By TCB & Associates
Entrepreneurs have an almost irrepressible desire to move directly from spotting an opportunity to exploiting it – or attempting to do so. To continue the travel analogy, this is rather like seeing a road sign to an interesting destination and immediately following it, without first checking that you have sufficient fuel to complete the journey or that perhaps even more appropriate and exciting destinations are not just beyond the horizon.
It’s no great surprise, therefore, to find that a large proportion of management time is spent putting right yesterday’s mistakes.
Phase 1: Growth through creativity
Any business starting up does so because someone (you!) has a good idea about providing a product or service for which they believe there is sound demand. If the idea is successful, then the business can grow or evolve with equal success. The founder of the company is at the heart of everything. Assuming the business has been successful and shows steady growth – a description which fits only between 60 and 70 of start-ups, the rest having already failed by this stage – there comes a time when the person who started the business with their creative ideas and personal, informal style of operation can no longer cope effectively. The person who provided all the drive, all the ideas and made all the decisions becomes overloaded with administrative detail and operational problems. Unless the founder can change the organizational structure of the firm and put in place a management team, any further growth will leave the business vulnerable – it will be incapable of becoming a substantial firm with a life independent from that of its founder. A cycle of one step forward and two steps back will probably begin, or else a gentle decline will set in. The end of this first growth stage, which can be anything from two to three years to a decade in extreme cases, is a signal to a crisis of leadership.
Phase 2: Growth through direction
A strong leader is required to pull the company through this crisis, a leader who is able to make tough decisions about priorities, and provide the clear, single-minded direction and sense of purpose needed to move the business forward.
Ideas the pioneer founder used to carry in his or her head now have to be formalised. Policies need to be evolved, teams built up and key people appointed with specific roles to play and objectives to achieve. The personal management style of the founder becomes secondary to making the business efficient. Sometimes, the founder is not the right person to lead the organisation through this phase, and either through lack of management skills or temperament, may opt to give up or sell out.
Success at this stage of growth depends on finding, motivating and keeping key staff – no mean task.
Phase 3: Growth through delegation
The solution to the crisis of autonomy is to recognise that more responsibility has to be delegated to more people in the company. The trouble is that most founders hang on to too many jobs in their firms, mostly out of the belief that nobody can do the job as well as them. The reasons for this argument are legion and include the often expressed: it takes more time to explain the job than to do it myself; a mistake would be too costly; they lack the experience; and so on. There is probably an element of truth in all of these reasons, but until you learn how to delegate decisions rather than simply dumping tasks, your organisation will never reach full capacity.
Two problems arise at this stage. First, a number of the managers you appointed earlier on will simply not be up to the task of accepting their new responsibilities – not all people who can take direction can take part in a bottom-up planning process that is dependent on high quality inputs. So this means that you are back to the recruiting game. You may be wise at this stage to stop relying on personal contacts or direct press advertisement, as the majority of small firms do, and go for executive search through a consultant using sound selection techniques. You probably thought this option too expensive at Phase 1 and possibly so at Phase 2, but by now you will have made enough mistakes in recruitment to know that it is a profession in its own right, and require knowledge and skills you may not have. Furthermore, the indirect costs of getting the wrong people more than outweigh the cost of paying for an expert.
One owner manager was a little startled, to say the least, when he discovered that doing the recruitment himself cost him over six times as much using an agency.
A second point to be aware is that every solution creates new problems. For example, delegating decisions to give people a strong sense of involvement will eventually lead to control problems – the crisis of control.
Finally, it is as well to remember that evolution and growth in business are not automatic. It is your job to know when the time for strategic change has come and exactly what that strategy should be.
But even with good management teams in place further problems can occur. Once managers you can delegate to are in place, they will make their own decisions as well as well as the ones you delegate to them. In time the organisation will become increasingly fragmented. This often becomes apparent in fairly dramatic ways, such as loss of profits, margin erosion, unplanned development and lack of an overall strategy that everyone can commit to. Another crisis looms – the crisis of control.
Phase 4: Growth through co-ordination
During this phase the crisis of control is overcome by achieving the best of both the delegation and the direction phases. Decision making (and power) is still delegated, but in a systematic and regulated way, with accountability becoming a byword for the first time. At this point, the organisation begins to put in place strategic planning of some sort, to combine bottom-up and top-down planning methods. Systems and policies are developed to regulate the behaviour of managers at all levels. Communication is vital and a corporate culture takes shape giving new employees a feel for the way things are done in the company.
This growth phase usually ends in the crisis of red tape, where the clutter of rules and regulations that bind the company together results in missed opportunities. Bureaucracy rules and development and initiatives are stifled. This crisis can be overcome, or even circumvented, by introducing innovative, non-bureaucratic planning procedures, or by sub-dividing the business into manageable units with their own separate missions and management. This is fine as long as you don’t return these units back to Phase 1 type growth in a desperate bid to release creativity.
Phase 5: Growth Through Collaboration
The way to circumvent red tape is to inculcate an attitude of collaboration throughout the organisation. This calls for mire simplified and integrated information systems, and an emphasis on team oriented activity. Many successful Japanese and European firms now organize their workforce into teams, where there used to be production lines. Volvo, for example, has a team responsible for making and assembling the whole of one car. This has the effect of making a group of people responsible for the whole of one major portion of a task, rather than having individuals responsible for small and sometimes rather meaningless parts of the process. In this way, people can be encouraged to generate solutions rather than just pass problems on down the line.
A further emphasis at this stage of growth is on management education and personal development. This activity is viewed as a luxury in a new venture, and as a good investment in a mature venture.
Most of your businesses will lie somewhere between the crisis of leadership and the fourth stage of growth. It will be useful to keep some points in mind as you steer a course through these troubled and largely uncharted waters.
Tempting enough it will be, don’t be impatient trying to skip phases. Each phase results in certain strengths and learning experiences that are essential for success in subsequent phases. When one owner manager was introduced to this way of looking at growth, the scales fell from his eyes. He had tried to delegate authority and involve his key managers in developing strategy almost from the time he launched the business. As a result there were not enough set of goals for them to aim for and they left one after another. The organisation nearly failed too. This was as a direct result of trying to move too quickly from Phase 1 to Phase 3, skipping Phase 2.