Atoms and Bits to scale your company: First steps to make it happen

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Scale is when a small thing becomes big(ger) in the transition from the ability to serve one, to serving a few, to serving many, then serving large numbers.

Scaling a business can be intimidating to think about and the work required can be daunting to say the least.

How to scale a business, for most people, is as clear as nuclear fission (which is the scientific process for splitting atoms) meaning it is not very clear at all. I was going to say “as clear as mud” since that is an established expression but splitting atoms is more appropriate given the topic (you’ll see why in a moment), plus nuclear fission is crazy complicated and it is understood in detail by a comparatively small set of people.

As with splitting atoms, the work to scale can be dangerous for your company. Many businesses fail when trying to scale. But achieving scale can mean the difference between just surviving and thriving as a company.

Scale matters and typically offers an abundance of value creative advantages to a business. That being said, things tend to break when a company tries to scale before the people, processes, and vital systems in the company are strong enough and prepared to scale.

There are myriad factors when preparing your company to scale. If we were sitting together in your office working to understand what needs to be done so that your company can scale, among many important topics regarding scale we would likely discuss the following:

 

Bits vs Atoms aka Digital vs Analog

For years the business world used the terms Digital for software and Analog for everything not software. Increasingly the word Bits is replacing Digital and the word Atoms is replacing Analog. I personally am happy using both but will for this exploration use the words Bits and Atoms. I have always thought that there is a missing new word that emphasizes what is neither software nor a physical thing but is nonetheless used heavily in business, that is: Process. I won’t give Process a clever new name, I’ll just call it Process as we go. By Process I mean an activity that might use physical things and it might use software but it also might be any of the many ways that an activity is done (e.g., conversation, in person visits/meetings, verbal agreements, and more).

Scaling something that is Bits such as software is very different from scaling Atoms such as a store, a hardware product, or an activity that is performed by human beings.

Bits are sometimes bottlenecks to scale when the software has not been designed and engineered with scale in mind.

Atoms can be bottlenecks to scale, especially when humans are required to do the work.

Processes can be bottlenecks to scale, especially when they are ad-hoc (and even if you have standard operating procedures, people might not use them).

When Bits and Atoms are interconnected the Bits might be ready to scale (for example an online store) but then a bottleneck happens with the Atoms (for example when you didn’t expect so many people to buy what you are selling and you cannot physically supply the demand.)

Scaling Bits is complicated enough, but scaling Atoms and Processes can be orders of magnitude more complicated.

An overly simplified example for scaling Bits might be that your application works well when one, two, or a few users click on it at a time but it crashes when there are too many simultaneous clicks. So you pay engineers to optimize the code to make it more resilient or you pay to rewrite the source code from scratch to make the application enterprise strength.

Next, an overly simplified example for scaling Atoms might be that the magic in your restaurant is your wildly talented chef who (because they are human) can only prepare a maximum number of meals at the quality level you need. So you focus on hiring other talented hands in the kitchen and a few high-potential apprentices to the chef and in time you can serve more meals. You refine the processes in and around the kitchen and restaurant to streamline how everything is accomplished. Maybe you expand that one restaurant to serve more people, so you have started to scale. Eventually you trust the apprentices to become chefs and you open new locations, so you scale more. You then bring in additional talented apprentices so that you can keep scaling and the cycle continues. This takes time, and you may not have time on your side. Restaurants are a tough business, which makes them an interesting case for how to succeed with even one location. 

Before moving on, I want to make a comment about not making Atoms into Bits just because you think that you need to do it. Don’t fear the Atoms, people and the other physical things that are part of your business are very often necessary and can be the secret in the sauce that makes your company amazing. Don’t leave Atoms behind in preference of Bits just because you think that is what you are supposed to do. That being said Bits don’t get tired and don’t need to sleep which is reason enough to seriously consider how to integrate Bits in place of Atoms when there is a good case to do it.

Next consider a mix of Bits, Atoms, and Processes example. Before Amazon.com existed bookstores were pure Atoms businesses; they held inventories of books, people came to the store to buy books. Of all the Atoms that Amazon would one day sell over its e-commerce website the first physical thing that they chose was the humble book. Printed books have no moving parts, no electronics, etc. so they are very user friendly with very low customer support requirements. The book was an interesting first choice because it was sufficiently complicated to prove Amazon’s model but not so complicated that it broke the model before it had a chance to succeed. Very importantly Amazon did not start selling every Atom under the sun in the beginning, they experimented and puzzled through the book in all of the combinations of Processes, Atoms, and Bits. Once Amazon figured out the execution model and Processes around the book they then scaled into other offerings. Just look at Amazon’s websites around the world to see the vast spectrum of physical things that are sold. Eventually they started selling their own electronic book reader the Kindle (which is an “Atom” because it is a physical thing), which allowed the user to read electronic books that are  Bits versions of books. The potential use of drones for deliveries is an interesting mix of optimized Atoms, Bits, and Processes. With the advent of 3D printing Amazon is among others who are puzzling through the Process to 3D print your order in the truck on the way to deliver it to your door. With Amazon Web Services (AWS) and other Amazon businesses it is interesting to see the rich hybridized business model that blends Atoms, Bits, and Processes very successfully.

