Yet there are three barriers to scaling up, which we’ll discuss in the next chapter:

• Leadership: the inability to staff/grow enough leaders throughout the organization who have the capabilities to delegate and predict

• Scalable infrastructure: the lack of systems and structures (physical and organizational) to handle the complexities in communication and decisions that come with growth

• Marketing: the failure to scaleup an effective marketing function capable of attracting new customers, talent, advisors, and other key relationships to the business.

Thus, to overcome these barriers your team must master, using our tools, four fundamentals:

• In leading People, take a page from parenting: Establish a handful of rules, repeat yourself a lot, and act consistently with those rules. This is the role and power of Core Values. If discovered and used effectively, these values guide all the relationship decisions and systems in the company.

• In setting Strategy, follow the definition from the great business strategist Gary Hamel. You don’t have a real strategy if it doesn’t pass two tests: First, what you’re planning to do really matters to enough customers; and second, it differentiates you from your competition.

• In driving Execution, implement three key habits: Set a handful of Priorities (the fewer the better); gather quantitative and qualitative Data daily and review weekly to guide decisions; and establish an effective daily, weekly, monthly, quarterly, and annual meeting Rhythm to keep everyone in the loop. Those who pulse faster, grow faster.

• In managing Cash, don’t run out of it! This means paying as much attention to how every decision affects cash flow as you would to revenue and profitability.

In general, you’ll pick a Critical Number that will address either an opportunity or a challenge on the People/Balance Sheet side of the business (e.g., reduce employee turnover, improve customer service scores, or dramatically reduce a credit line with the bank) or the Process/Profit & Loss side (e.g., improve gross margins, reduce production cycle time, or increase sales close ratios).

To fix this, Gary had a choice of two main strategies:

1. Increasing his gross margin.

1. Reducing his working capital.

If he didn’t make a change in the relationship between working capital and profitability, his company was not going to survive.

1. Price: You can increase the price of your goods and services.

1. Volume: You can sell more units at the same price.

1. Cost of goods sold (COGS)/direct costs: You can reduce the price you pay for your raw materials and direct labor.

1. Operating expenses: You can reduce your operating costs.

1. Accounts receivable: You can collect from your debtors faster.

6. Inventory/work in progress: You can reduce the amount of stock you have on hand.

1. Accounts payable: You can slow down the payment of creditors.

To tackle the cash conversion cycle, start by reading “How Fast Can Your Company Afford to Grow?” a Harvard Business Review article by Neil C. Churchill and John W. Mullins.