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Lane Merrifield’s dos and don’ts for scaling your business

While most entrepreneurs want to grow their business, serious scaling up requires long-term planning and canny decision-making. Scale too slowly and you might find yourself outpaced by the competition. Scale too quickly and hastily-made decisions can spell failure for your company.

Scaling up is typically defined as an annual growth of 20 per cent or more, though for some sectors, like tech, scaling up can mean grappling with growth of more than 1,000 per cent.

Lane Merrifield, one of the two new Dragons on CBC’s Dragons’ Den, made his name in successfully scaling up small ventures. He believes investments in office space, marketing, production and technology are key considerations while scaling up, but ultimately, staffing decisions have the biggest impact.

Merrifield has led teams through two major growth spurts, and his most recent venture, FreshGrade — a tool for parents, students and teachers to document and communicate learning — started with five people in 2011 and now has about 50 employees.

His most dramatic scaling experience, however, was Club Penguin, a multiplayer online game for children. In 2004 the game launched with a team of four in Kelowna, B.C.. Eighteen months later, the company had grown to almost 180 people — that’s when The Walt Disney Company bought it for $350 million US. After the acquisition, the Kelowna studio grew to almost 400 people. On top of that, Merrifield stayed on for five years as executive vice president of Disney Online Studios where he was in charge of helping scale eight other studios.

Quote by Lane Merrifield: This whole mantra of 'if you build it, they'll come,' is a failed mantra for a lot of startups.

Make small bets, don’t overbuild

The scale of a company should be driven by markets, Merrifield says. “This whole mantra of, ‘If you build it, they’ll come,’ is a failed mantra for a lot of startups, one which leads to a lot of overbuilding or building the wrong thing.”

Making small bets and testing them to see how they appeal to consumers may not be as satisfying as signing a deal on a huge new production facility, but if a company incrementally proves market demand, there’s usually less work finding investors and less spending on the marketing side. “What’s dangerous is saying, ‘We need the money to scale up because we think this is going to be really big, even though we have no proof yet,’” said Merrifield.

These days it’s easier than ever to make small bets to bring a minimum viable product (MVP) to market. Many business functions that used to require hiring or capital investments can more be easily contracted out, or be provided on-demand, like online subscription-based invoicing or inventory-management services.

Try 'the laziness principal'

When Club Penguin started out, the company built many of its customer support tools from scratch. “We probably wouldn’t do that today,” said Merrifield. “Only build what you absolutely have to.” He suggests adopting “the laziness principal,” where entrepreneurs resist the temptation to do everything themselves and instead farm out tasks they don’t enjoy or aren’t good at.

Soft skills are more important than resumé skills

“Hiring the wrong people, you can kill a company’s culture overnight and it can take years to regain that ground,” said Merrifield.

During periods of rapid growth, the biggest challenge can be maintaining the culture and the values that make the company special. When hiring large numbers of people for roles that may be evolving, soft skills and attitude are often more important than the skills listed on a resumé.

For example, online shoe company Zappos — bought by Amazon in 2009 — prioritizes a job candidate’s kindness and sociability. After training, Zappos recruits are offered $3,000 USD to leave the company — a test of their passion and commitment.

Leaders can be a company’s biggest obstacle

When growth is market-driven, the leadership’s main task is spotting and removing obstacles. What policies, processes, people and suppliers are slowing down growth? In some cases, the founders themselves can be an obstacle. “I see so many leaders who, out of ego or pride or maybe subconsciously, hire people who are adequate, people they can train to do it the way they did it, when the reality is that there are other people who can do it faster, better and more efficiently,” said Merrifield. “I’ve seen some amazing small businesses get hamstrung because the limiting factor is the very person who created the business in the first place.”

The trickiest part for most entrepreneurs is balancing the time they spend running the existing business with their scale-up efforts. “You have to be able to step back to see the forest for the trees, but you can’t step too far back or you’ll lose sight of what you’re building.”

Paul Gallant is a Toronto-based journalist and editor who writes about Canadian small- and medium-sized enterprises, international business, urban development, travel, technology and social change. His work has appeared in The Globe and Mail, the Toronto Star, Canadian Business, The Walrus and many other publications. He is executive editor at BOLD, an international travel magazine for Canadians.