Running a successful business is hard. According to a recent survey, 59% of small business owners believe that it’s actually harder to do business today than it was 5 years ago. That number seems small to me.
It’s no wonder. According the the 2011 SHIFT index, competitive intensity has doubled during the last 40 years and the rate at which (big) companies lost their leadership positions has more than doubled. Despite these harsh realities, most SMEs are still optimistic about the future. 72% of these same business owners expected to bring in more revenue in 2013 than 2012. They are checking to see if they were right, right about now.
A quick glance at the Inc 500 / 5000 reminds us that thousands of companies have experienced hypergrowth over the last three years. So what is their secret? Ah, if there was a perfect formula, we’d all be rich.
Like most things worth pursuing in life, running a successful business is a marathon pursuit. Entrepreneurs are driven by making things better, creating new value, and doing what other people can’t, or won’t. Product and service development, marketing and sales, operations, and finding and keeping the right people all bring varied complexities in a constantly evolving context.
While there are no magic bullets, we can absolutely learn from studying history. Data and research from the past gives us meaningful historical perspective. But as you’ve undoubtedly heard and experienced, past performance is not necessarily indicative of future results. Grounding our forward looking projections through an intelligent lens helps us to make better decisions based on the landscape ahead, and not simply the roads that have already been navigated.
In this post, we’re going to focus on examining what growth looks like, identifying pillars that we should be strengthening to support the growth of our organizations.
DISRUPTION AS A PROPELLER OF RAPID GROWTH
Clayton Christensen, selected recently as the top management thinker in the world by Thinkers50, highlights how disruptive innovation vastly changes markets and fuels significant growth for those who choose to disrupt. Disruptive innovators basically “transform a product that was previously so complicated and expensive that a small population had access to that which a much larger group of people can have access.”
We’ve seen this type of transformation take place repeatedly. A prime example is how the multi-million dollar mainframe, has progressed from an era where only a few large governments, mega corporations, and huge universities had access to them. Mainframes were disrupted by the PC manufacturers, which were disrupted by the laptop, then the tablet, then the smart phone, which has essentially made computing power accessible to almost everyone.
We see this in the current era of cloud computing. We see this amongst automakers. Look around at many of the high growth organizations around you, and chances are they are providing access of something useful to larger sets of people for a much lower cost.
While rapid growth seems sexy and magical, it’s sustainable growth that leads to long term success and perhaps is the better of the two. Your preference as a business owner is akin to whether you’re more interested in being the tortoise or the hare.
The best companies are able to sustain their growth over the long run. In 1981, a company called SAS Institute showed up at number 15 on the very first Inc. 500. The company was 5 years old and growing at about 100% per year. In early 2013, they announced record revenue for the 37th consecutive year. Dr. James Goodnight, CEO and Founder, has some incredibly sage advice for how to duplicate his success. “We have a very simple philosophy: Try to make sure the percentage revenue growth is higher than the percentage expense growth. It’s a magic formula.”
Dr. Goodnight does offer another clue that may indeed be a bit more helpful: “Really, you just have to give people a great place to work.” SAS regularly shows up as one of the best places to work in the world, which drives increased productivity, and a significantly lower employee turnover rate than most organizations.
The fact that Dr. Goodnight is still involved also highlights another factor that has led to increased returns and favor from investors over the years. Founder led companies typically do better.
A fascinating study by Gary Kunkle titled “Building Scale and sustaining growth: The Surprising Drivers of Job Creation” found 2 primary key insights:
(1) “The more frequently a firm grew in the past, the more likely it is to survive and grow in the future”
(2) “The faster a company grew in a period, the less likely it is to grow again in the future. In fact, it’s also more likely to die”
These findings highlight the importance of consistent and measurable growth. SAS Institute provides the best manifestation of these principles that I’m aware of.
(Disclosure: SAS Institute is a client, but their inclusion in this article had nothing to do with that. I am not aware of another company with quite a remarkable track record over that period of time)
WHY COMPANIES DON’T GROW
While investigating how and why organizations grow, it’s also important to look at the primary reasons why companies stop growing. While there are dozens of contributors to both growth and “stalls”, respectively, research from the Executive Board (published in a book called “Stall Points”) highlight four main reasons why organizations suddenly reverse trend and begin to slow down, often to the surprise of executives:
1. Premium Position Captivity – Interestingly enough, this is the inverse of what we found in the first section, highlighting the opportunity around disruption. While high growth organizations are often disrupting, those that are being disrupted are often tied to their premium position, selling high profit products to high value customers while someone else is democratizing access to the utility of those products.
2. Innovation Management Breakdown – This is when there is a breakdown in the processes of developing new products and services, and getting them out to market. Systemic innovation matters.
3. Premature Core Abandonment – This is a tricky one. While there is danger in sticking with the same customers in the same market for too long, there’s also risk in abandoning them too early by assuming that the market is saturated.
4. Talent Bench Shortfall - People. Acquiring and keeping talent is paramount. This becomes most hurtful when core strategic capabilities are missing from the organization, especially at the organizational level.
FIVE PILLARS OF GROWTH
Blending these findings together, we can begin to create a mental image of core pillars of an organization that is capable of dynamic growth.
PILLAR #1: FIND AND HIRE GREAT PEOPLE
This comes as no surprise. The greatest assets of any organization are its people. As the pace of change increases, finding people who are talented and can adapt to change with a strong work ethic, high integrity, and the ability to learn and solve new problems creatively is the key.
Not only to great people provide a positive force multiplier, but not having the right people on the bus is a key contributor to impeded growth.
PILLAR #2: CREATE A GREAT CULTURE
There’s oodles written about the impact of culture on success. Creating a place where employees are engaged with their work and people around them is a rare skill. Creating an environment where high caliber people (see Pillar #1) are highly engaged, suitably challenged, and working in the zone of their peak performance, recognized for their contribution, and offered an environment that works well for them has proven to be a core pillar towards growth.
PILLAR #3: FOCUS ON INNOVATION
Firms that have, and continually cultivate an entrepreneurial environment perform better over the long run. The opportunity to disrupt markets provide significant growth opportunities until the firm is so successful that they themselves are vulnerable to market disruptions. This reminds us to look for opportunities to constantly disrupt the market, even if it means disrupting yourself along the way. We also see in the research that a breakdown in innovation systems and clinging too tightly for too long to high value customers and/or high value products lead to perilous stalls in corporate growth. Finally, while many firms believe that innovation is random, placing a core focus on systemic innovation is critical to long term success.
PILLAR #4: SERVE YOUR EXISTING CUSTOMERS WELL, BUT SEEK TO SERVE THEM IN NEW WAYS AND ACQUIRE NEW ONES
Much has been written about the benefits of customer loyalty. And we see from the “Stall Points” research that abandoning your core customers and product/service offerings too soon can be detrimental to sustained growth. Conversely, sticking with the same customers and product and service offerings for too long can equally cause stalls. Creating great customer experiences that deepen engagement and word of mouth are critical to sustained growth. Parallel to these efforts and investments, new products and markets must also continually be developed and entered.
PILLAR #5: MAKE GROWTH A HABIT
It seems obvious, but I believe it’s worth highlighting again. “The more frequently a firm grew in the past, the more likely it is to survive and grow in the future”. The more often a firm grows, the more likely they are to continue growing. In other words, make growth a habit. Slow and steady wins the race. I’ll admit, there is plenty of space for a correlation vs. causation argument here. However, at the very least, there’s an argument to grow every year. Build it into the DNA of the culture and the research shows, you’re more likely to grow again.
This post is an adapted post from one sponsored and originally written for Work Etc.