Growth and the Good Old Days
This is the first of a two–part blog post on Surviving Growth, based on a workshop I’ll be presenting this month for the Denver Business Journal. Part 1 looks at the characteristics and challenges of four stages of growth. Part 2 will look at what successful owners do to meet those challenges and build resilience.
Boomers and classic car lovers might recognize the ‘57 Chevy Bel Air in the photo above. To me, it’s big, bold, solid, and loaded with memories of music, drive-in movies, and car rallies. Those were fun cars. They just don’t make them like that anymore.
Nor should they!
Rust in Peace: Survival Is Not a Given
Judging from those tail fins, car designers and buyers in the good old days clearly thought “More is Better.” Today the thinking is “Better is More” — better gas mileage, better reliability, and better emissions controls. Auto manufacturers who didn’t respond to definitions of “better” lost market share, or their brands didn’t survive. Plymouth, Mercury, Oldsmobile, Pontiac, Saab, Saturn, Hummer: Even big, deep-pocket companies can be derailed.
Are there any lessons here for entrepreneurs and small companies? Sure. One is that survival is tough. The Bureau of Labor Statistics shows the survival rate for small businesses (not startups) is around 60% for two years, 48% for five years, and only 33% for ten years. Family successions are tough, too. Only 30% successfully transfer to the second generation; only 10-15% to the third; and a mere 3-5% make it to a fourth generation.
Another study estimates that, in startups, failure to respond to challenges in the early stages of growth can impact the company down the line. In fact, this failure is the primary reason why 25% of recent startups do not reach their second birthday.
Surviving Growth and Growing Pains
There is a common myth that a company is primarily about growth; the faster and bigger the growth, the better. And doesn’t an owner’s happiness and sense of control come from growth and profits?
In reality, the State of the Small Business Owner Report in 2013 found almost no businesses where this premise was true. In reality, companies fail to grow if the owner feels out of control. “Money without control will not bring profits and happiness,” the report concludes.
Instead, a company goes through stages of growth with predictable growing pains, often about revenue and capital but equally about human and infrastructure issues. Entrepreneurs with the insight to recognize and deal with these growing pains can build a stronger company and move forward. Not enough do. Instead, they confuse building a business with building a company.
Understanding your stage in the lifecycle lets you confront the challenges already upon you and anticipate those on the way. Consider them growing pains (expected and even useful in development), and handle them in a timely and effective manner. But ignore these challenges, holding on to “the good old days” of startup, and they may grow deep and complex roots in your company and threaten your survival. “No one ever achieved creative success by simply clinging to what used to work,” wrote Ed Catmull, co-founder of Pixar, in his book Creativity.
Post startup, companies face four predictable developmental growth stages, which I characterize as:
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Infancy:
· Action is everything + Few systems, rules, policies · Inconsistent results + Undercapitalization · Founder acts as a one-man show + Burn-out rate high
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Pre-Adolescence:
· Organization = Scrum + Sales, sales, sales · All A priorities – NOW! + Top line focus vs. bottom line · Work organized around people, not tasks/functions · “If it ain’t broke….”
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Adolescence:
· Business model out of date including success measures · From More is Better to Better is More · Capitalization critical to scale · Rebellion and culture debates (old vs. new folks)
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Adulthood:
· Balance of strengths: o Disciplined operations & predictable performance with culture of commitment Disruptive Forces and Adaptation: o Threat of external disruptive forces AND threat of internal o Existential point on the arc of a business
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The fact is that each stage has strengths, some of which can also become the seeds of failure.
In reality, “When you have a month of 20% year-over-year growth, you are scrambling. It’s challenging to get away from the day-to-day tasks and activities and concentrate on the big picture and strategy for future growth,” said Andrew Field, President CEO of PrintingForLess.com.
And the truth is that because of insufficient capital in the early days, founders do not invest in infrastructure, people, and processes for scalability. “It is a balancing act, but one that cannot be ignored. This can haunt them when things are ready to take off. Planning ahead is key,” says Adrian Nazari, founder and CEO of CreditSesame.com.
The lessons:
- Successful entrepreneurs recognize the need for evolving their company; and
- They focus on financial and technical issues and also on human and organizational challenges.
Just dip into Zero to One or Chaos Monkeys or the 2016 Inc Magazine entrepreneurs survey, and you will see the same themes and advice about focusing on the hard and soft side of company growth.
Driving Growth Means Letting Go of Some of the Good Old Days
With that ’57 Chevy, you knew next year’s model would be different. And like car design, engineering, and manufacturing methods, your company’s processes, structure, and leadership focus must evolve in order to survive and grow.
You may have loved all that power and flexibility for what it enabled in those early stages. But that isn’t a sustainable model in the arc of a business. To drive your company’s growth and development, it’s critical to examine what to carry forward from those Good Old Days and what to leave behind.
In my next post, I’ll focus on founder approaches to managing growth and the specific business and organizational tasks that enable an owner to a) drive through the stages with fewer stops and detours and b) build a resilient company.
And if you are in the Denver area, consider driving over to the June 30 Denver Business Journal workshop, where we’ll explore these topics in more detail. Classic cars welcome!