Scaling Up? Think Hamburgers.

Your new venture is catching fire and you need to ramp up operations quickly to handle demand. Where should you look for pointers? Try McDonald’s, Burger King or Wendy’s.

The Start-Up Genome Project analyzed thousands of high tech start-ups and found that successful companies progressed through four predictable phases. Dubbed the “Marmer Stages,” each involved a different set of objectives; Discovery was crafting and testing the idea, Validation was refining product features and generating initial orders, Efficiency was making customer acquisition and delivery processes repeatable, and Scale was ramping up and generating aggressive growth.¹ A successful mantra was “nail it, then scale it”—confirming that the product, marketing strategy, and business model all worked before stepping on the gas with big capital, staff, and infrastructure investments.

So what happens when the time comes for a start-up to scale in a big way? Suddenly the game changes from “tinkering” to “ramping,” generating volume quickly to establish market position and cash flow. It may sound silly to high tech entrepreneurs, but fast food franchises offer unique insights—they’ve made scaling up a science. Intel CEO Andy Grove looked closely at McDonald’s. In the late 1970’s, he believed Intel’s success depended on making their embryonic microprocessors as reliably as hamburgers, saying “We have to systematize things so we don’t crash our technology.” He kept a hamburger box on his desk with a mock logo, McIntel, to remind everyone of the strategy to grow with profitable scale.²

Franchisers offer four great lessons for quick and efficient early-stage expansion:

1.    Simplicity. Ordering “off-menu” may be fine for high-end restaurants, but fast food stores limit choice to what’s on the menu. Subway’s deli-style assembly and Burger King’s “Have it your way” only apply to a narrow range of options. Lesson: To scale, new companies must limit choices in the product offering. In the Validation stage, start-ups often “pivot,” experimenting with the product and pricing before they find something that sells. But every new version comes with added complexity, time, and hidden cost—documentation, training, software, accounting, and support. Pick your target; you can’t be all things to all people, so choose ONE profitable segment and stick to it. Rationalize your product line so that at least 80% of your sales come from just a few versions, and resist the temptation to add more. Product simplification is better for sales, too. Studies show too many choices confuses people, slows decision making and lowers satisfaction.³

2.    Standardization. In the fast food world, uniformity in supplies, equipment, training, software, and work processes promote consistency and quality, no matter where the franchise is located. Standardization also leads to economies of scale, which allows franchisers to improve performance and lower costs in their supply and distribution chains. Customers value predictability, which causes repeat visits, recurring revenue, and brand reinforcement. Lesson: As sales gain traction, consistency becomes essential to grow profitably and keep customers coming back. In the Efficiency stage, further refine product specifications, value propositions, and delivery processes, documenting best practices. Redesign if necessary to meet financial targets. Implement standard metrics and process checks to ensure consistency and quality. Consolidate anything that gives you purchasing leverage.

3.    Leadership. An industry expert states that if a franchise has a proven business concept with sound training and support, 40% of a franchisee’s success will come through their own hard work and talent.⁴ McDonald’s is renowned for careful selection and training of its franchise owners. Applicants must demonstrate past business success and financial resources (a new store typically requires a $1M+ investment). If they make the cut, they spend three days in a McDonald's restaurant, working and learning about the business. If they advance, franchisees must then spend a nine months at Hamburger University before opening a store.⁵ Lesson: Good leadership and development are essential for ramping up. Growing companies tend to promote from within and skimp on management training.  As a result, teams struggle and executives spend valuable time firefighting. In the Scale stage, look beyond top technical skills and choose leadership experience or attributes instead. Then, take sufficient time to develop the knowledge and skills required for good management.

