SCALING PAST $10M PER YEAR

By Ryan Allis, CEO of Hive

Getting from zero to $10 million in annual sales requires about 5 years of focused, dedicated hard work and finding a clear value proposition to solve a real problem that your customers have. Getting beyond the $10 million mark requires something more--a defined and coordinated company strategy to become the best in the world at a certain field.

This section talks about creating strategy and building an execution plan for the later stages of your startup, after you've reached product-market fit and reached about 50 employees and $10m per year in sales.

What Will You Become the Best in the World At?

The most important thing to know about strategy is that your business must be able to fill in this blank:

The one thing we will do better than any other company in the world is _____________.

If you can fill in this blank, and then build a reinforcing system of activities that enable you to sustainably become the best in the world at that thing, your business will thrive.

The large majority of employees in the world when asked what they believe their firm is trying to be the best in the world at have no idea. Too many companies are mediocre because they aren't clear about the one thing they will be the best in the world at, and thus end up not being able to be the best at anything and don't attract team members who are passionate about the problem the firm is working on solving.

One of the things that’s important in terms of thinking through strategy is bringing together lots of information from many different sources: understanding the market, technological trends, what your competitors are doing; looking at your funding resources and the team that you have; and figuring out what collection of systems and processes enable you to do things differently and better than your competitors.

What is Strategy?

Strategy is a collection of unique processes that work in unison within your company that enables your firm to be the best in the world at one thing.

Good strategy requires you to choose just one thing that your business will become the best in the world at.

Too many firms lose their track by trying to be the best in the world at five things or to trying to be number two or three at something. If you focus on being the best in the world at one thing, you can often achieve that goal. And when you achieve that goal, then you can see if you can expand to being the best in the world at something else.

Ultimately, strategy is about tradeoffs. It’s about making decisions. It’s about choosing not only what to do, but just as importantly, what not to do.

In the beginning stages of a startup, strategy is important but it’s almost done without a lot of thinking, because it’s simply the vision of the initial founders executing toward a product idea that they have. While there’s a lot of product strategy and product design, much of it just happens inside the heads of a few people in a small group at the beginning.

What I’m talking about is building strategy when you have hundreds of employees. At iContact, we got up to 300 employees and I learned a lot in my nine years there about how to set strategy and how not to set strategy as a leader of the team that was leading the organization.

At the end of the day, strategy involves choosing to perform activities differently than your competitors. You can copy your competitors in some areas, but ultimately, you need to actually take only some of what your competitors do and do other things differently that are more effective, more efficient, and end up providing more value to your customers.

Good strategy is about finding ways to take advantage of the assets you have and the assets that you can bring to bear to create value for humanity.

Leaders who are good at strategy choose the one thing that their business will become the best in the world at--and design a system of unique activities which enable their firm to become by far the best at that niche and are difficult for other firms to fully understand and replicate.

Seek Input Widely, But Create In a Small Group

It’s important when you’re thinking through strategy, just as with innovation, to do it in a group that is small, a group who know each other well and can be brutally honest when necessary about their opinions, thoughts, and perspectives on the data that is being brought to the table.

A key principle I've learned is to never initially create strategy in a group of more than four people. Any more and you might go in endless circles of discussion and get caught in analysis paralysis. Typically, you will want to work with your heads of operations, sales, marketing, and technology to begin. At least, that’s been my experience.

Here are eight potential people who might be in this room:

• CEO
• Head of product
• Head of technology
• Head of sales
• Head of service
• Head of marketing
• Head of operations

You should choose four of these individuals. Align with this smaller group, and then can later align with your full executive team, your directors, and then your managers, and your full employee base. Align with the core first; then align with the rest of the team.

It’s important to bring feedback all the way up through the organization from the front lines--the people who are directly interacting with the customers on a daily basis. Gather your information and have the processes in place to collect the information and bring that up and enable your executive team and core team to make informed decisions. It’s okay to go out of the room to get good feedback and perspectives, but align first with a small group and then expand.

Creating Your Execution Plan

Once your team has a strategy and a plan, make sure you take time to communicate it in a memorable way with quantitative metrics and visual designs that can be reinforced to the full company, and then focus on executing your quarter or your month or your annual operating plan with fanatic discipline. And make sure you re-communicate and reinforce at least monthly.

As you grow beyond 25 employees, you'll find consistent employee communicating is one of the most important roles of the CEO. It's no longer about the work you do, it's about the work of you dozens of employees being coordinated toward the same overarching clear goals. It's your job to make sure the direction the company is going in is clear and that all employees understand what it is your company is working on becoming the best in the world at.

At iContact we would hold an annual three-day retreat (usually in the NC Mountains) with our eight person Senior Leadership Team to set our objectives and plan for the year and then a quarterly 1 day off-site to set our targets for the upcoming quarter. We used a model called the One Page Strategic Plan that enabled our Senior Leadership Team to express our plans in a document that could be printed out on one sheet of paper. At each annual retreat we would update the left side of the plan and at each quarterly retreat we'd update the right side of the plan.

