How to structure your company for growth
Agility. Customer Focus. Passion. These are the hallmarks of many smaller companies. They are fostered by the drive, commitment and energy of their founders. And they’re strengthened by the informal, easy communication structure of a small team. But what happens when these companies want to grow?
All too often, organisations lose their way as they begin to scale up. As staff numbers increase, bureaucracy takes hold and stifles energy and creativity. Engagement drops as staff lose their motivation and start to feel like a faceless number. Hierarchical management structures add to this, breeding a ‘them and us’ culture that erodes trust and breaks down internal cooperation.
My experience scaling up two firms and coaching CEOs of other technology businesses has convinced me. If you want to grow, you have to get your structure right from the start. Here’s how…
Size is everything
According to Prof Robin Dunbar of Oxford University, the human mind is only capable of handling around 150 relationships simultaneously. I’m intrigued by this. As companies get bigger than 150, it’s impossible for one person to know everyone individually and understand where they sit in relationship with each other. To my mind, this is when passengers appear – no-one knows what these people do or can hold them to account.
W.L. Gore & Associates, the manufacturers of Gore-Tex, run their business on this principle. When a division expands beyond 150 staff, they feel there are diseconomies of scale. So, they split into two smaller divisions. They believe it makes for better communication and a more efficient business.
They’re not the only ones. With the exception of Virgin Atlantic, all of the 300 or so Virgin companies have under 100 employees. As MD of Rackspace UK, I was careful to keep our numbers at an efficient level and the company prospered. In the US, however, Rackspace grew to become a corporate monster. Their size worked against them and they weren’t as successful as they’d hoped. If your company ends up looking just like the organisations you think are terrible, it’s likely that it will fall into the same category.
Small is beautiful when it comes to team size too. Jeff Bezos, CEO of Amazon, once famously said if a team couldn’t be fed with two pizzas, it was too big (although I like Bruce Daisley’s swipe at this – he said Bezos was an idiot because everyone knows two pizzas only feeds two people!). I’m a great believer in small teams. No more than 12. Preferably five to nine people. Keeping teams small and agile is, to my mind, one of the keys to unlocking growth.
Align teams with customers
Structuring teams around customers is fundamental. At Rackspace, we were scaling really fast with our purpose of ‘Fanatical Support®’. At that time, I read a brilliant book by some Harvard Business School experts. Called ‘Service Profit Chain’, it described how customer value is destroyed at the boundaries between different organisational departments. Every time a customer is forced to cross a boundary, it wrecks service. I realised this was what was happening in our competitors – the reason they were so cr*p at service was a structural thing.
We’d already introduced Net Promoter Score® as our metric to measure customer satisfaction and we needed a structure that maximised this. As a result, we became a matrix organisation with multi-disciplinary ‘pods’ focusing on specific customers. Each team had a Level 3 Windows or Linux engineer depending on the customers’ operating systems, meaning customers had expert support whenever they needed it. Also in the team was a dedicated Account Manager along with ops and salespeople. The teams had daily huddles where they discussed what was happening today or tomorrow for each of their customers.
Remember, anything that’s broken or needs fixing within your customer service offering is already known to your company. Your front-line staff will have that knowledge. Align them with customers and enable them to work with mastery, autonomy and purpose. These are the great motivators. Delivering great outcomes to customers will give their work meaning.
At Rackspace, our teams were bonused on the growth of their customer base and had a real sense of purpose. Account Managers were allowed to give up to two times the customer’s monthly recurring revenue as good will credits when things went wrong. Because it was their team’s money, they ended up giving away less than when they’d needed manager approval to give credits.
Every week, we had a ‘cut the cr*p’ meeting where we looked at credits and examined root causes and fixes. Also feeding into this was our NPS® giving recent customer comments. Combining the two created a balanced cadence of work that never got stressful. Customers were relaxed – they knew that we knew. Their issue was on the list and we’d tell them when it was fixed. And it was easy for the team to see how their contribution made a real difference to their customers.
Break down tribal boundaries
I believe that your external service will only ever be as good as your internal service. It’s vital to fix any silo mentality inside your company as, without this, you’ll find it very hard to grow a successful business.
The work of the 1970s psychologist Henri Tajfel illustrates this beautifully. He developed something called social identity theory which said that when we define ourselves, we do so through loyalty to certain groups. Tajfel’s experiments showed that humans can enter into ‘them and us’ thinking in seconds, and they will do so over just about anything.
Tribal thinking is hard-wired into our DNA through millennia of evolution. This can work against you in a corporate culture. To be successful, you’ll need to consciously break down tribal divisions between different areas of the business. The aim must be to create customer-focused tribes instead.
A talk I once attended by the Head of Customer Service at TNT gave a great example. He said their customer sat level had been stuck at 95% and wouldn’t budge. To find out why, he talked to front line staff. They told him when they wanted to make a promise to a customer, the guys in the depot always said ‘no’. There was always a reason why it couldn’t be done.
TNT had developed an internal culture that worked to rule because staff didn’t have enough direct contact with their customers. As an experiment, all staff were given a supply of £5 M&S vouchers. These could be given to any employee who’d been co-operative and helpful. A brilliant scheme! It enabled them to see where the money flowed. Certain teams got most of the money. Their managers had built a culture of ‘yes’. This approach enabled TNT to measure internal friction. And they now had a system that reinforced positive behaviour and gave them a mechanism for social currency in the company.
Wherever I’ve been MD, I’ve insisted that employees move seats every quarter. This is really powerful. Any ‘them and us’ negativity between departments melts away. If you try this, be prepared for a backlash. It certainly won’t be popular! Mainly because it pushes people out of the comfort and familiarity of their usual surroundings. Staff would complain to me that it was ridiculous. Later, they’d admit they’d been negative because they didn’t like someone. But now they were getting on just fine!
PA Consulting once did a study into the neural networks of companies. They established that six people on a desk will go to six people to get sh*t done. The next desk along might rely on six completely different people. Mix them up and suddenly you’ve got more options – there are now 12 people they can call on. The more pathways you create, the stronger and more cohesive your organisation. By moving staff around, you’ll increase the neural network of your business.
Getting structure right from the very beginning will pay dividends as your company expands. Far better to start on the right footing rather than correcting and restructuring later. Keep teams small and align them with your customers. Stamp on any negativity that builds up between departments and, if necessary, break this down by moving people into different teams. Keep communication channels clear and ensure everyone is truly focused on customer satisfaction. Then you’ll have solid foundations on which to grow.
Written by business growth coach Dom Monkhouse, a certified Scaling Up™ Business Coach with a real enthusiasm for helping to scale up mid-market companies in Wiltshire. Find out more about his work here.