“My company has great growth potential, but I am so stuck in the damn dailies, I can’t find time to work on my business.  And my team, they just don’t seem to be pulling in the same direction.  I have a clear vision of our future, but they are just not executing.” sighed the 55-years old CEO of this mid-market manufacturing company. He started his company 15 years and successfully grew it – but over the past few years, growth had stalled. His efforts to re-boot his growth engine have failed as well. In short, he felt stuck. How could he un-stuck himself?

His plan was simple: grow the company and then sell it in 5 years. For him, the next step seemed obvious: he needed to hire a new salesperson.

“What happened to the last sales guy?” I asked naively.

“He left! I can’t find someone who will stick with us long enough to have an impact. The same happened to the sales guy before him. I don’t understand this new generation; they have no loyalty.”

Like many other CEOs he identified and focused on symptoms, rather than on the root cause of his company’s issues. His company had outgrown his management approach.

Complexity increases faster than size.

As your company grows, it adds more employees and therefore more complexity. When you started in your garage people management and internal communication was very efficient: your leadership team (of one) was perfectly aligned on strategy priorities, communication was seamless from strategy to execution, and customer feedback went straight from the sales team (i.e. you) to the product development team (you as well). Then you hired a couple of people, and complexity increased: you needed to divvy up work, make decisions together, follow up on other people’s work,… Complexity increased much faster than your team size: When your team went from 3 to 4 people (+33% increase in team size) your complexity doubled!

The larger the team size, the more complex its management. Managing complexity is a challenge – but the biggest challenge is to regularly adjust your management approach to increasing complexity.

The real challenge: Adjust your management approach as you grow.

As your company grows, it goes through several growth stages. Each stage requires a different management approach: you don’t manage a 5-person company like a 50- or a 500-person company. Without continuous adjustments to your management approach as your company grows, growth pain points appear: sales growth slows down, employee engagement often wanes, profitability declines, customer complaints increase, things seem to take longer to complete, problems you thought you had solved earlier start creeping up again – and you as the owner are constantly fighting fires.

Unfortunately, as you grow and enter a new growth stage, there is no stop sign that tells you: “Stop! You need to adjust your management systems.”  The reality is obviously much more painful: the growing pains creep up on you one at a time.  Like you always do, you solve the problems as they arise.  The water just gets hotter and hotter by degrees, you may not notice until it boils.  This is not your fault or your team’s fault: it is simply a consequence of increased team size and complexity.

You may be able to muscle through the pain but taking the time to address the root cause may allow you to grow faster with less pain. 

The rule of thumb is that “every time you triple in size, you need to rethink how you do things,” says Phil Libin, the former CEO of Evernote. When you don’t adjust your management approach and rethink how you do things as you grow, you get stuck.

A different management approach for each growth stage

 

Start-up

Grow-up

Scale-up

Wise-up

# employees

1 – 10

10 – 25

50 – 100

100+

Main priorities

–  Generate revenue.

–  Unleash the founder’s energy and creativity to create and validate the business.

–  Generate enough cash to fuel growth.

–  Hire experts to complement founder’s weaknesses.

–  Increase operations efficiency.

–  Invest in infrastructure.

–  Hire leadership team.

–  Build an efficient innovation factory.

–  Expand sales.

–  Increase operations efficiency.

Management approach

–  Centralized decision-making.

–  Garage-size team without much formal structure: everybody does everything

–  Informal communication channels.

–  Loose job descriptions.

–  Centralized decision-making; decentralized execution.

–  Formal teams with managers.

–  Accountability system in place.

–  Some standardized processes.

–  Formal communication channels and job descriptions.

–  Formal leadership team who lead middle managers who lead teams.

–  More decentralized decision-making.

–  The founder delegates functions in which they are strong.

–  Decentralized decision-making.

–  Formal leadership team with experienced leaders.

–  Professional infrastructure.

CEO’s role

–  Wear multiple hats.

–  “I am the business.”

–  Start delegating to managers and accept other people’s mistakes.

–  Do less; define directions.

–  Becomes a coach and teacher.

–  Accepts that others make important decisions.

–  Strategic innovator.

–  Change catalyst.

–  Culture builder around the founder’s initial vision and values.

–  Less involved in day-to-day operations.

Roadblocks as the company grows

–  Unstructured communication channels break down as the team grows.

–  Too many priorities; founder involved in too many details.

–  Inability to delegate.

–  Lack of accountability.

–  Lack of initiatives from employees, because of the rigid structure.

–  Poor execution of the strategy.

–  Talent issues; some people are in the wrong seat.

–  The founder can feel ostracized, as they are far away from customers and front-line employees.

–  Lack of leadership alignment on the strategy.

–  Poor execution / red tape.

–  Talent issues.

The roadblocks that get in the way of your growth

In his book “Scaling Up” Verne Harnish identifies three main growth roadblocks for mid-market companies:

  • Leadership: the inability to staff/grow enough leaders throughout the organization who have the capabilities” to learn to:
    • Delegate and hold people accountable: Establishing a clear system to hold everyone in the company accountable, that includes clear priorities, key metrics, and an efficient meeting rhythm, is key to a successful growth. Letting go and trusting others to do things well is extremely challenging, especially in areas where the founder is strong (e.g. sales or product development). As Harnish mentions: “To get to 10 employees, founders must delegate activities in which they are weak. To get to 50 employees, they have to delegate functions in which they are strong! In many cases the strengths of the top leader become the weakness of the organization” if they don’t delegate, because they tend to view the world through their own function-focused lens. And when they delegate owners often “confuse delegation with abdication” as Harnish puts it: “Abdication is blindly handing over a task to someone” with no formal system in place to hold them accountable – which mechanically fails.
    • Understand the market: As your company grows, so does the distance between you and your customers. Here again putting in place the proper feedback mechanisms and decision-making processes is essential as your company grows.
    • Enforce consistency: as the company grows, communication clarity and perfect alignment on company values and vision play a crucial role to assure everyone moves in the same direction.
  • Scalable infrastructure: As your company grows, it needs different systems (e.g. accounting, phone, IT), different organization structures, and different levels of standardized processes to handle the extra complexities.
  • Marketing: Scale up an effective marketing function to “both attract new relationships (e.g. customers, talents) to the business an address the increased competitive pressures (and eroded margins) as you scale.”

When you identify and remove growth roadblocks as you enter a new growth stage, your company gets back on track to profitable growth. The problem is to acknowledge and embrace that you are dealing with a growth pain, and not with a day-to-day issue – yet the symptoms look very similar. The key is also to recognize that there is no “perfect” leadership style or infrastructure: each growth stage is associated with different requirements.

Conclusions

As Machiavelli stated: “Whoever desires constant success must change his conduct with the times.” In a weird turn of events our past success gets in the way of our future growth. As Marshall Goldsmith points out by the title of his book, “What got you here won’t get you there.

And yet there is a better way to do things, which requires you, as the owner or CEO, to adjust the way your company is operating. The most difficult part of this journey is often for you to realize that, if you want to adjust your management approach, you need to change how you operate yourself.

As a business coach, I work with founders of mid-market companies who are frustrated because their business is not growing the way they want; my passion is to help them identify and remove the growth roadblocks they have been hitting and help them adjust their management approach, so they can grow faster and with less pain. Often the root cause for their roadblocks is that they haven’t adjusted the way they operate as their company grew. As a result, growth slows down and things start to break down. I would like to help you identify your growth roadblocks; contact me to discuss at Xavier@AmbroseGrowth.com.

What about you? Do you feel stuck in your growth? What are the consequences for you and your company? What are you doing to unlock your growth potential?