This startup founder learned the hard way that the easiest solution is the best one
Business leaders tell us where their companies almost went wrong while growing, and how they fixed it.
Expanding the operations of your business to multiple cities can place a significant burden on your team -- and bank account. This is the challenge Michael Alexis faced when his company, Team Building, first ventured out of its home of New York to cities across the country.
In this interview with Inverse, he details what went wrong when his company scaled up, and how the issue got fixed in the Q&A (edited for length and clarity) below.
Tell us what your company does.
We run team building activities in more than 16 U.S. cities, including New York City, San Francisco, Chicago and Los Angeles. Team building is an investment that organizations make in their staff, with a goal of improving communication and collaboration between employees, productivity, retention and other important factors. Our team building activities include guacamole making competitions, scavenger hunts, museum tours and more.
At what point did you scale up, and what did that growth look like?
Our first operating location was New York City. Our team was very small, with onsite facilitators supported by a few contractors that did tasks like admin, marketing and sales. Once we had some reliable processes and could justify more admin and marketing spend, around the $100,000 revenue mark, we started to expand to additional cities. We launched Washington D.C. first, because of its proximity to NYC. Next was San Francisco, Chicago and Los Angeles. We selected these cities based on market potential; there are large companies that invest in team building activities for their staff. Once we had this foundation of five cities, we hired additional full-time staff, invested more in marketing and were able to quickly launch the other 11+ cities we now operate in.
What went wrong when you scaled up?
The greatest challenge in scaling was making sure we had sufficient work available to employees in each city. Essentially we have a localized “chicken and egg problem." With each launch, we needed staff available to run the events, and also enough events to justify the hire. When many companies scale, they can grow by leveraging existing relationships. For example, selling more to the clients they already have. In our case, the chicken-egg scenario was only marginally helped by our contacts and business relationships in other cities; it was just different markets with different decision makers.
How bad did things get?
Our first expansion was expensive, but relatively smooth. As we tried to launch more cities at a faster pace, we had trouble retaining staff. We would invest at least dozens of hours and thousands of dollars in finding and training local facilitators. With those team members in place, we would start marketing and generating leads for our sales team. This process could easily have a lag on actually running those team building activities for weeks or even months.
During this time, our local facilitators would look for other work or otherwise become unavailable to us, and we would need to invest in the hiring process again. This challenge and expense was compounded because we needed multiple-facilitators trained-up in each city to make sure someone would be available at a client's desired time for their event. Overall, our growth was slow, expensive and frustrating.
How did you fix the issue?
One way we overcame this problem is by using a hub and spoke approach to labor. For example, our team members in Austin are able to serve Dallas, Houston and San Antonio as well. Similarly, our Los Angeles team regularly travels to San Francisco and Seattle for corporate events in those cities. This arrangement means that employees in our hub cities get more work, while we can offer our team building activities in many more cities than otherwise possible.
Another strategy that has been successful is soft launching cities. Previously, we believed we needed to have a local team in place before we started marketing; just in case a client wanted to book an event immediately or within a few days. Now, we do marketing work first to generate interest and then when we have a list of potential clients we start selling the events. This method is successful in making sure we have enough work for facilitators from the start.
Where did you get the idea for the fix?
The strategy evolved organically from business opportunities that came to us. For example, we would have a potential client in Boston when we didn't already have operations there. We wanted the revenue to help fuel our growth, so we would fly in team members from NYC or Washington D.C. As these opportunities came more frequently, we started to streamline the process for checking staff availability, booking flights and other travel arrangements. With those processes in place we saw an opportunity to do it more consistently and profitably.
What do things look like now that you’ve corrected the problem?
Launching new cities is considerably more efficient and less expensive than it used to be. For example, we don't have the large upfront cost of hiring. This reduced expense means that we can scale more quickly.
However, there is one drawback of our strategy: we spend a lot more on travel. Buying flights for team members as often as we do is still a significant investment. The advantage is that we can spread these costs out over months and years, and the cost is always associated with a revenue generating activity (running events for clients).
What did you learn from this experience that other business leaders need to know?
One of my life lessons is "don't make it harder than it has to be." For example, if you want to lose weight then you don't need to bake quinoa and asparagus muffins with agave syrup -- it’s a much more direct route to drink more water, eat more veggies and reduce your sugar intake.
For us, we didn't need to do the hard thing -- hiring and investing in local staff. Instead, we found an easier way, which was running the events with staff we already have. I believe you could apply this principle in a wide variety of settings and especially with scaling.