that we provide.

And maybe I'm actually thinking
about my office space, and now, um,

instead of some kind of clunky, uh,
make-do office, I'm thinking about

something where I can hire and where
people wanna come and work, and it's

cleaner and it's nicer and it's newer.

Uh, maybe I'm thinking about larger,
uh, factory space or floor space.

Right?

I'm thinking about these things, and you
can imagine, like how I started, right?

Over the course of 20 years, and
you arrive to 20 million, you evolve

through, through these whole things.

All right.

Uh, so one thing that we know is
that through the S-curve, there are

various plateaus that occur, right?

So I just mentioned
the $1 million plateau.

So growth will always slow.

You'll get, you'll get slow growth
dynamic growth and the, and the S curve

is sloping way up and you're just boom,
boom, boom, boom, boom, boom, boom.

You're knocking things out.

Uh, things couldn't be better.

And then it starts to plateau, and that's
the, that's the natural cycle of business.

So, um, very normal.

So you can't get away from that.

It's like gravity, right?

And some businesses can shoot through the
S curves, meaning slow growth, dynamic

growth, growth slows, but that's only
growth slows for maybe a quarter or

less, and then they grow again, right?

So the main thing for all of us to
understand is if you are not evolving

your business for the next S curve,
the next dynamic growth phase, you will

plateau and maybe even decline Back down.

So let's just keep it simple,
and I'll go back to, um, the

example of 500K revenue cranking.

I, I can, I can do that in my sleep.

I've built the business.

I, uh, my one or two employees,
we can do it all day long.

We get to that one million point, and
things get a little wobbly, right?

And it's getting harder to deliver.

It's getting harder to manage.

And so then we, uh, struggle
with that a little bit.

Our quality goes down.

Customers that we've worked with for
a long time aren't really complaining

because they like us, but they're
asking questions that we've never

heard from them before, um, maybe
around quality, maybe around, um,

"Are you sure things are going okay?

Um, things are a little different."

And what can happen is that we can
plateau there, and we can figure it out,

and we just kinda glide at one million
for a little while, kinda bumpy ride.

Or we actually drop back down to
500K because that's the system that

we have, and not because we do it
intentionally, but because we will

naturally fall back to the capabilities
of our system, of our processes.

And so we will struggle in
that one million, one million.

We'll lose a customer.

We may lose a- an old customer.

A reliable old relationship customer may
drop off, and eventually, eventually,

eventually, we're down to 500K, and
things are s- smoothing out again, right?

It's not fun.

It's stressful.

It sucks, right?

But then it starts to feel better because
we're at 500K, but psychologically, it

does not feel good because we were new.

We were at a million, right?

And now we're at 500K, and so we
feel like we've lost, and we've

lost growth, and we're, uh…

It's not a fun feeling So,
uh, again, from an evolution

standpoint, I have to know the aim.

I have to know where I'm going.

And in this case, we're just gonna
be talking about financially.

Um, so the curves typically are in that
$1 million range, probably in that 4 to

$6 million range, then we get into that
10, $12 million range, and then we start

getting up to maybe 24, um, 30,000…

$30 million range, and then maybe up into
the 60, 80, and then we get up into 120.

So those are, uh, just
rough numbers, right?

Um, but y- what we know, this is
what we know, is a $20 million…

Well, let's say it a different way.

The $1 million company you own today
cannot function and will not survive

in a $20 million revenue system
unless you evolve your business

Right?

And I think all of you will say,
"Duh, of course, Paul, I know that."

But I'll tell you, you don't know
that because you're the fish…

You're the frog in the boiling pot, right?

You're the fish in the water.

You don't know, typically.

Typically, you don't know.

You're just doing things by intuition.

The whole 500 to 1 million
thing story I told you, you've

probably experienced that.

Did you know why that was happening?

No.

You probably went back to our
old school ways, right, of not

holding people accountable.

You probably got stronger on hiring
or maybe letting some people go 'cause

they weren't good enough, right?

You may have, uh, sacrificed, um,
some of your own financial well-being

by hiring some other people and, uh,
maybe, uh, instead of letting some

people go, you paid them, right?

