Entrepreneur Lesson #4: The leadership team almost always is the bottleneck for growth
Most of the companies I’ve worked with tended to plateau at different sizes. At that point, their growth tapered off and typically there was a general concern in the company that we had hit the peak of the business.
Although there are many reasons why a company may plateau, there are three patterns I’ve seen happen. The first is that the company faces difficulty in transitioning from serving innovators to the early majority of the customer base. Of course, Geoffrey Moore’s book “Crossing the chasm” is a classic on this topic. The first customers of the company tend to be innovators and risk-takers who may become customers just because you have an innovative offering they believe in. The early majority of customers requires clear evidence that the solution you’re selling them delivers business value that significantly outweighs the effort required to change and that overcomes the associated inertia. Shifting the customer base from one to the other requires changes to how you sell, the functionality of the product, the stability and reliability of the solution, and so on. Suddenly, the things that made you successful initially are no longer sufficient to convince the next group of customers — and growth stalls.
In some of the companies that plateaued, especially the seniors were busier than ever, running around like crazy and slicing themselves thinner and thinner. The reason for this happening is that the leadership had stopped thinking strategically and shifted exclusively to tactics and operations. A typical pattern is that there’s one or a small number of key leaders in the organization who are experts in their field and fail to properly restructure roles, responsibilities and authority in the organization as this means delegating to others, who are not ‘as good.’ The challenge here is that it often is correct: the founders of the company are typically best at the product, the market, sales, and so on, but we all have a limited amount of time every day and people simply run out of bandwidth. What’s required is to take a step back and reevaluate all the things that the leadership team is spending its time on and to put proper delegation of responsibility and authority in place. This is where having the right board members, who often are more experienced leaders, is indispensable.
The third pattern is where the company successfully closed deals with some large customers with promises that went beyond reasonable business practices. These customers then become insatiable and demand enormous amounts of customization and special support. All while paying just enough for the company to not go bankrupt, but too little to allow it to grow and acquire new customers. You’re held hostage by the first large customers and you’re in a Catch 22 situation where you can’t afford to fire your current customers and can’t afford to acquire new ones either.
The answers to these patterns aren’t that hard to formulate. The transition from innovators to the early majority requires you to work closely with the new customers and to be responsive to their needs. Not the unique needs for individual customers per se, but identifying behaviors and needs that apply to customer categories.
For the situation where there’s a lack of delegation, you need to transition to a style where you constantly focus on making yourself obsolete by educating and coaching your people to take on more and more responsibility. Whenever you manage to free yourself up from some responsibility, you can take on the next big challenge that the company is now facing.
Avoiding the Catch 22 situation requires you to have some clairvoyance about the long-term relationship and to write contracts that have a time limit in them. I still meet companies that sell physical products with the promise of free software updates until the end of time!
My point, however, isn’t the specific patterns and cases, but rather to focus your attention on the fact that if the company isn’t growing or developing as you want, it’s your fault. It’s your job to reflect, seek to understand, hypothesize, experiment and do whatever is required for you and the company to grow. All companies have a story that captures their norms and beliefs as well as their identity. Especially for startups, that story needs to continuously evolve and change. It’s so easy to stick with what was true at some point and that you still believe is true, but no longer is. As Mark Twain so eloquently quipped: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Or, as Walt Kelly wrote in his famous comic strip Pogo: “We have met the enemy and he is us!”