Author Robert Sutton offers lessons from Starbucks, In-N-Out, Intuit, Facebook, and more on the delicate art of scaling a business.
“Do you smell anything?”
Robert Sutton sets his cappuccino on the table and thoughtfully inhales. I follow suit.
“I don’t get much of an aroma in this one,” says Sutton. “Oh, well.”
We are sniffing for coffee in a Palo Alto, California, Starbucks. The absence of coffee in the air suggests that this company has not entirely recovered from last decade’s scaling debacle, when it famously lost its way in an overcaffeinated expansion. “Companies that scale well have sacred constraints, things they can never screw up,” says Sutton, a management professor at Stanford. “At Starbucks, it’s the whole coffee-drinking experience. The smell, the sound of beans grinding.”
Sutton, a rumpled, bespectacled man equally conversant in academic literature and industry gossip, is author of numerous business books, including The No Asshole Rule andGood Boss, Bad Boss. His latest is Scaling Up Excellence: Getting to More Without Settling for Less,written with his colleague Huggy Rao. The subject of scaling is so meaty that I want time and space to give it a good chew. So I have asked Sutton to spend a day with me, touring Silicon Valley and talking with some of his book’s subjects about what he calls “the problem of more.” He has agreed, so long as I don’t make him drive in San Francisco.
In their book, Sutton and Rao argue that scaling isn’t just about getting bigger. It is also about getting better. It’s about spreading exceptional ideas, systems, or business models, and then persuading–ideally inspiring–others to make them their own. “The question we started with is, How do you spread something good from the few to the many, or from those with to those without?” says Sutton. “It starts with, You’ve got something good.”
“The way you know you’ve succeeded is to ask yourself, ‘If I stopped putting energy into this, would it continue to go well?'”
I like that question, because it positions scaling as an activity different from–and more nuanced than–growth. Rao, whom we meet later in the day, captures the distinction with a metaphor: “When people think growth, usually they think of anatomy,” he says. “How big are the limbs? But the real thing is physiology. Is stuff circulating well–the blood and the oxygen? Even if your anatomy is very developed, your physiology can be bad.”
That problem is acute here in Silicon Valley where, to use another Rao metaphor, venture capitalists install Ferrari engines inside hastily assembled chassis. Technology has made it easier to scale quickly but also to scale badly. As Sutton and I tool around this region of congested roads and not-too-corporate campuses, we talk about scaling as a series of balances, between speed and thoughtfulness, size and simplicity, repetition and reinvention. The overarching balance, it seems to me, is between optimism and pragmatism. Optimism inspires the belief you will reach the next level. Pragmatism warns what will happen if you don’t prepare for it.
Maintain the Mindset: Starbucks
How fortuitous that Starbucks, where we begin the day, provides both liquid fuel and an object lesson in scaling. “Companies grow well and scale badly when they focus on running up the numbers but not the quality,” says Sutton. “They get bigger and start to look like just any organization. And there goes the value.”
In 2007, Howard Schultz lamented the “watering down of the Starbucks experience” as the business ballooned to 13,000 stores. “They made all these decisions about efficiency and standardization and cost that seemed sensible at the time,” says Sutton. “They didn’t step back to see how the buildup was damaging the brand.”
Such expediency may create opportunities for competitors. Sutton points out that Peet’s Coffee & Tea, which was founded before Starbucks but has expanded more slowly, appeals to some customers who have grown disenchanted with the ubiquitous chain. Now “third-wave” coffee companies like Blue Bottle Coffee are vying to replace Peet’s in caffeine-anados’ affections. Scale too fast, in other words, and you risk competing against the new you.
To protect their brands, Sutton advises companies to spread not just a “footprint”–their geographic and market presence–but also a “mindset”–the deeply ingrained beliefs and behaviors of their people. It’s the inverse of author Marshall Goldsmith’s “what got you here won’t get you there.” What got you “here,” after all, includes shared convictions, inviolable standards, even small experiential details like the sound of coffee grinding. Sacrifice those, and you may never get to “there”–or to any “there” that’s a worthwhile destination.
