Why does business growth plateau? – The pain of the adolescent business

Leading a fast growing company, especially one you started yourself, is exciting and very challenging. It can be great fun and immensely frustrating too. At MD2MD meetings we see these challenges first-hand. We discuss the dilemmas of scaling our enterprises, and we engage in real world problem-solving across sectors and industries. Whilst there are nuances to every situation, there is a common root cause – the exponential growth of complexity – and the understandable reluctance of the typical start-up entrepreneur to do what’s necessary to avoid it.

Start-up – “From conception to the toddler’s first steps” – Simple autocracy

Most businesses start when one person has a product or service idea. A solution for the problems of others. A solution so good the customer is prepared to part with their precious cash in exchange for it. Whilst the solution itself is critical, often the key driver of success is the sheer passion, drive, and pace of the entrepreneurial start-up leader focused on the success of their business. They overcome obstacles with unbreakable determination. They have a belief in what they offer, and will make it succeed. Analysis, processes, systems, and structures will not slow them down and naysayers will not get in their way.
Entrepreneurial start-up leaders typically control everything themselves. For good reason. They want the customer to be satisfied and will move heaven and earth to ensure this happens. They make all the key decisions and as cash is usually tight, they delegate very little.
This relentless drive to solve customer problems, control everything especially cash, and to deliver revenue growth is why a good start-up grows fast. These characteristics are a key determinant of initial success. So far, so good.

 

Growing small business – “From toddler to adolescent” – Exponential growth and success then complexity

All goes well – for a while but then the business begins to plateau. Growth may slow, level off and even decline. The business may start to fail, despite the continuing entrepreneurial drive to succeed.

Why?

In simple terms, the challenge is that as you scale a business, you bring new actors into the equation: staff, customers, partners, suppliers, and perhaps investor stakeholders. Whilst most recognise that the need to coordinate increases, few realise quite how dramatically. The communication challenge grows almost exponentially – far faster than revenues, profits and cash. Let’s explain why.

At the start, communication was simple. You did things yourself. No communication necessary. Just do it! Soon you employed a few people and told them what to do. Just you do it! Generally manageable, but consider how much the communication need then grows. With four people, you have six different communication channels between them. With five people, you have ten communication channels. And then it starts to get really interesting … especially when the boss doesn’t like the overhead of meetings and managers. “We don’t need them. I just need people to do as they are told.” And the heroic entrepreneurial boss just tells them. And that’s where it all starts to go wrong.

The very success of the business means there is now a lot going on. The boss doesn’t have time to do a lot of communication. After all if 20 staff members take 15 mins a day each that’s half of the 10 hours the entrepreneur works that day. And typically the entrepreneur is too busy taking opportunities with customers, suppliers and others to do that much internal communication anyway.

So in reality what happens is that your team try to help by speaking directly to each other. A good idea … except … continuing the calculations above, without a structure, there are 190 different communication channels between 20 people. So if everybody spends just ten minutes a week communicating with each colleague, there is no time left to do any work!

At that scale a simple single boss structure simply isn’t going to work. Although many try – heroically! The sheer amount of communication and shared knowledge needed means it cannot rest on one person to drive everything.

The adolescent business – “Teenage tantrums” – The magic stops working

Symptoms of this stage are frustration and stress for the entrepreneurial leader as the very behaviours that made them successful in the startup phase create problems in the larger business. With growth it starts to become impossible for one person to make all the key decisions and control everything.

And if they are smart enough to realise the challenge, being a decisive entrepreneur they try to fix the problem quickly and simply. Two ‘solutions’ are often tried at this stage.  The heroic recruit and the clear control system.

The heroic recruit

The entrepreneur invests heavily in recruiting the ‘big hitter’ that will sort it all.  Often someone with experience at senior level in a major corporate who knows how to sell big ticket or run scaled up operations. And understandable action and sometimes with the right recruit it can work.  Sadly to often the entrepreneur is dazzled by the apparently heavyweight experience and appoints someone who has a great track record in operating within a scaled up system but who is not the person that put that system in place. In extremis the salesperson that has won multi-million pound contracts for the corporate, but who has always done so whilst being pointed in the right direction.  They have never considered corporate positioning and branding, never considered the best markets and the right products and pricing structures.  Or channel structures or incentive schemes. And sometimes have never started with a blank sheet and developed the pitch pack, the bid document  or the incentive scheme themself.

The control system

An alternative that often emerges is the entrepreneur trying to enable a team of less skilled, less experienced and less knowledgeable people to replicate their success in their way. Here’s what you do.  Just do this.  Let me write it down. Here’s a procedure manual!  Oh it didn’t cover that situation.  OK I’ll add that to the manual.  Oh and another.  And another.  It’s getting big now.  What do you mean you didn’t understand, or maybe didn’t read the instructions on page 1532?

Sadly despite their best endeavours both approaches usually fail. Symptoms are a succession of senior recruitments failing, usually reported as “I just can’t find anyone good enough” or a business mired in bureaucracy where ironically no-one other than the original entrepreneur feels able to do anything the slightest bit entrepreneurial.

 

The successfully scaling business – “From adolescent to adult” - Clear, consistent and inspiring leadership

Trying to manage everything without processes becomes chaotic, ad-hoc, and unreliable. Communication without structure quickly becomes confused and complex. Rules can’t cover every situation and the best team members value autonomy. To scale your business, you need structures, systems, and processes. But not too many too quickly. Mainly you need great people. Typically a blend of identifying and developing great talent from within and combing that with pragmatic recruitment of outsiders who can add experience (and learning) from elsewhere.  Most critically you need them willingly and enthusiastically working together to achieve a shared goal. In other words you need to build those people with potential into a powerful team motivated to achieve a shared coherent and consistent vision. In short you need to become a great leader.

MD2MD

The core purpose of MD2MD is to enable and encourage business leaders to develop their leadership through inspiring practical discussions with others like them on the same journey.  If you are a business leader with tens or hundreds of staff to lead , and enthusiastic to be the best leader you can be, then why not consider MD2MD?  We are enthusiastic to help leaders like you informally as well as formally through our meetings, so please get in touch.

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Bob Bradley

Bob is a specialist in running high value added service businesses, having run five such businesses as General Manager, Managing Director or Chief Executive. His last employed role was as Chief Executive of a £16M, 200 person family owned business having previously been Chief Executive of an AIM listed company for which he raised £5M funding and which he grew from £4M to £12M in three years through two acquisitions and organic growth, and a corporate PLC subsidiary where he was Managing Director responsible for delivering £10M profit on £45M turnover through 450 staff.

Bob is now following a portfolio career providing entrepreneurial business leaders with mentoring and coaching around business leadership, business growth, merger integration and exit planning.

Core to his portfolio is MD2MD. Having experienced for himself the value of having a strong sounding board of fellow Managing Directors he founded MD2MD in 2004 to provide groups of business leaders with a confidential environment within which they can support and challenge each other t

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