Wednesday, February 20, 2008

What is the Hull Speed of Your Business?

In my free time, and sometimes when I probably should be working, I do a bunch of sailboat racing. Sailing is a multi-variable sport and to be good at it you constantly need to be processing information about sail trim, crew work, boat speed, race strategy, reading the wind, current, waves, tactics against your fellow competitors, and generally trying to guess what Mother Nature is going to do. It is enough to make your head spin, but there are also periods of time when you are on the open ocean for creative thinking.

For the past 10 years, I was an entrepreneurial executive and founder of a venture backed professional services company. Growth and expansion were the operative words used by our management team, and the mandate from our investors. How can we grow, scale, and expand the company? This question was on our minds at all times. Faster was better and slowing down was not an option. This was on my mind during a particularly windy day when I was out racing my sailboat, and I started thinking about company growth as it relates to the hull speed of a boat.

Hull speed
, or displacement speed as it is sometimes called by professional sailboat designers, is the top speed at which a sailboat, powered by the wind, can travel through the water. The weight of a boat displaces an equal weight of water, and when the boat moves through the water it needs to move that water around the hull of the boat – faster speeds require moving a greater volume of water around the hull of the boat, and that is what creates the wake. This also creates friction and forces against the hull. Every boat hull has a certain shape which allows it to move a certain amount of water around the hull, and there is a point where the boat reaches a speed at which it can’t go any faster – this is the hull speed.

Interestingly, when a sailboat starts approaching its hull speed it starts to become very unstable and you feel there is a very good chance that you will crash. The boat can be pushed past its hull speed for a period of time, but go too fast for too long and it is almost inevitable that something dramatic will happen – usually not good drama.

This made me think – What is the Hull Speed of a Business? How fast can a company grow before things start to break? Can you change the shape and form of the business to allow for rapid growth?

Professional services firms are particularly susceptible to the limits on growth because they generally operate in a one-to-one performance environment. Meaning that someone has to perform the service each and every time the client engages you. This is different from a product company or some service companies which operate in a one-to-many performance environment. Even if there is a manufacturing process needed to make a product, it can be completed with efficiencies in volume or through an automated process so that each individual product is not custom built.

If you want to grow and expand your company, you need to make sure the structure of the business (your hull) is shaped in a way that supports the growth rate (your speed). The structure of the business is made up of a number of components that all need to be properly configured to achieve your desired pace of growth without breaking. Here are a few things to evaluate before you embark on a growth phase:

PEOPLE Do you have enough people to complete the work? Developing the processes to recruit and hire the human resources you will need to do the work is critical if you want to grow. There are different models – full time employees, contract and freelance resources, or subcontract companies – that will help you develop a viable plan to support different rates of growth. However, if you don’t have the people you can’t do the work.

TALENT Do you have the right people to complete the work? Having enough individuals to do the work does not guarantee that they have the proper skills, experience, or aptitude to complete the tasks. Often, it is easier to find the talent to fill junior roles on the team but you may not be able to find the proper project managers or client executives to guide and manage the engagement. Training is an option, but this takes time and there is no guarantee that a person that goes through training will achieve competence in the subject. Developing bench strength, people that currently have one level of role but that can step up to take on greater roles, will help you insure that you have a farm team ready to send team members up to the next level.

INFRASTRUCTURE Do you have the proper hardware, software, systems, and office space? You might have talented, properly trained people to do the work, but if they don’t have a place to work and the tools to do their tasks then it will be hard for them to meet deadlines.

PROCESSES Does your company have documented and standardized processes that a project team can follow? Every company operates in “fire drill” mode every once in a while, but I learned a valuable lesson about having processes from a situation that was brought on by an impending client deadline. With the alarms going off, and after my motivational speech to the team about the importance of working hard (and smart) to put out this client inflicted “fire”, one of the folks on my team looked at me and said, “…when the alarm goes off at the fire house, all of the firemen know the process to follow to put the fire out -- we don’t…” Don’t expect your team to be in a position to answer the fire alarm if you don’t have standard, documented processes, or if they don’t know them.

MONEY Do you have the capital resources to support your growth? People with the proper talent, a place to work and the tools to do the job, along with the training and organizational processes all take monetary investments to put in place. However, even if you have the money to invest in all of those things, you will also need the financial resources to fund your cash flow. The soft under belly of growing professional services firms is that you often need to pay your people to do the work prior to collecting payment from your clients. Unless you get significant payments from your client at the beginning of the project, you will need to fund the accounts receivable on projects with working capital or a line of credit. Create a solid financing plan if you want rapid growth.

To illustrate how these variables and components factor in to the growth of a company, let me offer an example. In most growing companies, one factor that plays a critical role in supporting growth is reducing the amount of time from hiring a new employee to having that employee able to productively contribute to the business. The shorter the time is from date of hire to self-sufficiency, the better it is for the business. For sales people, the metric might be date of hire to date of first closed deal.

The term that human resource professionals use to define this new hire orientation, training, and acclimation process is “onboarding.” All of the variables and components above play into a company’s operational processes and can contribute to an effective and efficient onboarding experience. Unfortunately, I see too many companies that figure that they will hire experienced and intelligent people and these new employees will be able to “figure it out.” Why would you invest all of the time, human resources, and money to find, recruit, interview, and hire a talented new person to join your team and then hope that they can figure it out?

Without going into detailed descriptions of all of the operational processes that need to be in place to create an effective onboarding process, you need to understand that there is a cause and effect relationship that interconnects all of these issues. Most important is to develop best practices and institutionalize individual experience so that your new team members learn from the best, not just from the current employee who happens to be available for their training and orientation. There are many great case studies about companies that have excelled in the onboarding process, learn from them and customize your system. Realize that there is significant return on your investment if you shorted the time to productivity, and there are also significant negative implications if you do not have operational processes in place to support your growth objective.

What is the Hull Speed of Your Business? How fast can you grow?

Before you embark on a phase of growth, make sure you have shaped the business in a way that can handle the speed you want to travel. If you push the company past your hull speed, you will know it because the company will start to shake, clients will become unhappy with their work product, and it won’t be the plastic or wood of a boat’s hull that will start to break it will be your people.

Understand the hull speed of your business before you start to grow too fast. The good thing is that unlike the hull shape of a boat, you can change the structure of your organization while you are “under way” (the sailing term for moving). If you need to change the structure of your organization to support faster growth, do it before things start to become unstable because by then it might be too late to prevent crashing.

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