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[Case study] “We really needed a methodology to run our company, otherwise we would implode.”

by Verne Harnish

    A few months ago Verne Harnish interviewed one of the first implementers of the Scaling Up Methodology. John Ratliff studied and implemented it in 2006 as CEO and founder of Appletree Answers — and saved the company from imploding. Watch the interview or read the transcript to learn how (not) to risk drowning in your own success.



    Verne: Hey everyone, I'm hanging out with John Ratliff at his home here in Delaware. John studied the Scaling Up Methodology and implemented it in 2006 as CEO of Appletree Answers. It's a call center business, which I consider as sweatshops of the information age, and I have to tell you, the results were pretty spectacular. We're here to talk about that in a second. But first, John, what were the reasons that you implemented Scaling Up in the first place?

    John: We were the classic case, right, we were a growth company. We were successful. We were adding customers, everything was great from the outside. But inside, we were a disaster. We were chaotic, sales hated operations, operations despised sales. They were to selling the wrong customers, and we couldn't service what they sold, and we had no system whatsoever to the business. It was a group of really dedicated people doing the best they could do every day with absolutely no playbook. And you can do that for a certain amount of time, and you can get to a certain size, but ultimately, those businesses implode, and we were desperate.

    We were literally drowning in our own success, and we really needed a methodology to run the company, and got lucky enough to meet you in 2006, and stumble onto Rockefeller Habits. And it took us a little while to get going with it, but by 2008, we were what I'll call a fully deployed Rockefeller Habits company, and it was that decision that actually gave us the ability to scale. I'm convinced that there's no way without Rockefeller Habits. We would not have made it based on how fast we were growing.

    Verne: What were the results of implementing Scaling Up at Appletree?

    John: We started to implement Scaling Up in 2006 and we really found our stride, I think, in 2008. But if you take 2006 to when we sold the company in 2012, we actually grew the company by 30x. So 3,000% growth in six years and...

    Verne: ...That's a lot of growth.

    John: Yeah, I'll say it over and over, there's no way we can grow like that without using the Scaling Up Methodology as the system to get everyone aligned around how to run the business. And then — as you talk about often — exits that far exceed your industry average multiples; we were about five times the industry average multiple on our exit. So, the success of Scaling Up not only helped us grow the company, but really helped us drive a very significant valuation on exit.

    Verne: And you guys took an industry average 4% to...?

    John: About 21% EBITDA, which in the call center space is relatively unheard of. Our gross margins were actually 61%, which is software  kind of margins, not people in intensive call center business modules.

    Verne: So, if you're increasing profitability 5x, and you get a 5x gain in terms of multiple, that's 25 in my book.

    John: Correct, I would agree with that. I would agree with that math. We had a great story. We had a great run, and it followed all the way through to the exit.

    Verne: John, in implementing Scaling Up inside Appletree, what were the most difficult things to implement?

    John: You know, it's interesting. So I first got exposed to Scaling Up in 2006. I went through your “Birthing of Giants” program that you created at MIT, and fell in love with the idea of a system to help run the company. And I did what all entrepreneurs do, I went away and go educated, and I came back to our company, and I tried to implement it on my own, and my executive team, super dedicated, really smart, loyal, but they all looked at me with kind of a dumbfounded look and said, “This isn't going to work here. It may work over there.” And then I did it again in 2007 when I saw you again, and I brought it back, and they all looked at me and said, “You're out of your mind, we can't do this.”

    And finally, I had them go through the course. I had them see the material. I had them see you live talk about Scaling Up Methodology, and what you called the Rockefeller Habits, and they looked at me about three hours into that first day of education and said, “Why haven't we been doing this? This is a great idea.” And I just sort of shook my head and said, “Well, I've been trying to sell this idea myself for years.”

    I think it was really important that they went through the course, and they learned the methodology from you. And they got to see it in an interactive way, and that really helped move the needle and get them to buy into the idea that a system is the only way you should ever run the company. You should have a methodology on how you work the company.

    Verne: And that wasn't just one of those three hours, that was our two-day intensive.

    John: It was. Yeah, down in Virginia, and I can tell you at the time, I could not afford to bring 15 executives to Virginia for a two-day intensive course, and I went ahead and did it anyway. And clearly by far the best investment we ever made. So, thank you.

    Verne: You were in the call center business — who would you recommend implement Scaling Up?

    John: I've literally now told this story hundreds of times to probably thousands of entrepreneurs — what's really amazing about the Scaling Up Methodology... it's kind of industry agnostic. It's really about growth companies, and you can define that as 10% a year, 20% a year, 100% a year, but the entrepreneur that really has a big vision for the future of his company and is having success, but feels like he's living or she's living in complete chaos. And they've got a lot of good people doing the best they can, but they're all sort of chasing their tail, and they're not on the same page, I think it's that entrepreneur, that growth company executive, that's really the candidate to dig in to the Scaling Up Methodology. And really just change the whole landscape of their business.

    Like this article or have a question about Scaling Up Methodology? Please comment below!

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    Verne Harnish

    Verne Harnish

    Verne Harnish is founder of the world-renowned Entrepreneurs' Organization (EO) and chaired for fifteen years EO's premiere CEO program, the "Birthing of Giants" and WEO's "Advanced Business" executive program both held at MIT.

    Founder and CEO of Gazelles, a global executive education and coaching company with over 150 coaching partners on six continents, Verne has spent the past three decades helping companies scale-up.

    The "Growth Guy" syndicated columnist, he's also the Venture columnist for FORTUNE magazine. He’s the author of Scaling Up (Rockefeller Habits 2.0); Mastering the Rockefeller Habits; and along with the editors of Fortune, authored "The Greatest Business Decisions of All Times", for which Jim Collins wrote the foreword.

    Verne also chairs FORTUNE Magazine's annual Leadership and Growth Summits and serves on several boards including chairman of The Riordan Clinic and the newly launched Geoversity.

    Nombrado por la revista FORTUNE Small Business como uno de los “Top 10 Minds in Small Business”, empresario, autor y columnista de la revista FORTUNE, Verne Harnish, es un consultor de gestión muy buscado, especializada en liderazgo, planificación estratégica y el crecimiento del negocio. Su libro, “Dominando los Hábitos de Rockefeller: qué debe hacer para acrecentar el valor de su empresa en rápido crecimiento” ha sido traducido al español, chino, japonés y coreano. Verne es también el fundador de EO, la Organización de Empresarios (http://www.eonetwork.org), y el CEO de Gazelles Inc.

     
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