Kyiv Outsourcing Forum 2018

1. Scale or die
Alex Pavlenko

2. BFFL
• Believe x?
• Forget x?
• Forgive x?
• Love x?

3. Building a successful company isn’t just about
growth – it’s about scale.
• Growth means adding resources at the same rate that you’re adding revenue. For
example, a company that gains a customer, hires more people to service them,
and adds revenue at the same rate it is adding more cost. This is typical in many
professional services-driven business models. While the company is technically
growing, they’re not scaling.
• Scale is about adding revenue at a rapid rate while adding resources at an
incremental rate. Google, Salesforce.com, and Citirx are prime examples of
successfully scaled businesses. They have mastered the formula of quickly adding
customers while adding fewer additional resources; thus, driving consistent
growth and increasing margin over time.
• Scaling growth is about creating business models and designing your organization
in a way that easily scales in order to generate consistent revenue growth and
avoid stall-points without adding a ton of extra cost and/or resources along the
way. Here are five strategies for consideration as you think about scaling your
early or growth-stage business.

4. How to Manage Scale, and Operate in Scaling
Organizations
• Managing at scale is a learned skill rather than a natural ability—Nobody comes out of the womb knowing how to manage a thousand people. Everybody learns at some point.
• It’s nearly impossible to make the judgment in advance—How do you tell in advance if an executive can scale? Was it obvious that Bill Gates would learn how to scale when he
was a Harvard drop out? How do you go about making that decision?
• The act of judging people in advance will retard their development—If you make a judgment that someone is incapable of doing something such as running a larger
organization, then will it make sense to teach them those skills or even point out the anticipated deficiencies? Probably not. You’ve already decided that they can’t do it.
• Hiring scalable execs too early is a horrible mistake—There is no such thing as a great executive. There is only a great executive for a specific company at a specific point in time.
Mark Zuckerberg is a phenomenal CEO for Facebook. He would not be a good CEO for HP. Similarly, Mark Hurd does a terrific job at HP, but he would not be the right person to
manage Facebook. If you judge your team in advance and have a high sense of urgency, you will bring in executives that can manage at high scale in advance of needing them.
Unfortunately, you will probably ignore their ability to do the job for the next 12 months, which is the only relevant measure. As a result, you will swap out good executives for
worse ones.
• You still have to make the judgment at the actual point in time when you hit the higher level of scale—Even if you avoid the trap of hiring a scalable executive too early or
retarding the new executive’s development, you still haven’t actually bought yourself anything by making the pre-judgment. Regardless of what you decided at point in time A,
you still have to evaluate the situation with far better data at point in time B.
• It’s no way to live your life or run an organization—Deciding (with woefully incomplete data) that someone who works their butt off, does a terrific job, and loyally contributes to
your mission won’t be with you three years from now takes you to a dark place. It’s a place of information hiding, dishonesty, and stilted communication. It’s a place where
prejudice substitutes for judgment. It’s a place where judgment replaces teaching. It’s a place where teamwork becomes internal warfare. Don’t go there.
• So, if you don’t prejudge people’s ability to scale, how do you make the judgment? You should evaluate your team at least once a quarter on all dimensions. Two keys can help
you avoid the scale anticipation trap:
• Don’t separate scale from the rest of the evaluation—The relevant question isn’t whether an executive can scale; it’s whether the executive can do the job at the current scale.
You should evaluate holistically and this will prevent you from separating out scale, which often leads to a prediction of future performance.
• Make the judgment on a relative rather than an absolute scale—Asking yourself whether or not an executive is great can be extremely difficult to answer. A better question is:
For this company at this exact point in time, does there exist an executive who I can hire who will be better? If my biggest competitor hires that person, how will that impact our
ability to win?
• //Ben Horovitz

5. Do not try to predict the distant future.
• In environments of uncertainty, the best course of action is to make
decisions that optimize for the near and known future. Employ
people, tactics, and processes that solve the problems in front of you
immediately.
• Avoid the trap of solving for problems that aren’t staring you in the
face yet. Work on surviving long enough to confront those problems
later on.

6. Managing Scale by Managing Complexity
• Scale isn’t the problem — scale is the force that turns failures of complexity into
problems. // FB V Kent Beck
• As a system scales, whether it is a manufacturing plant or a service like ours,
the enemy is complexity. If you don’t confront complexity in some way, it will eat
you. However, complexity isn’t a blob monster, it has four distinct heads.States—
When there are many elements in the system and each can be in one of a large
number of states, then figuring out what is going on and what you should do
about it grows impossible.
• Interdependencies — When each element in the system can affect each other
element in unpredictable ways, it’s easy to induce harmonics and other non-
linear responses, driving the system out of control.Uncertainty— When outside
stresses on the system are unpredictable, the system never settles down to an
equilibrium.
• Irreversibility— When the effects of decisions can’t be predicted and they can’t
be easily undone, decisions grow prohibitively expensive.

7. Mathematic Models of Scaling Problems
Colyer stated in his post Applying The Universal Scalability Law to Organizations, why
scaling causes slowdowns.
This graph shows total output, and the path of the graph is determined by a variable
that represents your level of involvement in decisions — what Colyer calls the
‘contention factor.’
The more operational decisions you need to be
involved in, and the deeper you get involved, the
more tasks you handle yourself, the higher your
α coefficient and the more you limit the overall
scalability of your organization. So the first
lesson is that it’s really important you learn to
delegate effectively and to choose carefully the
things that you do get involved in.
If you want high output, remove yourself from
decisions.