4.    Strategic Management Systems. Opening new stores is a key business process for franchisers, meaning they take a systematic approach to planning, screening, contracting, implementing, and supporting new franchises. They deploy advanced Point of Sale (POS), staffing, and inventory management systems in each store to track real-time metrics, fill work schedules, and optimize supply chains. Visibility to rich data in turn facilitates learning and adjustment at corporate headquarters. Effective management and communication methods also promote execution across a distributed network. Many franchisers use regional or district managers to continually communicate, coordinate changes, and resolve issues with franchisees. Lesson: Entrepreneurs must develop mature management systems to support expansion during the Scale stage. Create a deployment plan and develop the right infrastructure. Define a small set of the most important metrics and implement systems to track, analyze, and report them. Develop enterprise-wide planning, execution, and review practices to align the increasingly complex organization, drive changes, and institute continuous learning and improvement. 

Start-ups are by nature quick-moving and creative, but adopting disciplines like those used by fast food franchises makes growth rapid and profitable. Making this transition is critical for early stage companies, and high volume operators can offer important lessons for every growing enterprise.

Footnotes:
1.    Compass blog: cracking the code of innovation, 2012. http://blog.startupcompass.co/tag/lean%20startup
2.    V. McElheny, 1977. “High Technology Jelly Bean Ace,” New York Times.
3.    B. Schwartz, 2005. The Paradox of Choice: Why More is Less, Harper Perennial, ISBN 0060005696.
4.    G. Nathan, 2012. “Best Practice in Franchisee Selection,” Franchise Relationships Institute. http://www.franchiserelationships.com/articles/BestPracticesinFranchiseeEvaluation.html
5.    L. Magloff, 2013. “What You Need to Open a McDonald’s,” Chron http://smallbusiness.chron.com/need-open-mcdonalds-10513.html

The Best Meeting Agenda

Planning is easy. Execution is hard. How can a monthly meeting keep an organization persistently on track to achieve its goals? 

Nobody likes meetings, including me. People perceive them as time-wasters. Many have gone to “no PowerPoint” talks, got rid of chairs, or eliminated meetings entirely. In my view, these are extreme measures. Meetings serve a purpose. They provide important venues to communicate, learn, and make decisions. Yes, cut back on the number of meetings, but make the ones you keep more productive. 

I think the best meeting agenda is called a Monthly Business Review (MBR). It’s a formal meeting (yes, preparation is required) designed to check progress on key plans, projects, and business performance. What makes it the best? Unlike other meetings, the MBR ensures the organization executes its business plan. The alternative, of course, is to do what most companies do: make a plan, and after a few weeks just go back to what people were doing before the planning session. 

For an MBR, all functional heads and the CEO attend. A scribe and a timekeeper are assigned. Each manager has 15 minutes and may present only three slides. During the meeting, the scribe records issues and ideas that come up on a flip chart, and unless something requires immediate resolution, the topic is parked until the review is complete. The timekeeper also plays an important role. He or she prods managers to stay on topic lest the MBR lose focus and become interminably long. Here’s the agenda: 

• Welcome and Opening Remarks (CEO, 5 minutes) 
• Company-wide Dashboard Review (CEO, 10 minutes) 
• Functional Round-Robin (15 minutes each VP): 
• Dashboard Review
• Updates
• Successes
• Needs
• Hoshin Review (15 minutes for each strategy owner)
• Action Items (15 minutes)
• Other Items/Wrap-Up/Schedule Next Review (10 minutes) 

The first essential element is the dashboard, consisting of the top ten metrics at the enterprise level and for each function. The company-wide dashboard may list things like revenue, expenses and customer satisfaction, whereas the marketing dashboard may include impressions, web visits, and lead conversion rate. Each measure is color-coded: green says everything is going well, yellow indicates things may be going off track, and red means take immediate action. Red signals get special attention; the manager describes the problem’s root causes and the actions being taken. Dashboards show cause-and-effect relationships, allowing managers to view the organization as a living system. The review also keeps managers focused on keeping the fundamentals under control. It provides context for decision making; if a new idea or initiative doesn't positively impact a key metric, it’s probably not that important. 