Silicon Valley, where growth happens at the rate of time-lapse photography, is hyperaware of the mindset issue. Post-startup, hiring here can be a slow affair and onboarding analogous to indoctrination. Sutton describes how the process works at Facebook, where he was once a consultant. There, engineers rather than HR run a vaunted boot camp program, in which new hires spend six weeks working on small projects, up to their elbows in the code base, living and breathing the company’s “move fast and break things” manifesto. By the time they emerge, they’ve imprinted on the company culture like technically brilliant baby ducks. All Facebook employees “internalized in a very deep way what is sacred and taboo at Facebook,” says Sutton. “They are not going to take their eyes off that mindset ball.”
Choose Your Religion: In-N-Out
To riff or to replicate? To customize or to clone? This is the question we’ve come to Mountain View’s In-N-Out Burger outlet to discuss. We are meeting Michael Dearing, another Stanford professor whose résumé includes Disney, Bain, eBay, and now Harrison Metal, an early-stage investment firm of which he is founder.
Dearing, who eschews a bun in favor of lettuce wrap, offers an elegant parsing of the choice between creating perfect copies of a successful formula and allowing people to get jiggy with it. As you open new units or offices, should you dictate strict adherence to rules based on what you know works? Or should you encourage each location to experiment and innovate? Dearing characterizes this as a tension between Catholicism and Buddhism.
My assumption is that Dearing will swing Buddhist. Silicon Valley loves its tablets, but not the stone kind with commandments etched into them. However, Dearing starts by declaiming the advantages of Catholicism. “It’s really good for the expansion phase of a company when people don’t want to sit around having a navel-gazing exercise,” he explains. “They say, ‘Give me the playbook.'”
In Dearing’s formulation, In-N-Out Burger has scaled in a “Catholic” way. The company, with close to 300 restaurants, has resisted franchising to maintain quality and a consistent customer experience. Every unit looks the same and offers the same Spartan menu. At McDonald’s, products like the Big Mac originated in individual franchises. By contrast, In-N-Out Burger “is wired to generate exact reproductions of that exact menu,” says Dearing. “None of the folks here are paid for their unique insights about what else might go on that menu.”
They are, however, compensated handsomely by industry standards, incentive to execute flawlessly on the In-N-Out formula. The young man who takes our order is preternaturally cheerful. He offers Sutton a napkin to wipe his glasses, wet from a sudden rain shower. “The productivity here is substantially higher because of the standardization, the division of labor,” Dearing points out. “If I’m going for volume and mass appeal, the Catholic playbook is a pretty good one.”
By contrast, says Dearing, leaders competing on innovation should consider adopting a more protean, Buddhist approach. That means providing the clay of values and goals, and then giving employees room to shape them for specific locations, markets, or customers.
Buddhist scaling makes more sense when you are trying to spark new ideas, says Dearing.
“There’s a wonderful notion in Buddhism that suffering comes from attachment,” he explains. “If you can just let go of the attachment to an outcome, paradoxically, the outcome is better, because you focus on doing your very best work, right in the moment.”
Most companies choose a strategy somewhere along the Catholic-Buddhist continuum. Pressures to globalize and customize make achieving that balance especially critical. Companies must be Buddhist enough to flex their offerings–sometimes their whole business models–for new markets and customers. But without doctrine dictating, in Sutton’s words, “the sacred and taboo,” the risk to brand and performance is much greater.
Subtract Before You Add: IDEO
Our next stop on the tour is Stanford, where we meet with David Kelley in his tinkerer’s-workshop-cluttered office. The founder of the university’s Hasso-Plattner Institute for Design (known as the “d.School”), Kelley recounts his experience scaling a different organization, IDEO, his design and innovation consulting firm.
IDEO offers a good example of how companies can grow without being overwhelmed by complexity, hierarchy, and general corporate ickiness. The secret, says Sutton, isn’t postponing the kinds of systems and processes required to scale. Instead, leaders should make a habit of subtracting, even as they add.
When Sutton talks about subtraction, he doesn’t mean reducing head count. He means simplifying structures. Often that requires “breaking into more, smaller teams that work together better,” he says. “In a sense, you’re adding complexity, because there are more of them. But if they are well coordinated, the organization can be more nimble.”
Depending on their goals, companies can be as Buddhist as they like about how they divvy themselves up. Kelley and his team treat IDEO like one of their beloved prototypes, reworking it when something gets clunky or, as Kelley says, “it starts to feel like work, rather than a calling.”
The IDEO story begins as such stories always do: a growing company, an overtaxed leader. “There was no way around it,” Kelley says. “We had to put another layer of management in place.”