8. Kingman’s Formula
• Do you think that time utilization closer to 100% (Managers working
super hard, all the time), creates faster output?
It does not.

9. Firstly observe that as you approach 100% utilization, the wait
times go up dramatically. Secondly, the three curves I have
plotted show the effect of different levels of variability — the
yellow curve having the most variability.
In my experience there is very high variability in the things you
get asked to do / choose to do as part of the senior leadership
team of an organization. So the ‘Kingman effect’ is closer to the
yellow curve than the blue one. The fourth key lesson is that
working at or close to 100% utilization will slow to a crawl
everything that depends on you.
What am I suggesting you do then? You need to climb back
down the utilization curve, to the point where the delays you’re
introducing into the organization are acceptable. I would
recommend setting a WIP (Works-in-progress) limit that gives
you a utilization somewhere in the 60–80% range.

10. Scaling Up Excellence
In every decision they made, Google’s leaders tried to
resist doing what was easiest now. They asked, “How will
this work when we are ten times or 100 times bigger?”
They thought, “Let’s not decide based on what is best
now, let’s decide based on what will be best in two or
three years.”
// Scaling Up Excellence, suggested by Mahesh Bhatia

11. Manage Scale by Managing Bottlenecks
• If your company is growing fast and you’re worried about scaling well,
that means you’re likely to have customers waiting on you — Demand
> Supply. So the faster you can deliver product successfully to
customers, the faster you will grow!

12. • When an organization grows in size, things that were previously easy
become difficult. Specifically, the following things that cause no
trouble when you are small become big challenges as you
grow:Communication, Common knowledge, and Decision makingStill,
if the company doesn’t expand, then it will never be much of a
company, so the challenge is to grow and degrade as slowly as
possible.

13. 5 things
• Below are the top 5 things SMBs lack and if worked upon, it can help
build scalable organisations:
• Process
• Technology
• Human Resource Management
• Data Oriented Approach
• Change Management

14. Process
• Most SMBs lack processes and structures. There is usually a lot of human
dependancy on everything they do. This impacts their scalability.
Companies cannot run ONLY on human dependancy. I am using the word “
ONLY “ as people come and go but the work needs to continue. Removing
human dependancy by building redundancy into the system is the most
important thing
• Lack of documentation. Most of the things in SMBs are stored into the
brains of individuals. So 2 people doing the same job tend to do the same
thing differently. This results in quality being suffered and no control over
the outcome.
•

15. Technology
• Technology brings in efficiency. Efficiency brings in cost reduction, but
most SMBs fear investing as they are not sure of the outcome. It is
important to evolve with the better technology specially when you
run remote operations. Why do we always find a product in a large
departmental store but our local Kirana wala at most times does not
have one or the other product ? The answer is human brain has
certain limitations and that is exactly where technology comes into
play. Technology removes human dependancy, ensures full proof
process followups, ensures that you invest your time into constructive
and non-mechanical things. Imagine a restaurant manager spending
his time in tallying daily cash every night which could have been easily
done via a simple billing software

16. Human Resource Management
• This according to me is the biggest problem. Right from the quality of manpower to their execution to their performance,
everything is usually a problem in SMBs
• Because of lack of technology mentioned above, a lot of work is manual. No smart person would want to have monotony in their
work life beyond a time because of which it becomes extremely difficult to retain your staff. Attrition rate is extremely high
• Another reason for high attrition is lack of clear KRAs. Most people do not have a well defined KRA and metrics to measure them.
Hence its difficult to gauge the quality of work done which again results in guesstimate oriented appraisals and brings in concepts
of favouritism thereby resulting in employee dissatisfaction. Meritocracy lacks big time and results in high performing
employee exits
• Lack of incentives results in low motivation and creates bureaucratic environments and lack of ownership
• No visibility of growth ladder. If someone joins as an operations executive, he is not clear where will he stand 5 years down the line
• Lack of structured training and continued learning
• No employee engagement activities to build team bonding
• Lack of flow of information down the hierarchy. Most working in SMBs lack the vision the company carries resulting in missing the
bigger picture
• Lack of empowerment to the lower levels. Most decisions are taken by one or few people running the show which in turn creates
bottlenecks in terms of multiple views, different perspectives and also faster decisions.

17. Data Oriented Approach
• What you can’t measure you can’t improve. Do ask a restaurant
owner, the % sale drop from last year same month to this year. Or ask
a bike dealer where did he loose the customers ? Or ask a Kirana store
his product shelf life ?
• Not only on your operational metrics, but even your employee
performance needs to be measured with clear metrics. This ensures
transparency and also provides scope of improvement to your team
• Identification of key metrics and close measurement of the same is
required to ensure correct counter actions are taken with solid proof
and not human hunch.

18. Change Management
• No one likes to change but change is the only constant. Companies
and employees tend to continue the traditional approach and very
reluctant to change. Hence there is no innovation resulting in a small
competition which may be relatively new super-seding your company
in no time. What happened to Nokia or rather Blackberry ? Blackberry
kept on saying that consumers do not want good music and camera in
their phones and the greatest utility will be emails and phone calls.
They were reluctant to change and this itself killed the market for
them. This is the problem in most SMBs too. Be it adopting to
processes than human dependancy or working on technology than
paper / pen, change is the key to business evolution and must be
accepted to build larger enterprises

19. Maturity

20. Parkinson's Law
• The amount of time that one has to perform a task is the amount of
time it will take to complete the task.
• Or ?