Getting Initial Traction Is Great, But Scaling the Business Brings Critical Complexity and Risk
Scaling any business today requires the integration of complex software systems, while increasing the value stream to your customers
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Most of the entrepreneurs I advise today are ready to declare success when they get that first surge of traction with a real customer. This is a good sign, but they have no idea that the hard work of scaling the business is still ahead of them.
It's a bit like the heady first days after you've fallen in love, when you can't imagine anything will ever kill that passion or commitment.
Scaling a business is fraught with risk and unknowns. You need to find investors for funding, vendors for volume manufacturing, processes for repeatable execution, as well as marketing and distribution to attract customers far beyond your pilot rollout. In fact, this is where your startup has to move from an initial project to a complex product business.
Based on my software career with IBM and several startups, I experienced the challenges and failures of scaling a software project to a business many times.
I now realize that software has evolved to be key to the value of most products, including cars, airplanes, and appliances, as outlined in the new book, Project to Product, by Dr. Mik Kersten, currently CEO of Tasktop.
Dr. Kersten asserts, and I agree, that it doesn't work today to manage software as a cost center inside a business -- it is too integral to the value stream of the solution provided, most evident during scaling.
He outlines five dimensions of scaling any business that introduce new levels of complexity, requiring tools with an overall view of business flows, processes, and value delivered:
1. Adding more features to support a broader customer set.
More features means more complexity, more experts, and specialized tools to facilitate the integration, testing, and support.
What may have looked like an incidental cost in your base product will now grow to be a major impact on profitability, customer responsiveness, and time-to-market.
For example, new car infotainment system options alone are fundamentally more complex in terms of features than entire software products were a few years ago, requiring millions of lines of code from multiple vendors, multiple languages, and UIs.
2. Evolving from an initial solution to a product line for growth.
As the number of products increase to attract a larger market share, the complexity increases exponentially to produce, distribute, and support the business.
This means more suppliers, more interfaces, and more integration to manage, which is today the realm of software.
BMW, for example, now has around 12,000 suppliers worldwide, for their many models, and each car now consists of over 30,000 parts. They produce a new car every seventy seconds, in the sequence of received customer orders. That's a huge scaling challenge.
3. Adding partners, with their own tools and specialists.
You can't manage partners in the same fashion as you manage your own internal teams and processes, so scaling the business through partners adds additional complexity.
Communication at the digital level has to be done through formal software interfaces (APIs) that you never anticipated.
4. Attracting new markets and market segments.
Each market or market segment may require a new edition or configuration of the management system and software, again increasing complexity.
The specialists to support these may speak different technical as well as communication languages, and be physically dispersed around the world.
If a business sells to both business-to-consumer and business-to-business, it will need two separate support channels connected to multiple value streams. The opportunities for disconnects and disruptions go up again as the business scales to this level.
5. Moving information platforms to the Internet cloud.
Expanding businesses today forces a full dependency on storing and moving data through the cloud, exposing it to additional risk from security breaches and data loss. The tools and expertise to manage this risk require new and additional resources that most companies do not anticipate.
Many businesses believe they will free up staff time and money by moving applications and data to the cloud, but end up facing spiraling costs as they underestimate the scale of such projects. Here again, it's important to measure value, rather than project cost.
Businesses that are the current masters of scaling, including Amazon and Alphabet, are making the challenges harder for the rest of us by redefining the software technology landscape around their platforms.
It behooves us all to keep up with these changes, manage the transition to a more software-centric world, and thrive in that world from a bottom line business perspective.