How will you avoid hitting the growth wall?
Hitting the Growth Wall and Stalling
According to Michael Porter, “The desire to grow has perhaps the most perverse effect on strategy.” Factors that drive initial successes are seldom enough to sustain a venture as it begins to accelerate through the growth stage. The external demands and opportunities change constantly, the venture’s value chain and internal capabilities must adapt, and the venture’s growth and evolution will ultimately necessitate a shift to professional management. Simply put by Jack Stack in his book The Great Game of Business, “The more successful you are, the bigger the challenges you have to deal with.”
When faced all at once, these challenges will suddenly appear as an impenetrable wall. Thus “hitting the growth wall” is a phase in a venture’s life cycle where operations reach out-of-control proportions: Cash runs out, top line revenues flatten out, and key employees leave for more stable jobs. The only way to avoid the growth wall is by being prepared to lead and manage growth with effective strategies grounded in sound management skills and controls.
What Is the Source of the Stall?
Why is growth so hard? Why do so many ventures fail to escape their initial entrepreneurial stage? Reasons include inadequate growth capital, exceeding the entrepreneur’s personal span of control, the lack of developing bureaucratic practices, and the loss of entrepreneurial spirit. Ventures also develop poor management practices that can stall successful long-term growth. Some of the popular ones are profiled here.
What Management Practices Stall Emerging Growth Ventures?
1. Treadmill Mentality
A poor management practice where the venture team is working harder than ever. Because they are not moving forward, they then believe that they to have work even harder.
2. Management by Insanity
The venture team is doing things the same as they have always been done, but expecting different results.
3. Rear-View Mirror Management
The team knows where it has been but has no firm idea where it is going.
4. Management by ESP
A practice when the CEO says the business plan “is in my head” and the team is expected to be “mind-readers.”
5. Midas-Touch Management
The CEO and/or executive egos are in the way. With so much politics, the venture team is focused on keeping internal superiority. They lose touch with customers, competition, and what is actually going on in the environment.
Breaking Through the Growth Wall: Be More Innovative
Sometimes ventures just need a clean restart. Alan Patricoff learned this lesson from the Perfect Storm, “You don’t have to build a $100 million company in a year. Some companies aren’t meant to be built that fast. They get ahead of themselves.” And many ventures just do not have the right DNA to support growth. According to Amar Bhide, “My analysis suggests that most new businesses aren’t just large businesses in miniature and that their trajectories do not point to noteworthy size and longevity.”
Only exceptional entrepreneurs have the capacity and the will to make changes that enable them to break through the growth wall. The passage from a fledgling venture to a large corporation requires entrepreneurs to develop new skills and to perform new roles.
Breaking through the Growth Wall basics include:
– creating a growth task force
– planning and staffing for growth
– working on maintaining a growth culture
– learning from all mistakes
– using the advisory board and board of directors for insight and advice
Innovation is the driver that breaks through the wall. Frederick Smith, founder of FedEx, believes that “the first step in trying to perpetuate innovation in an organization is to develop a common set of goals or a common philosophy so that everybody understands what you are trying to do. That way there should be a lot of mental concentration focused on just a few things.”
For example, in its first year of release in 1996, Starbucks sold $52 million, or 7 percent of its total annual sales, of their Frappuccino drinks. BusinessWeek named it one of the best products of the year. Howard Schultz, founder and CEO of Starbucks, remarked, “If we had been a typical leaden corporation, Frappuccino would never have emerged as it did. Its story epitomizes the enterprising spirit we still have at Starbucks, an innovative edge that keeps our customers coming back and our competitors grousing.”
Influential business thinkers like Katherine Catlin and Jana Matthews agree with the above. In their book Building the Awesome Organization, they discuss key characteristics that leaders must have in order to drive innovation throughout their organization, making extraordinary ventures out of ordinary ones.
– What they found is that leaders spend time thinking because they believe in the process.
– They are visionary and they listen to their customers understand how to manage ideas.
– They are people-centered and maintain a culture of change.
– They maximize team synergy, balance, and focus.
– They hold themselves and others accountable for extremely high standards of performance.
– They do not take no for an answer.
– And finally, they love what they do and have fun doing it.
Forge Tomorrow’s Leaders Today
According to David Packard, “I have always felt that the most successful companies have a practice of promoting from within.” At Dell Computer they say that they “hire ahead of the game.” As Michael Dell says, “It’s not enough to hire to fill a job. It’s not even enough to hire on the basis of one’s talents. You have to hire based upon a candidate’s potential to grow and develop.” But how do you focus and “unlock the organization’s human asset potential” and grow your own leadership?
We found that it is important to develop a strong bench that works together very early on. For example, Tom Siebel created what he calls the “Founders’ Circle,” which includes some seventy key employees who are not necessarily founders. This designation is the highest honor at Siebel Systems. These carefully selected individuals “can drop everything and get the job done.” By meeting on a regular basis to discuss corporate values and vision, they give Siebel Systems the benefit of an experienced management team that has been around for a while and knows how to get things done.