The second essential element is the Hoshin Review. Hoshin kanri, a Japanese breakthrough improvement method, is an incredibly powerful tool for driving organizational alignment and change. During annual planning, the executive team collaboratively defines a mission-critical, breakthrough objective, along with supporting strategies, owners, and performance targets. An example hoshin objective may be, “Transform the sales process from a direct to a channel marketing and sales model” with goals to “increase annual revenue by 3x and reduce customer acquisition cost by 50%.” The objective is broken down into 3-5 major strategies and goals, such as “Recruit, contract, and implement third-party marketing relationships; goal of 3 by June 1.” Assigned strategy owners then form cross-functional teams and develop implementation plans. During the MBR, the Hoshin Review checks status, surfaces and removes any barriers to execution. 

Order is important: business fundamentals before hoshins. Why? If the basics are out of control, working on more advanced initiatives makes no sense. Make sure the foundation is solid prior to reaching for the breakthrough. 

Towards the end of the session, the scribe reviews any issues or ideas surfaced on the flip chart during the meeting, distilling them into action items, owners, and deadlines. Any outstanding action items from previous meetings not already addressed are also checked to make sure nothing falls through the cracks. 

Obviously some meeting preparation is involved. Functional leaders meet with their teams in advance, rolling up data, interpreting signals, and planning actions for their dashboard metrics. Hoshin strategy leaders check progress on their project plans. The CEO must also prepare. He or she must review the top-level, enterprise-wide metrics and be ready to help executives prioritize next steps. 

Work behind the scenes is also important. If the CEO notices chronic red signals or sluggish execution on hoshin strategies, he or she should meet separately with executives for 1-on-1 coaching sessions. Accountability for progress and results is important to maintain, but CEOs should avoid calling out individual struggles during the actual review. 

So what do you think? If you had to arrange a meeting, wouldn't an MBR be one of the most valuable? If the goal is moving the organization forward, perhaps there’s no better agenda.

Tech Check: Apptegic

Boston-based start-up Apptegic formally launched its new offering at TechCrunch Disrupt NYC conference last month, officially joining the fray in the emerging customer engagement measurement market.  Given the very high cost of customer churn on revenue and profitability, tools such as those offered by Apptegic allow cloud computing companies to proactively monitor and respond to customers in an effort to reduce or prevent churn.

Apptegic is similar to competitors JBara and Totango. Like them, Apptegic’s mission to help firms understand their customers in order to keep them, make them successful, and sell more to them. Each examines customer visit frequency and online behaviors, helping software engineers identify product changes and enhancements. Each enables Customer Success Managers to identify trends and personally respond to “at risk” customers, or identify those who may be receptive to up-sell or cross-sell opportunities.

But Apptegic does some things differently. The company offers greater depth of understanding by collecting more data and adding the ability to score interactions against essential Key Performance Indicators (KPIs). By analyzing more data than simply which product the customer purchased or how often they used it, the application allows better conclusions to be drawn about specific customer segments and behaviors, enabling more relevant, context-dependent decisions. Reporting capabilities are correspondingly more advanced, allowing analysis over different periods of time and with greater stratification (e.g. by user, account, and segment) which can better assist product and service improvement efforts. Apptegic then delivers more sophisticated filtering capabilities to generate responses in real-time, directly and automatically from the customer’s application. Online actions can include sending tailored customer support or marketing messages that automatically and intelligently guide customers to their next steps.

Apptegic’s product offers potentially greater advantages for many cloud computing companies by promoting better targeting, scalability, and predictive modeling. In circumstances where less information is collected or known about target customer segments during the sales process, Apptegic allows more ways to analyze and segment users according to common needs, value, and profitability after the fact. Through greater automation, customer service and success management can be less manually intensive and more productive, allowing companies to focus their more expensive human resources on market segments and accounts that truly justify them. Having more variables also enables more robust churn modeling. Companies can design and run statistical experiments, testing and optimizing customer “treatment” strategies even further, resulting in approaches that have the greatest impact on customer retention at the minimum cost.

Apptegic’s early clients include Constant Contact, Vela Systems and Dyn. Pricing varies from $200 to $4,000 per month according to account structure, number of unique users and events per month, and number of Apptegic users at the customer site. The company offers a free trial period for those who want to kick the tires. For more information, visit Apptegic.