In the 9 years I’ve been an independent coach and advisor, I’ve seen many companies that grow to a certain point and, despite all their best efforts, can’t seem to grow beyond that.
I’ve also seen companies that do continue to grow but become less and less profitable, and more and more stressful for the owner or CEO.
Turns out this isn’t just my experience. It’s a very common pattern.
Growth isn’t common
Out of the roughly 28 million firms in the US, only about 1.1 million have surpassed a million in revenue. Only 112,000 have gotten past $10 million. And only 17000 have grown beyond $50 million.
The reason is that companies need to operate differently as they grow. Companies that don’t adapt how they operate will tend to grow to the limits of that way of operating.
Owners, presidents and CEOs who have had success getting to a certain point often tend to repeat what they know, thinking “well, it got us here.” But as the title of a book by coaching master Marshall Goldsmith goes, “what got us here won’t get us there”.
The systems to grow
The changes needed for a growing company are driven by the added complexity that comes with having more employees. Think simply of how going from 1 to 4 employees makes the number of relationships between individuals increase from 1 to 10. This complexity continues exponentially as the company grows from 10 to 25 to 50, 100, 200 employees or more.
To predictably achieve results within this growing complexity, a certain level of order is needed. Processes, systems and structures create that order in companies. And the systems needed to create order in the complexity of a 200 person organization are different than that of a 100, 50, 25 or 10 person organization.
Hitting the ceiling, valleys of death
Any company within one stage will usually hit a ceiling if they keep doing things the same way they always have.
Companies that don’t make the right changes, or aren’t successful in making those changes, will fall into what we call a “valley of death”.
Valleys of death are where the leadership makes big investments, but they don’t work out. So the company doesn’t move beyond that stage. It can also fall backward in terms of revenue and often profitability because of the failed investments. Worst case, it can lead to company failure.
Some companies grow despite not making the changes needed for the next stage. With sheer grit or dramatic demand growth, they’ll grow. However, these companies often become increasingly inefficient with the increasing complexity and resulting chaos. And so the company’s profitability will decrease, sometimes significantly.
Unless exceptionally well funded, with investors willing to accept short to mid term losses for a longer term windfall, the decreasing profitability and resulting cash flow challenges will eventually prevent the company from investing in the capacity to grow, and the systems to grow profitability. And so growth will stall. And one can count on drama, stress and headaches being the overarching theme for the leaders.
So what stops a company from making the right changes and improvements to grow successfully and profitably?
The leadership team is the linchpin
From these stages and key changes, we can see early in a company’s life - by about 25 employees - that an owner or CEO has to learn to get results from people through other managers. That means the changes and improvements they make will depend on the managers working with the owner or CEO… the leadership team.
And, very often, leadership teams in mid-size companies are working in silos and at cross purposes. They often are too focused on the day-to-day and the big projects to move the company forward often don’t get done or aren’t done right.
The result is the company doesn’t identify or successfully implement the right processes, systems and structures to handle the increasing complexity of a growing company.
An always-evolving leadership team
The challenge of having an effective leadership team continues through the life of the company. New leaders come and go. Markets evolve. Systems need to change. And therefore the capabilities of the leaders as well.
The crucial underlying challenge to profitable growth is to build a great top team (management team, leadership team, executive team) that is highly capable, aligned, leading and executing effectively and efficiently. Essentially working as one unit to move the company forward because the owner CEO can’t do it alone.
As leadership team growth coaches, we work with CEOs, presidents and owners and coach them and their leadership teams to grow great mid-size companies. We help build their capability in the key areas needed for scaling up and agile growth: Leadership, Talent, Strategy, Execution, Customer, Systems and Profit.
Are you ready to grow a great top team, company and life?
Try our complimentary Growth Fitness Self-Assessment to find out where you, your leadership team and company shine and where you could improve in order to grow, improve profitability, consistency and your quality of life.