And, and the c- and, and in the
end, you didn't pay yourself, right?

You've pro- I guarantee
you all have done that.

Um, and those are okay because that's
evolving the business, but if you

don't know where you're going and
why you're doing it, and why you're

falling out of the tree because of
gravity, then the next time you get

into the tree, you're gonna fall again.

So I have to understand that when I'm
going from my $1 million business and I

wanna get to 20 million, one thing you
need to know is that's two S-curves.

Maybe three, right?

That means I'm going to have to
evolve my business three times

in order to get to 20 million.

That also means you can't put in the 20
million structure and evolution right

now and just say, "Paul, do it right now,
and then I'll be a $20 million business."

Doesn't work that way, right?

You can't sustain the costs of $20
million business as a $1 million business.

You can't serve the customers
that will be dependent on you when

you are a $20 million business.

They have different demands, and they
have different, um, expectations of

you that you cannot come close to
delivering it as a $1 million business.

Make sense?

Hopefully.

All right.

So some things that are worth
exploring is when you're thinking

about the evolution of your business
is where are you in the S-curve?

So I gave you some numbers, some
round numbers of where these

plateaus tend to happen, right?

You know intuitively where
you are, where you've been.

Are you in a slow growth pattern?

Are you in a dynamic
growth pattern, right?

So are you at the beginning of another
S curve, or are you in the growth to

another plateau of another S curve?

That's helpful for you to
understand where you are.

It helps explain why you're experiencing
the things that you're experiencing.

It's not gonna fix the things.

That's what you have to do
through your own decision-making.

But again, it helps to give you a
framework around why, what's going on,

and how do I best get there, right?

How do I create the roadmap?

So anyway, capacity planning
is an important part of

understanding the evolution.

Again, the $20 million business
has a different capacity

than the $1 million business.

And again, I know you're
gonna say, "Paul, this is…

Of course, we know that."

But I'm telling you, you
don't not know that , right?

$1 million business, and when you get
to six million, when you get to four-ish

million off your one million, you need to
evolve, and you probably had to evolve,

should have, uh, evolved around two or
three million before you got to four

That's capacity planning.

And so when you narrow it down and you
go between one and four, you say, "Eh,

I can, I can evolve to 4 million."

Okay, maybe you can, and maybe you can
within the business and industry that

you're in and the customers that you have.

Um, but I will tell you
that it will be bumpy.

And when you go from 4 to 12, 4 to
10-ish, uh, it will become even harder.

And so anyway, capacity planning is
where you wanna be thinking about.

So what's my labor, right?

That's what we tend to think.

When we're thinking about how do
I add additional capacity, right?

In order to deliver $4 million
worth of services and product than

1 million, I think of adding people.

So that's where you tend
to go through first.

Then I tend to think about structure.

So do I- Just like I said before,
do I need different managers?

Do I need a better executive team?

Do I need to hire an expert in operations?

Do I need to hire an
expert in sales, right?

That's the structure.

And then we, uh, then we can think
more about the Gemba, which is

where the work is actually done, and
that's my way of saying, how do we

simplify and improve our processes?

So as we get bigger and we go through
the S-curves, my challenge to you…

'Cause intuitively, we would say the
$20 million business is more complex.

It's, uh, more difficult to run than the
1 million or the $4 million business.

It's, uh, has more variability,
more customers, more scale,

and that's much harder.

And I would say that as you go through
each evolution, you should look

to simplify everything that you're
doing Don't make it more complex.

Don't add more overhead, which is
what we're taught to do, right?

Overhead, which means I'm
not talking about structure.

It's okay to add another executive here
or manager here, a couple more PMs, right?

We have to understand how that fits
within our process and create balance.

Um, but what I'm talking about,
that's one part of overhead.

So yes, we have to be mindful of that.

The other part of overhead is
the performance management, the

accountability structure, right?

I can't look and feel how $20
million business labor looks like.

Let's say that's 100 people.

Let's say that's 400 employees.

I alone on my own as an owner can't
put my arms around that all by myself.

So what do I do?

I start putting in all the, all the nasty
HR things, performance management and,

and guide, uh, goals, performance metrics,
KPIs, uh, bonus on performance, right?

