Growing Pains

“To build a durable, long-term business, the entrepreneur will eventually have to abandon the rules that got him/her started.” –HBR 1999

Successful entrepreneurs tend to build their business in a somewhat protected niche that allows each customer to be handled separately and each transaction to be unique. Growth puts pressure on the organization’s capacity, in almost every case, leading to an expanded workforce using the same methods to deal with a larger volume. The entrepreneur finds himself or herself working longer hours and responding to crisis after crisis.

Three studies of successful and unsuccessful entrepreneurial companies suggest that in order to survive growth, the entrepreneur must be willing to make fundamental changes and may require help in doing so.

1) It’s the process – a fairly consistent response to growth among entrepreneurial firms is to hire more people. At some stage, this is subject to the law of diminishing returns and is eventually counter-productive.

By the time the company nears 10 employees, the need for process and process reform becomes more and more critical. Defining process involves good systems-thinking and can increase productivity by an order of magnitude. The result is the ability to handle significant additional growth without increasing the workforce. This is essential to achieving the bottom-line growth required to meet cash flow demands of further growth.

In most cases, however, the entrepreneur is more oriented to ‘results now’ than the kind of analysis and systems thinking required at this stage.

2) Recruit higher priced talent – perhaps combined with encouraging early employees to move on. This may be the single, most difficult thing for the entrepreneur to face. People who were “there at the beginning” may not have the strengths needed by a larger, more complex organization. There is a tendency to stay the course with these loyal employees for long after the needs of the enterprise have outrun their abilities, and neither they nor the organization are happy with the situation.

This is a difficult area for almost all entrepreneurs and one which can lend itself to outside counsel and analysis. In the end, we do not help people by keeping them where they are ineffective. Spirits get crushed and people get hurt. Far better to face the situation squarely and give the organization and the individual a greater chance for success.

3) Become the Leader – in the beginning, an entrepreneur often does everything. He or she covers the roles of leader, manager and doer, with the biggest time commitment being the latter. When the company grows, however, their focus must shift, as first the role of manager then later to the role of leader, requiring more and more time and energy. According to Jim Fischer’s study, by stage 3 (20 to 34 employees), “the company’s vitality depends on a clear set of core values, a compelling vision/mission for the enterprise and a cultural focus that provides a strong baseline for how the company interacts.”

This stage requires that the entrepreneur effectively delegate both responsibility and authority and focus on the role of leader – that is, one who sets the vision and direction of the company. Failure to do so not only will retard growth beyond this stage, but often results in a falling back or significant survival issues for the concern.

Just like a living organism, a company must change as it grows – but in the case of the entrepreneurial firm, the growth and development must begin at the top with the entrepreneur, if it is to succeed.