So when IDEO started feeling big, Kelley asked a group of leaders to form “studios,” distributed in buildings around its Bay Area neighborhood. Studio creators chose their own focus on the basis of, among other things, their interests and what they thought would be profitable. “Calling it a ‘studio’ didn’t make it feel like you were in a department,” says Kelley. “It suggested equal participation as opposed to hierarchy.” Enhancing that perception, employees could choose which studio to join.
Over the years, IDEO has divided itself in different ways for different reasons. But one goal remains: to prevent the wet blanket of bureaucracy from extinguishing the embers of innovation. Now at 650 people, IDEO continues to simplify where possible.
Rao recommends that companies wary of complexity be alert for vestigial tails–rules or systems that have outlived their usefulness. He offers this rule of thumb: “If you are getting big, before you add a new meeting, figure out which meeting you can kill. Before you put in a new rule, see which rule you can kill.
“Subtraction is very important,” says Rao, “because in an overloaded organization, when you subtract, it is like giving a gift.”
Create Catalysts in Your Company: Intuit
Next, we meet Kaaren Hanson, vice president of design innovation at financial software giant Intuit and a master of “cascading.” As used by Sutton, that verb describes how good things ideally proliferate through organizations–naturally and powerfully, like a waterfall.
Cascading assumes someone in the business is already doing something right. The challenge is to create a process for diffusing those practices to change-resistant employees. “It becomes a chain reaction,” says Sutton. “The expertise or whatever it is just flows from person to person or group to group.”
In 2007, Intuit couldn’t get its new design methodology to trickle, let alone cascade, through 8,000 employees in multiple locations. Hanson had been charged with ensuring the program–a priority of founder Scott Cook–would be adopted throughout the company. Her first attempt failed miserably.
Hanson chuckles as she shows me the original diagram of the methodology: a dog’s breakfast of arrows, circles, and callouts with the pithy tag line “Evoking Positive Emotion By Going Beyond Customer Expectations in Ease and Benefit Delivery Throughout the Customer Journey.” Hanson’s team had begun the rollout by displaying the diagram on several enormous posterboards in every Intuit building. Then, it staged forums about the program with outside experts and Cook acting as host. “After a year, no one was doing anything differently,” says Hanson. “Word in the hallways was, ‘This, too, shall pass. Just duck your head, and we’ll go back to the regular stuff.’ “
So Hanson took another shot. She started with an act of subtraction. She ditched the tag line and boiled down the convoluted model to three key principles under the minimalist rubric “Design For Delight,” or D4D. Then her team identified 10 in-house experts and anointed them “innovation catalysts.” The catalysts guided adoption of D4D within their own teams and spent 10 percent of their time helping other teams, from which more catalysts were born.
Today, Intuit has 200 catalysts trained to embed D4D in every pocket of the organization. The waiting list for catalyst training exceeds 300. More recently, catalysts began proliferating lean-startup principles. “The way you know you’ve succeeded is to ask yourself, ‘If I stopped putting energy into this, would it continue to go well?’ ” says Hanson. “The answer is, ‘Hell, yeah.’ “
Grow Well, Not Quickly
Escaping from the vehicular thrombosis that is Route 101, we drive to the Left Bank Brasserie, in Menlo Park. It was here, seven years ago, that Sutton and Rao began discussing the problem of scaling. Rao maneuvers through the happy-hour crowd to join us.
As we chat, Rao returns to the pervasive tension between growing fast and growing well. Fast growth, he points out, makes it tougher to identify and nurture the practices worth scaling. At the same time, people are so focused on ratcheting up the positive that they don’t bother to clear away the negative–bad stuff that, left to its own devices, will invariably overrun the good. Leaders, for their part, have no time to teach or to make sure the organization is learning. “With fast growth, the rate of change is phenomenal,” says Rao. “The challenge is to scale the practice of scaling.”
Scaling poorly may not cause a fast-growth business to fail outright. But it won’t live up to its potential. And the people will be too stressed out and whiplashed to enjoy what success they have. We order another round of drinks, and Rao talks about visiting an online daily-deal company that had grown rapidly from nine employees to more than 900. “I asked, ‘Were you elated by that?’ ” recalls Rao. “And I was struck by the wistful response of one of the founders. He said, ‘No, it felt like we were drowning.’ “
The goal, Sutton and Rao agree, is to build a business that is as beautiful on the inside as it is impressive on the outside. “In the end,” says Sutton, “you have to ask: Are we happy living in the world we’ve built?”