When we were finished, we have a meeting with the next-level down in the organization (which we called the Leadership Team) to gather feedback and then would distribute the document to all employees at the beginning of each quarter and hold a kickoff all-hands meetings to talk about the quarter or year's goals.

Too often, companies will spend months, sometimes years, building their strategy, and then they’ll roll out their strategy via one email memo. Most people won’t even notice it. It’s important not just to have a meeting to kick off a plan, not just to have a poster or memo, but to have a meeting, a poster, and a memo—and perhaps even a celebration of moving from one stage to the next. Create a moment in time when you are committing as a full organization toward your next operating plan, whether it be for the year, for more than one year, or just for the quarter.

You want to pre-define what success is for your operating plan, both financially as well as quantitatively in terms of what it means to a customer. You want to have predefined, measurable results that tie into your team’s incentive compensation plan.

You want to hold people accountable to your pre-defined results, not to their methodology of achieving those results as long as they’re treating people well and acting within the Golden Rule.

Once your company gets beyond 50 employees (or, say, 25 employees if you’re a right-brained CEO like myself), you need to have a Chief Operating Officer who focuses on keeping the trains running on time and facilitates cross-departmental effectiveness, efficiency, and company metrics and company projects.

We never did have a COO at iContact, and one of the key lessons that I learned coming out of that nine-year experience was how important it is to have someone who can partner with you to get things done. Early on, we had a team that could run the operations of their individual departments. But as we grew, we ended up learning that there were so many metrics that crossed multiple departments—that might affect sales and marketing or technology and customer service—and we needed someone overlooking all of the operational metrics throughout the organization.

Next, you want to operationalize your plan. Once you’re clear on strategy, don’t skimp on what it takes to actually make the plan real. This is where you can take some time to do an offsite and to really figure out, as a full executive team and maybe even including your director and managerial level, what resources are needed to achieve the goals that you have defined and what the right metrics are to be tracking on a weekly (or even real-time) basis to enable your team to have the focus necessary.

Once you figure out what those KPIs (Key Performance Indicators) are, track them visually on monitors that you display throughout the company.

The next thing that I learned is to hold four quarterly calibration sessions each year. These four one-day planning sessions are to help you talk about not just the annual plan, but what the next 3 months are going to be. During the last week of each quarter, if you hold these sessions, they will enable you to kick off the next quarter right.

You should aim to have no more than five company objectives per six-month period, and you need to communicate these before the start of the period. Don’t finish your annual planning in February; finish your annual planning in December, so that by January 3^rd, you can have had a kickoff event and explained the key metrics and how you’re going to determine success for your company for that annual period.

Once you’ve made your quantitative predefined results visible, you need to continually test. As Jim Collins says in his recent book Great by Choice, you want to fire bullets to find what works. In other words, use just a small amount of money to test, get data, and improve constantly and continuously. Once you know what works and you have data to back up your hypothesis, put all your resources behind a big cannon ball and fire that at your competitors.

Key Business Execution Lessons

Here are the key execution lessons I’ve learned in the last decade:

1. When you reach around $1 million in sales, or right before you raise your Series A round of funding, hire a great Chief Financial Officer who can partner with you to take care of financial planning, ensuring you always have enough financial resources to execute your ambitious plans.
2. Around $5 million (or at least around 50 employees, maybe even sooner) hire a Chief Operating Officer.
3. You need to determine your unit level economics, something I’ve spoken about frequently. You want to determine how much it costs to acquire a new customer, how much a customer is worth in revenue over the lifetime of that customer, and how much the marginal cost is to create an additional unit of the good that you’re selling.
4. Once you know your unit economics, you can scientifically scale up your advertising and marketing and execute and hit your plan.
5. You have to calculate your profits at a product level, and ideally at a customer level.
6. Kill products that are not profitable and invest more in products that are profitable.
7. Create a systematized process for giving commendation, praise, peer recognition, and awards.
8. Focus on consistently and consciously building a culture that other companies want to emulate, where people love to come to work, where they’re intrinsically motivated and have aligned their individual passion with that which your company is focused on achieving.
9. Focus your strategy on doing one thing the best in the world and then execute on creating a unique set of processes that enable your company to achieve something that even a competitor with your full blueprints couldn’t replicate.
10. Invest a lot in product design and create a beautiful, memorable product experience for your customers.
11. Create a stock option plan early to make sure your entire team is incentivized and aligned with their compensation, with your goals, and your company success.

Recommended Books on Strategy & Execution

If you’re interested in learning more about strategy and execution, here are some of my favorite books on those topics:

• Jim Collins – “Good to Great”, “Built to Last”, and “Great by Choice”
• Patrick Lencioni – “Five Habits of a Highly Effective Team”
• Verne Harnish – “Mastering the Rockefeller Habits”
• Ram Charab – “Execution”
• Chip Conley – “Peak”
• Gary Hamel – “The Future of Management”