Mukesh Gupta — January 17, 2017 Follow @rmukeshgupta
Every organisation wants to grow their business. Every organisation also realises a simple fact that the more they grow, the more difficult it gets to grow. This is because growth creates complexity, and complexity is the silent killer of growth. This paradox explains the reason why many businesses are unable to sustain their growth or crumble due to their own weight after having gone through a period of exceedingly high growth.
In their book, The Founders Mentality, James Allen and Chris Zook share three reasons for the slow-down of growth.
Overload:
This happens as the systems and processes in place for the business get stretched and are unable to support the level of growth that the business is experiencing. This is when bureaucracy slowly starts to seep in. One can recognise that the business is in this phase when people in the business are feeling frustrated. This is when people start complaining about the difficulty to get anything done in the business. This is when customer service breaks down. This is when ringing in additional sales from customers is not as big a problem as managing the internal processes to service the sale or deliver the product/service.
Every business that experience fast growth will experience overload and if this is not dealt with early in the onset, can at times not just slow down the growth but in some cases, can also kill the very business.
As this is expected to happen in every growing business, founders and CEO’s should be on the look out for the early signs and spend management effort & focus to ensure that all the internal business processes are re-looked & re-defined such that they continue to support the next level of growth in the business.
Businesses in this phase are a good candidate for acquisitions.
Stall-Out:
This happens when the business gets in a phase where ringing in additional sales requires more and more effort. This is when, all the business development efforts that used to yield fabulous returns slow down or stop working altogether. This is when your sales teams start complaining of how tough the competition is or they keep discounting your product more and more. This is also when your sales teams will start complaining that the marketing is not giving them enough leads and marketing teams will complain that the sales teams are not closing the leads that they already have.
As this is expected to happen in every business, founders and CEO’s should be on the look out for the early signs. This is when the business needs to introduce new products or find new markets to continue their growth trajectory. It is critical that the management team start investing in either new markets or new products/services as soon as they pass the overload phase, so that they have enough time to find a new market/product/service that they can invest in and have it ready before they enter the stall-out phase of their journey.
Businesses in this phase typically look out to acquire new faster growing businesses to continue to grow.
Free Fall:
This happens when the business gets disrupted either by a new entrant or more increasingly due to the availability or widespread adoption of a new technology. This is an existential crisis. This is when the business continuously loses market share, new competitors crop up and existing customers no longer give you their business as they used to. One can identify that a business is going into this phase when the business you generate from some of your long standing customers starts to decline at an increasingly rapid pace.
The best way to overcome a free fall is to take drastic action. This is when a business needs to re-look & get back to serving its core-purpose, irrespective of how they serve it. Typically, this involves a change in your business model and a drastic change in the way you do business.
Business in this phase typically get acquired for their intellectual property (and for a significantly lower valuation).
The Heart-Beat Model of Sustainable Growth
One of the strategies that management of fast growth companies can use to avoid these challenges to growth is to run their business in a more mindful way. They need to find a way to balance their growth with strategies to avoid stalling of growth. One of the best ways to do so is to slow down deliberately.
I have seen businesses grow rapidly for 6-8 quarters and then deliberately slow down, so that they can allow their processes to catch up to enable further scale, re-look at the cost of doing business, invest in new products/services/markets in this slow quarter (as management will have time to focus on these important but not urgent topics) and to look at the business environment to see if there are new partners, competitors, technologies that have the potential to disrupt their business. This can then be followed by another 6-8 quarters of significant growth.
I call this “The HeartBeat model of Sustainable Growth.”
Just like the heart expands and contracts, businesses need to expand for a specific period of time and then deliberately contract (slow down) for a specific period of time. The period of expansion is when the businesses go all out for growth and the contraction is when the businesses consolidate and invest for their next phase of growth. This way, the businesses can always be prepared for and ready to continue to grow, irrespective of their size. This is also how businesses can ensure that complexity doesn’t seep into their operations.
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