The 5 core principles of successful scale-ups

You’re CEO on a mission.  You’ve amassed a talented team of people with energy and determination. Your business model has achieved product market fit and you’re ready for the challenges of scaling-up.  But what type of business do you want to be? What will be the guiding principles that preserve the good foundations you’ve built but enable you to expand and grow?

I’ve been there.  In my career as Managing Director for three fast-growing tech companies, I’ve faced similar challenges and facilitated rapid, significant and sustainable growth.  And what I’ve learned is that there are 5 core principles that are at the heart of any successful scale-up.

1.The customer is genuinely king

Many companies say they put the customer first. But the reality is often different. I know so many organisations that work to minimum standards laid down by SLAs. As MD of Rackspace, it was obvious to me that our competitors used their SLAs to define the worst experience a customer could expect and this was often what they got. If the SLA said a ticket would be answered in 15 minutes, the customer got a response at 14 minutes and 59 seconds.  Because these organisations saw service as a cost, there was a denial of service/cost minimisation mindset. Don’t fall into this trap.

We decided to do things differently at Rackspace. Our purpose was ‘Fanatical Support^®️’ and this became our internal and external benchmark.  We did have SLAs but we changed our mindset around them.  If we breached them, we paid out. What we did and what was in the contract were two different things.  Instead of waiting for the customer to notice they’d had an outage, we proactively rang them to offer a credit.  They were blown away by this. We’d find that a service failure would often lead to more business from our customers through higher levels of trust gained from our honest approach. This enabled us to achieve class leading Net Promoter Score^®️ (NPS^®️) numbers in the high 70s or 80s.

It’s a leap of faith to believe that delivering better customer service than your competitors will make you more successful financially.  It’s not something you can necessarily prove on a spreadsheet. Most businesses tend to measure and manage the cost side of the business but don’t have a metric for measuring customer satisfaction or engagement. I was lucky that I turned up at Rackspace at a point where I could see how it played out.  In 2001, we were selling servers at around £99 per month. Five years later, we had a £26m turnover in the UK and some of our customers were spending around £50,000 a month. This transformation came about because we were genuinely customer satisfaction obsessed.

Our customer-first mentality impacted hugely on our recruitment. Our competitors were stuck in a ‘denial of service’ mindset meaning new recruits from our industry came with all the baggage and behaviours that we didn’t want. So, we looked at other customer-focused sectors.  Some of our best people came from hospitality – we hired waitresses, bar-staff, door-people. And loads of South Africans. Their customer hero skills were spot on. They would throw themselves on an unexploded bomb for a customer. In fact, they’d go looking for that unexploded bomb!  Doing a good job for their customers gave them real satisfaction and personal joy.

I’ve rolled out NPS^®️ as a metric to measure customer satisfaction in all three of the businesses where I was MD.  To really improve our score, we told every director that they must speak to at least one customer every week.  As a result, in every meeting, we had first-hand feedback from around 10 customers and when we made a decision, we knew it was intimately connected to our customers.

2. Transparency and honesty in all communication

There’s a natural human tendency to avoid ‘fessing up to mistakes.  People fear that their competency will be questioned and trust in them undermined.  In my experience, this is so far from the truth. One of our values at Rackspace was ‘Bad news first, no surprises’.  Customers will always want to know what’s happened if something’s gone wrong. I’ve always felt we should tell it to them straight, no mucking about.  Why wouldn’t you do this?

There was one time I was dealing with the CTO of a leading provider of market research solutions based overseas. A massive hardware issue had trashed all their data and their back-up was corrupt. One of our new tech guys had noticed a cable had come out the back of the server.  Yep – you guessed it. He plugged it back in and it took out everything. I rang the CTO straightaway and told him honestly what had happened, taking full responsibility. He said he’d been fined £10,000 by a customer and I immediately offered to pay for this. He wouldn’t let me.  We upgraded his infrastructure as quickly as we could and put in place systems and process changes to ensure it couldn’t happen again. I have a good relationship with him to this day. It was right to be honest.