There is more to scale than successful simultaneous clicks not crashing your software or hiring apprentice chefs to extend the capacity of your star chef so that you can open more locations without ruining the quality of your original successful restaurant and deciding to blends atoms, bits, and processes in your business model. All of this so far is simply a start to the conversation about what can and should be done.

To employ critical thinking and problem solving to the topic of scale, you might consider the following as a next question:

 

What Atoms in your business might be more effective as Bits?

Important note: What is efficient is not always effective, and what is effective is not always efficient. When considering scale you need to decide whether efficiencies are more important than effectiveness. If you can have equal or improved effectiveness with increased efficiency, that is excellent and you have an answer as to whether or not you should do it. Efficiency is very scale friendly, while inefficiency can create drag and complicate scale. But if making something more efficient reduces its effectiveness then you need to decide whether or not the loss of effectiveness is something that you are willing to accept.

With the above in mind, here are a few steps to take you through the question of what atoms might be more effective as Bits:

 

Step 1: Now

Make an objective inventory of the mission critical activities that make your business run as of today by creating two lists, one for the Atoms and one for the Bits in your company.

If you find the exercise difficult you might ask someone with an objective eye to make the lists.

 

Step 2: What should be converted going forward

Prioritize the activities in both lists in Step 1.

Those who can prioritize accurately and take deliberate action according to those priorities have a better chance at winning. (Most people “do stuff” rather than inventorying what must done then prioritizing and acting accordingly.)

The #1 item on both lists should be your most value creative activities.

Then, evaluate (in descending order) whether the design and execution of the current Bits activity is optimal or if it can and should be improved.

Then on the Atoms list evaluate (in descending order) whether or not each activity might be better as a Bits or a Bits driven Process. Gather facts about what is possible that can inform your decisions and actions (aka Critical Thinking). If you simply cannot figure it out and don’t know then find someone who does know. When you are exploring how to convert an Atom to a Bit, remember the practical details of:

 

COST, QUALITY, and TIME

These three are causally connected like levers on a hydraulic; when you push or pull on one the other two react. It is rare that you can have all three moving to your advantage at the same time. One typically needs to give so that you can have the other two, and sometimes two need to give so that you can have the one in the condition you want it.

For example: You have a limited amount of money to spend and you have a very tight deadline for when you need it. This typically means that the quality will need to be sacrificed (unless you can find more money and/or give it more time).

So when you think about converting Atoms to Bits: 1) factor the available budget (cost), 2) when you need the conversion completed (time), and 3) all features and benefits along with how well you need it to work (quality). If you do not plan this out, you will very likely be surprised when it costs more, takes longer, and is not up to the quality that you expected and needed.

 

WHY, WHO, WHAT, WHEN, WHERE, HOW

You need to articulate a good reason for why you are doing the activity in the first place, and then a good reason as to why the activity will be better as Bits than Atoms. Don’t simply do a conversion from Atoms to Bits just because you can, do it because you will gain by converting it and doing it will make the activity more flexible and agile when you work to scale.

Once you know WHY then identify WHO will do WHAT and WHEN WHERE and HOW they will make it happen (within the cost, quality, and time parameters that you specify).

Do the same for each activity in the atom list.

Pro-tip: Some Atoms that are best served staying as Atoms can still have efficiencies applied to them. Atom Efficiency (aka Atom Economy) ensures that there is no waste in the process and product. For example, you decide that it is best to keep your chef a human rather than a machine but all of the activities that inform the chef can be addressed ranging from the tools available to forecast meals, perform procurement of ingredients, manage the supply chain, perform inventory controls, portion controls and distribution of ingredients in the kitchen, then how orders are received from the wait staff, how staff is notified about the readiness of orders, and more.

(BTW, if you haven’t realized it yet, anything that is built ranging from the construction of homes through to hardware manufacturing has more than a passing familiarity with the lessons of how to optimize a chef in a restaurant.)

 

Step 3. How step 2 will make you more agile

Now that you have the above list you need to gather facts that can inform your actions (aka Critical Thinking). Create a story for the activities in #1 and 2 above and include an impact assessment. For example, how would the conversion from Atoms to Bits:

Make the business more efficient.

Make the business more effective.

Make the business more agile and flexible.

Impact the bottom and top line of the company.

Create and capture shareholder value.

Items A, B & C above correlate directly to the impact on scale. When enough of what you do as a company is Bits based then technological scale is more achievable. Items C & D when combined with A & B become the argument to your investors, shareholders, board, and leadership team for support.

Cautionary note: Just because you can convert an Atoms’ based process to  Bits or a Bits driven Process does not mean that you should. Some activities are best done manually so as to maximize the effect.

