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 (4%) have surpassed a million in revenue. Only 112,000 (0.4%) have gotten past $10 million. And only 17000 (.06%) 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 you here won’t get you there”.
The structures, systems and processes 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. Structures, systems, processes 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.
Some examples of structure and systems changes needed at different stages include*:
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 have until now.
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 if its strength in the market is compromised as a result.
Some companies grow despite not making the changes needed for the next stage. With dramatic demand growth, or sheer grit, they’ll grow. However, these companies often become more and more inefficient with the increasing complexity and resulting disorder. 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 systems to grow and grow profitability. And so growth will stall. And one can count on drama, stress and headaches being the overarching theme for the leaders in this scenario.
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 examples of 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 team members in mid-size companies are working in silos and at cross purposes. They are also often 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 structures, systems and processes 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 CEO's crucial underlying challenge to profitable growth is therefore to build, maintain and continuously improve a great top team (management team, leadership team, executive team) that is highly capable, aligned, leading and executing effectively and efficiently, and therefore minimizing silos and strengthening execution between and across departments. Essentially working as one unit to move the company forward. Because it's too much for the owner CEO to do it alone, or at least effectively and sanely. More about that in my next article.
What structures, systems and processes do you need to work on?
To find out what structures, systems and processes you and your leadership team could improve or implement to grow more easily, quickly and profitability, try our complimentary Agile Growth Checklist. This self-service questionnaire takes 5 to 10 minutes to complete. You'll receive the checklist with your responses immediately. Within 24 hours, you'll receive a compiled report highlighting how your company is doing in each of the 7 areas needed to produce more rapid, profitable and sustainable growth - including what areas to improve. This report is complimentary and involves no obligation.
*These examples of structures, systems and processes are drawn my own experience over my last 16 years coaching, facilitating and advising, and from the 7 Stages of Growth research: a 6-year study of entrepreneurial companies in the Front Range and Silicon Valley including interviews with over 700 CEOs to understand and decipher the patterns, the behaviors and the characteristics of growth in entrepreneurial enterprises. This research was led by James Fischer, Founder of Origin Institute, a research and consulting company out of Boulder, CO.