Is your company ready for your growth strategy?
Building Organizational Change Capabilities
It takes little time to destroy a high growth-potential venture. One turn-around expert says, “Ninety-five percent of the failures are due to internal problems. I can’t tell you how many companies I’ve been to that have the fast-growing-company plaque on the wall and are about to go under. They don’t have the systems and the people in place. Accounting is lagging. Purchasing is not done in the most efficient manner. Inventory gets out of control. All of a sudden, all these mistakes compound, and the least little burp kills them.”
Michael Dell discovered this, “As success followed on success, it was hard to imagine that growth would at some point become our greatest vulnerability. We didn’t understand that with every new growth opportunity came a commensurate level of risk—a lesson we learned the hard way.”
Entrepreneurs make one of three approaches to the launching pad.
The first we classify as unconscious incompetence. These entrepreneurs do not know what they do not know. Because they lack the skills and resources, they proceed on guesses and “friendly advice.” Most often they self-detonate on the launch pad.
The second approach is conscious incompetence. These entrepreneurs know that they do not have the best-engineered rockets, but have great confidence in their guidance system. Once poor choices in early-stage decision making begin to come to light, they are confident that they can make in-flight adjustments.
The third approach is one of conscious competence—having an internally prepared culture. These entrepreneurs know the risks and uncertainty of rocket launches. They know that everything comes down to people. They know that the only way to be successful, particularly in a rapidly growing and rapidly changing market, is to hire the “A” people and point them in the right direction.
Flexible Organizational Structure
Transitioning the operational model on a fast-growth venture is like changing the tires on a racecar going 100 miles per hour. Kathleen M. Eisenhardt, professor of strategy at Stanford University, advises entrepreneurs that they should stay flexible. She says speed comes to those organizations that are formed as loosely as possible without coming apart.
One year after Hewlett-Packard was formed in 1947 it had 111 employees and sales of $679,000. Over the next ten years the start-up grew to 1,778 employees and $30 million in sales. By the time co-founder David Packard retired from HP in 1993, it had 96,200 employees and $20.3 billion in sales. In his book The HP Way: How Bill Hewlett and I Built Our Company, Packard made some interesting points related to fast-growth organizations. First, in rapidly growing ventures organizational changes occur quite frequently. Second, organizational structure, once created, should be flexible and responsive to the developing needs of the organization and changes in the marketplace. And third, HP’s organizational structure was based on “creating an environment that fostered individual motivation, initiative, and creativity, and that gave a wide latitude of freedom in working toward common goals and objectives.”
Build from Day One for CEO Succession
Very rarely does the original founder who had the Eureka moment make it all the way through to the point of maturity. According to Scott Gordon, a managing director for Spencer Stuart, an executive search firm that places CEOs who displace founders, “Many of the qualities that you need to be an entrepreneur—passion, charisma, self-confidence—can make it hard to subordinate yourself to the CEO of your own company. Many companies have been destroyed because the founder pays lip service to being just a member of the team but never gives up the reins.”
Omidyar at eBay had planned for his succession: “It was in our heads from the start to try and bring in a world-class CEO to grow this thing as big as it could possibly get.” Meg Whitman, who joined eBay in 1998 after leaving Hasbro Toys, is arguably the best CEO ever recruited to an early stage venture. During her tenure at eBay revenues grew from $47 million in 1998 to $749 million in 2001, and the number of employees grew from fifty to over 3,000. When the online community only had some 300,000 users, she brought in disciplined management. She worked as a seasoned general manager whose mission was to ensure that an emerging venture with promising technology could “master all the classic challenges of strategy, marketing, and finance that are necessary to succeed at a higher level.”
By 2001 eBay was number one on Deloitte & Touche’s Fast 500. In the five years prior, they had grown 115,874 percent, from $372,000 in sales in 1996 to $431 million. Founders who made millions from exiting their ventures in a transition have told us it was a matter of weighing self-worth against net worth. Omidyar would probably agree. Recall from a previous Article that he was on Fortune’s list of “Richest Under 40” for 2002, with a net worth of $3.82 billion.