 

Step 4. Now for the hard part

Friction is created by contact. In business every time a person needs to do something to make a transaction happen it slows it down and costs money, this is friction. A high aspiration in business is a frictionless transaction (or as close to no friction as you can manage). Thus steps 1-3 are hopefully going to reduce friction in your business model.

There are at least two types of friction in business: process and personality. Friction is an enemy of scale. I will briefly touch on both types, the first (item A below) is addressed by step 1-3 above, the second (item B below) is what you need to address next as step 4.

 

A. Process Friction

How many times does a customer need to do something from the start of the process through to the completion of it? On the other side of the transaction how many times did your business need to do something from the start through to completion? Every touch on both sides of the transaction is friction and exacts a cost and limits your ability to scale profitably without breaking.

A customer wants to eat at your restaurant. Do they need a reservation? (friction) Is there available parking or do they need to drive around searching? (friction) Do they need to wait for a table? (friction) Once seated how many interactions with the wait staff happen before the meal is completed? (that friction is highly variable, might be once might be many causing frustration through to anger) How do they pay for the meal? (friction)

In the kitchen how many weeks, days, or hours in advance were you performing activities such as forecasting, purchasing and inventorying essential ingredients (friction, friction, friction) to be ready for your customers? How many hours before opening were cooks working in the kitchen preparing food? (friction) Once the food was ordered how many hands touched the ingredients to successfully plate the meal? (friction).

McDonalds gave a masterful example of friction reduction in food preparation that non-fast food restaurants today have often not learned from as they do a little of this and that kinda sorta in their high friction kitchens. (This lesson applies to non-food businesses too.) Your restaurant does not need to become fast food in its efforts to reduce friction in preparation to scale. If your food experience is consistent and predictable from plate to plate over time then you must already have a handle on the principles of portion control on ingredients and cooking methods used to plate a consistent meal. The next step is to think about what controls can be performed on scale with as little friction as possible.

 

B. Personality Friction

Now consider the ultimate killer to scale. This is a much more difficult and impactful type of friction: the human personality.

We as humans struggle to get out of our own way.

The hardest Atom to split to a Bit is the human, especially a human who creates friction in the process of your daily business.

Many companies struggle to optimize what they do and to scale because the people complicate, frustrate, and stymy the ability to adapt and change so that systems can be scaled in a way that the business can scale. (Think the McDonalds brothers and Ray Kroc.)

Sometimes the investor(s) are overly involved with the CEO and leadership team getting in the way, second-guessing, and complaining at all hours of the day and night. (friction) At times the founder has a choke hold on the company and they are unwilling to relax their grip. (friction) Maybe all decisions gate through the CEO which disempowers direct reports, managers, teams, and individual contributors. (friction) It could be that a mission critical employee is unwilling to convert their atoms into bits because they believe that holding onto their atoms is job security and power so they fight you on it. (friction)

Then comes the questions of CONTROL and INFLUENCE. Look at the list in step 1-3 and highlight your friction (both process and personality friction). Next to each friction point put the letters:

C (for what you can control)

I (for what you cannot control but you can influence)

NIC (for what you can neither influence nor control)

Prioritize and work on the highest priority activity that you can control and work down the list. Then work on your highest priority that you cannot control but you can influence and work the list. As to the activities that you can neither control nor influence, keep a watchful eye so that you can stay informed as to the movements and how those things impact and influence what you influence and control. (Important note: If you make a difficult employee as a NIC you need to remember that in most jurisdictions employees can be terminated)

Pro-tip: The C only control yourself and how you do what you do. Everything outside of you is influenced or not.

I firmly believe that: The right team can make gold out of rubbish, while the wrong team will make rubbish out of gold.

Think about your team very carefully. It could be that the toughest atoms that are holding your company back from scaling is your team or a key individual on your team. Fixing a team that is not working well is more difficult than working on almost anything else in a company.

As a final exercise in step 4 look carefully at your team in the context of the mission critical activities list in steps 1-3 above. Put names of individuals on your team next to each mission critical activity. Importantly, this is not a wishful thinking exercise. When you put a name next to an activity that should mean that the person can take full responsibility and execute that activity with a high degree of professionalism and skill. Then look carefully at the activities with no current team member name next to it (that tells you who you need to find to fill a mission critical gap), and whether or not any person on your team is not assigned a mission critical activity.

 

As a final thought

Let software, machines, computers do the things that they do better than people, and refocus people to do the things that they do better than machines. When the bits, atoms, and processes are optimized and balanced in your business then you will be better positioned to scale. All of the above is only a beginning to the conversation of how to scale.

 

If you wish to learn more about scale,

Join Professor Paul Kewene-Hite for a Scale Up Bootcamp at INSEAD Middle East Campus on Oct. 10th.

 

Seats are limited, so APPLY NOW if you wish to attend this one-off exclusive event

 


Opinions expressed by MAGNiTT contributors are their own.