Uh, all these different
things, and that's overhead.

That's, that's more structure that
is adding complexity to my business.

So anyway, I need to
be thinking about this.

Add people, right?

Uh, what's my structure?

Can I reallocate work?

Can I simplify and improve my processes?

That's what you need to be thinking about.

I know we've talked about before that,
uh, um, using the analogy that the one,

$1 million business is a bicycle, and
I can ride my bicycle, uh, between,

say, 10 miles an hour and, say, I can,
I can haul at 25 miles an hour, right?

Um, and I can be, I can do that
pretty reliably, safely, right?

Uh, a $4 million business runs at, say,
um, 40 miles an hour or 50 miles an hour.

Now, can I ride my
bicycle 50 miles an hour?

Uh, no, it's probably
not recommended, right?

I'm talking about not an
electric bike, a bike, right?

Um, so if I wanna go 50
miles an hour, what do I do?

Let's say it's a, an absolute necessity.

I have to go 50 miles an hour.

I go and I look at buying a new system

I don't just say, "Pedal faster."

I don't go to my team, my, my, uh, my
cycling team and say, "Hey, we need

to get done in a certain amount of
time, which means we have to be…

We have to go 50 miles an hour.

I just need you to pedal faster."

Right?

That's absurd, and we
would all laugh at that.

But that's what we do in our business
when we're in that dynamic growth curve.

We say, "Pedal faster," where it's my job
as the owner to understand the evolution

of my business, where I am in the S
curve, where I am in capacity planning,

and buy a new system, invent a new
system, create and evolve a new system.

And simplify and improve my
processes is evolving, inventing,

and creating a new system.

I have to do that, otherwise I'm
just, uh, pushing on a string, right?

Um, so I think that's really important to
think about, um, and I know some of you…

Maybe just one other thing.

I know some of you, um, when I,
when I tend to work with, uh, uh,

as we start out, right, some of
the themes is the glass ceiling.

"Paul, I can't get over 12 million.

I've been in business for 20
years and, uh, for the last six or

seven years, I've been trying my
damnedest to get over 12 million.

I can't do it.

I don't know why."

Right?

And the theme with that
is typically the people.

You believe you don't
have the right people.

Sometimes that's true.

Most of the time it's true that you
don't understand how to evolve your

business from a bicycle to an either
an e-bike, a moped, or a motorcycle.

That's where you need to know, right?

And then let's say we
wanna get to 12 million.

So my bike, my motorcycle, my
moped, right, I can get at it up

to 70, 80 miles an hour, right?

And pretty easily.

I can even get up to 120, but
I wouldn't recommend you going

120 on a bicy- on a motorcycle.

Some people do, but it's
very dangerous, right?

So, so let's say we wanna go 150.

Are you gonna go on your, on your
motorcycle 150 miles an hour?

You can try it.

You can do it, but it's probably
gonna end up very poorly, right?

So when we get up to that $12 million,
that constraint, that plateau in

the S-curve, I cannot ask my people,
my business to just turn up the

gas, go harder on the throttle.

I have to evolve my business.

So in m- so I'm just gonna wrap up here.

So the aim, you have to
under- you're the owner.

You need to understand the aim.

Where are you going?

What do you need in order to get there?

So … And this is an important thing.

What is my s- are my systems
capable of doing it, right?

What are my c- what are my
systems capable of doing today?

Can I go … Am I bicycle today,
or am I a motorcycle today?

You have to understand that.

And then you have to say, "How
do I evolve to achieve my aim?"

And maybe you say, "Paul, I only
wanna go 50 miles an hour, and I've

got a motorcycle, and I can crank
this out all day long," right?

And that can be fine, right?

That's where you wanna settle.

That's where you wanna be.

Then that's good.

You have to continually evolve
that because you have industry

and competitors around you that
will, uh, that are moving, right?

So you have to be vigilant in that.

Um, but that's fine, right?

Uh, most of the time though, I'll
say it won't take you long to be

able to say, "Geez, I wonder what
it's like to go 100 miles an hour."

Uh, and then again, you have to
be able to ask yourself, "How do I

evolve in order to achieve that aim?"