At IT Lab, if we hired people from other MSPs they always blamed their delay in delivery on BT Openreach who were putting in lines and circuits.  We had to knock this out of people. The customer doesn’t care whose fault it is. They just want the issue resolved and being honest is the first step in sorting this.

3. Diversity in recruitment

Over the years, I’ve always felt the more diverse your workforce, the better outcome for your business.  It’s often been a challenge for me, particularly working in the tech sector. At Rackspace, I wanted a gender balance of 50:50, unheard of in a tech firm. I’d been in businesses where the only women were in marketing or admin roles and the company had a boys’ locker room, sweaty jockstrap kind of culture that repelled me.  We hired a large number of female graduates into sales roles and they played a huge part in the type of business we became.

One year, we were visited by judges from the Service Excellence Awards. They told me, ‘Your business is great but we don’t see much diversity here.  Everyone’s young and white’. I was so disappointed. I resolved that the next time they came, it would be different. We would flag our diversity. Literally.  With flags. I got everyone to pick a flag that represented them – their origin, their story or something they were passionate about. There were Mexican flags, Scandinavian flags, South African flags – it looked fantastic. We also worked on a good stat to tell the judges – Rackspace’s staff included 21 different nationalities speaking 17 mother tongues.  When the judges visited the following year, it was a very different story. They said, ‘Dom this is the most diverse workplace we’ve ever seen!’ Photos of Rackspace suggest this practice has persisted long after my exit (see above).

4. Small teams equal greater agility

I’m a great believer in small teams.  No more than 12. Preferably five to nine people.  Keeping teams small and agile is one of the keys to unlocking growth.  And aligning them with customers is fundamental.

At Rackspace, we were scaling really fast with our drive towards ‘Fanatical Support’.  I wondered if the reason our competitors were so cr*p at service was somehow structural.  Then – light-bulb moment. I read the best-selling book by the world-renowned Harvard Business School experts James L. Heskett, W. Earl Sasser, Jr. and Leonard A. Schlesinger – ‘Service Profit Chain’.  They described how customer value is destroyed at the boundaries between different organisational departments.  Every time a customer is forced to cross a boundary, it destroys service.

We needed a structure that maximised our Net Promoter Score, so we re-structured into a matrix organisation with multi-disciplinary pods focusing on specific customers.  These teams had daily huddles where they discussed what was happening today or tomorrow for their customers. They were bonused on the growth of their customer base and had a real sense of purpose.  It was easy for them to see how their contribution made a real difference to their customers.

Some areas of the organisation didn’t lend themselves to being split into the smaller teams e.g. HR and Finance.  So, I got them all to move desks every quarter. This was not popular! I got so much grief, but I persevered. And, you know what?  It worked. The people who’d complained at first soon came to me and said it had been really useful. It forced them to get to know different people in the business and expanded the neural networks of the company.

Ultimately, I believe that your external service will only ever be as good as your internal service. If you can’t fix the silo mentality inside your company, you’ll find it very hard to grow a successful business.

5. Managers become coaches

It’s impossible to imagine anyone doing anything well in life without a coach.  You know the behaviours you want to see in your organisation and the way your teams need to work together.  But this won’t happen automatically.

You can put in metrics and KPIs but your staff will need to be coached in a new mindset, new processes and new ways of working. Coaching is different to managing – it’s much less about command and control and much more about development. Instead of directing their team, challenge your managers to motivate, support, encourage and reward in every one of their interactions.  This really will pay dividends, unlocking potential in your staff, increasing engagement and productivity.

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Scaling up is not an easy process.  It requires commitment, focus and deliberate practice by everyone in the company. But by introducing a strong set of principles that focus on customer satisfaction and staff engagement as well as building a positive working culture, you will find the path to growth much easier to navigate.

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Written by business growth coach Dom Monkhouse. Find out more about his work here.