There are three types of successful organizations: those that have experienced growing pains, those that currently are experiencing growing pains, and those that will.
All companies hit bumps along the road to growth, bumps that usually have less to do with external factors like the industry and marketplace and much more to do with the natural way organizations evolve. Just as we humans develop, grow, mature and, unfortunately, decline, so too do organizations. Of the 12 original stocks in the Dow Jones Industrial Average (DJIA), only one company (General Electric) is still listed. The rest of the original DJIA companies have either declined into extinction or been acquired over time.
The business life cycle follows a true life cycle, and its four phases — startup, growth, maturity, and decline — are real and predictable. Since much of the pain experienced by organizations occurs as they transition between these phases, the most successful organizations plan ahead. They have foresight, and they proactively make the proper organizational changes — significant changes — to accelerate the organization through these inflection points.
The transition from the growth phase to the mature phase poses particular challenges for most organizations. Until this inflection point, growth organizations have been focused on feeding the hungry beast, doing everything in their power to commercialize products and services, and gaining market share. Their customer bases are growing rapidly; they’re expanding into new markets; the media are calling; and revenue is flowing. Life is pretty good.
What worked for an organization in the startup and growth phases no longer cuts it for an organization evolving into a mature enterprise.
But then maybe a decision blows up in an unexpected way, or perhaps a customer stuns the organization with a large return of a new product. Why? Because what worked for an organization in the startup and growth phases no longer cuts it for an organization evolving into a mature enterprise.
So what does cut it? We’ve identified seven critical factors for organizations to successfully navigate the transition. As you’ll see, the unifying theme among all of them is the need to transition from a people-centered to a more process-oriented organization.
Defining individuals’ roles and responsibilities in key business processes
As organizations mature, business processes grow and evolve. The inevitable added complexity brings with it inefficiencies and waste that quickly gum up the works. Questioning the effectiveness of key processes and how they affect employees and customers should be reviewed on a regular basis. Responsibility matrices such as the RACI (Responsible, Accountable, Consulted, Informed) model and other tools can help organizations identify key decisions and processes. They also help dynamically define roles and responsibilities as those processes change and multiply.
Establishing key performance indicators (KPI) for critical processes
The KPIs we’re talking about go well beyond sales, profitability, income, and the like, which are already tracked in monthly financials. Such metrics might work for a small startup, but you can’t effectively monitor the intricacies of a growth-to-mature company with basic financial KPIs.
Instead, organizations need to identify and map key processes. As your product and service offerings expand, it’s impossible to make sound decisions without understanding the nuances of those processes. However, if you’ve identified the right metrics, they’ll show you when you’re out of balance or compliance with your processes.
Some new KPIs might include: profit velocity, cost per acquisition, average order size, and customer lifetime value. Such KPIs yield valuable insights into the critical pathways of your supply and value chains. They minimize surprises and help you make proactive course corrections. A solid dashboard of 10 to 12 of the right KPIs can help executives sleep better at night.
Bringing discipline, accountability, and empowerment to the firm culture
As organizations grow, it becomes harder for the founders and/or chief executives (the “c-suite”) to be involved with all aspects of the business, particularly day-to-day operations. It’s a real challenge for most founders to delegate key decisions and tasks they were a part of since day one.
But it’s no longer day one. The c-suite must be disciplined about delegating to accountable parties so they can focus on strategy, culture, and other leadership responsibilities. As one of our partners likes to tell the company owners he works with, “You may own the pool, but you still have to stay in your swim lane.”
In order to successfully delegate, first the c-suite must empower those who will be held accountable for new responsibilities.
Accountability without empowerment is disastrous to organizations. That said, the individuals you empower are human. They’ll make mistakes. But if you’ve done a good job identifying the KPIs for critical processes in #2, you’ll catch those mistakes early and can seize the opportunity to address them.
Embracing credible financial management and budgetary processes
In the startup and growth phases of the business life cycle, founders and vice presidents of finance spend a lot of time making sure the company has adequate funds — obtaining loans from banks or investors or securing venture funding. But as the business develops, financial leadership needs to play a more active and strategic role. This includes working with the whole c-suite to develop overall corporate goals and objectives, which then can be translated into the capital needs, cash flow, and profitability targets for the organization.
Better understanding short- and medium-term cash flow needs improves decision making, including tough choices about capital expenditures, joint ventures, make-vs.-buy, banking relationships, and terms and conditions with customers and suppliers.
What we often see at the growth-to-mature transition, however, are financial teams that play a less strategic and more supportive role within the organization. They often rubber-stamp CEO decisions rather than question them in the context of the company’s goals and targets. Not every financial leader is cut out to go toe-to-toe with the CEO, and we’ll talk about optimizing talent — finding the best fit for the demands of each role — in a moment.
Building key strategic partnerships for growth and maturity
Challenges multiply as growth organizations gain more customers, manage product and service life cycle needs, and explore new markets. Successful organizations form strategic partnerships to help address these challenges. You might consider strategic alliances in any number of areas, including co-development, distribution, sales and marketing, or logistics and supply chain.
Fundamental to effectively managing strategic alliances is defining — together — what shared success looks like. In turn you and your partners can then co-develop processes and metrics around that vision. We urge companies to get specific when doing this. For example, how much product inventory will you expect in your strategic partner’s stores in a given period of time? How many sales presentations per day will your partner’s sales representatives make to your shared target customers? What’s their sales yield for those sales calls?
You might consider strategic alliances in any number of areas, including co-development, distribution, sales and marketing, or logistics and supply chain.
As organizations address each of the previous steps, they inevitably turn their attention to talent, since new and different leadership skills are required when organizations transition from the growth to mature stage. For example, the sales executive who may have been perfect for finding entrepreneurial sales representatives and working with early customers but who is uncomfortable pushing back when the CEO wants to expand into new distribution channels. Or an associate who meticulously ran a startup’s shipping department, who may not be the right fit for overseeing a mature company’s entire supply chain management process.
As organizations grow, internal (and external) communications necessarily change, requiring new skill sets. New organizational needs in terms of talent development and acquisition may also include merger and acquisition and licensing experience, strategic planning knowledge, global marketing and corporate brand management expertise, talent management, accounting know-how, and many others. New product and service offerings and increasing customer demands bring new processes, sales channels, and regulations that require different or more specialized expertise.
Optimizing talent is a twofold endeavor. First, organizations need to realign their new and changing talent needs with current associates’ skill sets. Second, organizations must identify and create a plan for internal development needs and for recruitment if tapping external resources.
Creating a data-driven culture
Decision making in startup and growth companies often relies on the intuition of c-suite leaders. That may work when your product and service offerings — and your customer base — are small. But as growth companies make the transition to mature enterprises, a data-based framework for making informed decisions is crucial.
Essential business insights are all but invisible without CRM and ERP systems to keep track of relationships and operations. Companies can easily overlook market opportunities, production or supply chain improvements, or trends in customer demand that can impede further growth.
We often encounter a real misperception about the investment required for such relationship and enterprise systems. Certainly, yes, you can spend millions of dollars. But you also can smartly invest a fraction of that to implement a solid base system, adding to and customizing it as your organizational needs change with time.
What worked in the growth stage of the business life cycle won’t work at the mature stage. In our experience, the seven factors above can make or break the transition.
We won’t tell you it’s easy; it’s not. But the factors overlap and strongly influence each other. Address one, and you’re making progress on others at the same time. The effects are additive and synergistic. And they can change the trajectory of your organization.