Here’s Why Your Business Is Failing at Scaling Up

Published: March 5, 2018
Vern Harnish, author of Scaling Up, at NSCA's 2018 Business & Leadership Conference.

The 400 attendees at NSCA’s 2018 Business & Leadership Conference likely have one thing in common: They’d like to scale up their AV business models. However, Scaling Up author Verne Harnish laid out several reasons why they’re not likely to do so – without shifting from some ingrained business practices.

[related]Few AV integration firms are content to sit back.

Whether NSCA BLC 2018 attendees represent an integration firm looking to create scale to better compete with the industry’s much-higher-revenue companies at the top of the market or they’re at one of those “big three” firms recognizing opportunities for more growth, they’re looking to take business to the next level.

Harnish, however, whose body of work is all about helping companies strategize for growth, highlighted many obstacles to scaling up that are all-too-familiar for AV integration professionals.

Focus More on Pricing, Less on Cost

If NSCA BLC 2018 attendees take one thing away from his keynote, Verne Harnish told me, it’s that they need to spend more time on the pricing side than the cost side. “I don’t want to ignore the cost side but we’ll spend 80 percent of our effort working on the supply chain side and lick our finger and put it to the wind when it comes to setting price.”

“I don’t want to ignore the cost side but we’ll spend 80 percent of our effort working on the supply chain side and lick our finger and put it to the wind when it comes to setting price,” Harnish said.

This is an example of an engrained business habit that, if integrators want to scale, needs to be broken, he said.

“Every dollar you can add to price if you’re running at 10 percent profitability means you’ve got to generate $10 in revenue to make up for that. That’s why there’s such unbelievable leverage on the pricing side.”

The reason integrators (and all businesses, really) get it wrong is that “we don’t sell to companies; we sell to people,” he added. Human beings aren’t logical so “you can’t use logic to set price.”

Separate Sales from Marketing

One of the popular titles among AV professionals is either vice president of or director of sales and marketing. However, human beings like that – experts on both sales and marketing – don’t exist, Harnish said (maybe joking a little bit).

He heavily emphasized the importance of marketing. “The reality is that the function that’s absolutely critical if you want to scale is marketing.” He suggested that companies should have a weekly marketing meeting that is separate from any sales meeting.

Prioritize Processes

A big obstacle to scaling up, Harnish said, are poor AV business processes.

He advised NSCA BLC 2018 attendees to take a good look at their processes if they’re serious about scaling up. He promoted a “process accountability chart” in which companies should identify four to nine processes that they believe drive their business, who’s accountable for each one and indicate how they’ll know if it’s running well.

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Make Revenue per Employee a Vital KPI

Verne Harnish spent a lot of time talking about revenue per employee. He talked about companies that have managed to set themselves apart from the pack such as Google and Starbucks, noting that their revenue per employee is significantly higher than that of “mere mortals.”

Revenue per employee, he added, “is a critical KPI that all AV business leaders need to focus on if they want to scale.”

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