Planning On Capacity And Growth In An Uncertain World

In an interconnected world, the possibility of local disruption is magnified when events halfway around the world pop up. Supply chain disruptions, foreign wars, and disease that travels by plane or boat—our most prosperous time as a species also feels the most fragile.

Ukraine might fade like most news stories over a long drawn out aggressor-resistance model. Or it could escalate and spread in moments. Like I saw someone say on Twitter the other day, "I'm going to turn the news off and find some serial killer series that I can watch and relax."

In that environment, how do you go about planning for growth, which nearly always involves hiring? Especially when those hires are more difficult to find and more expensive to pay? And when you're not sure where the world at large is headed?

On a side note, one of the most frequent questions I get during the Q/A session after a keynote is this: "How big should I grow?" I then warn the audience that I'll answer the question, but the answer is going to have a flippant feel to it, even though I'm really serious when I say it. The answer: "never grow so that your capacity equals your opportunity." The idea is that you need to maintain that negative gap between your opportunity and your capacity so that it doesn't require more courage than you have to turn down a project/client that's not a great fit. If you have to accept all the opportunity that comes your way in order to stay busy, you are no longer in control of your firm. More on that here.

But back to the subject at hand. As we noted on a recent episode of the podcast, hiring an employee is essentially agreeing to prepay them for their 1,890 hours in hopes that you can resell that inventory to someone else with a significant markup (even if you aren't charging on an hourly basis, you're still selling their capacity in some form). If the quality of their hours isn't good, you find another supplier, just like a drug dealer would. But the uncertainty of the world around you plays games in your head. Watch The Wire or Ozark or Gomorrah and the plot lines center around the tension between supply and demand. Those are the same tensions you face, but it's people instead of drugs.

The illustration above pictures the familiar trope of "seats on the bus". I really dislike that metaphor for all kinds of reasons, but it'll do in this case because everyone knows what it means.

With all this in mind, here are a few points I'd like to make about this dance you're in right now: the present may not be clear enough to plan for the future.

  1. In an ideal world, you'd have staggered 3-year contracts with all 8 of your clients and be a big enough firm that there aren't many "Single Points of Failure" in that everyone would have a backup. And every employee was on an auto-renewing employment agreement that has set raises so that you didn't have to be constantly negotiating, requiring 4 months of notice before a departure. I'm getting giddy thinking about that, but none of it is happening in the real world.
  2. Established law frowns on forced employment, so you've got to deal with that tension in other ways, but you can certainly take a fresh look at how your client contracts are structured. That's another article, so I'll just leave it at that.
  3. The demand for your Second Room implementation work is more likely to gyrate wildly than your strategy and research and advisory work, which scales better without having to expand your workforce. (It's easier to raise prices there to tame demand and you can also productize those services.)
  4. What clients notice more than anything, anyway, are three things: your account management, your project management, and your strategy. They aren't usually prepared to judge the quality of the rest.
  5. Putting #3 and #4 together, you should aim for a more stable core team of the AM, PM, and strategy people...and have an elastic capacity around the "doing" part of things: coders, writers, designers, SEO practitioners, etc.

If you are a typical firm, you've been building a stable team for the Room One and the Room Two stuff, and that's fine. You have a little less flexibility, but you have way more control. The primary advantage of an elastic Room Two is that it's less of an emotional burden to quit using a contractor than to dismiss an employee. Well, there is one other advantage, assuming your contractors provide a fixed bid rather than charge you hourly: they are each carrying the risk of underpricing.

This kind of advice is going to hit you hard and many (most?) of you will sneer at it. "I didn't start this firm to hire a bunch of PMs and AMs and researchers. I went to school for design (or coding or marketing or whatever)."

Fine. I get it. But you're starting to sound like the fellow who loved riding bikes on the weekends with his neighborhood friends and then decides to open a bike shop...which has to be open on Saturdays...and now he can't ride with his buddies. Opening a bike shop isn't about bikes: it's about customer service people and logistics and money, and the product he happens to be selling is bikes.

That's you, except you aren't (yet) selling bikes, and the sooner you embrace it, the sooner it'll be easier to make logical decisions about your firm, including your staffing.

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