Growing Pains

Like the small indie band that turn into stadium rockers, Its tough to grow a business, but even tougher to preserve the beliefs and practices that made it special in the first place.

It takes a leader with courage and intelligence to turn a small business into a large one, but in the process of growing, why do so many lose touch with their customers and employees? Here is an example that demonstrates the three, key stages of development that businesses go through;    

Anna starts doing some small repairs for friends and family and is soon keeping herself busy throughout the week…

1. A self-employed individual – Anna’s home repairs

Anna;

  • Meets customers every day
  • Is motivated by personal pride
  • Knows what customers need
  • Knows how the work works
  • Offers flexibility of service to fit in around the customer
  • Completes work from end to end
  • Knows exactly how much value for money is provided to the customer
  • Fits admin duties around the work, as the customer is more important

By doing the right thing, Anna’s business grows through recommendation. After a year or two she has too much work to do herself and has to employ others to help her. With a few trusted helpers she has enough capacity to tender for some smaller maintenance contracts and larger, one-off renovations. Anna forms a limited company and offers a small number of shares to her key helpers. She is still able to keep a good understanding of what actually happens in the company and is keen to utilise the skills of her workforce;

2. Small-to-medium enterprise – Anna Ltd

Anna;

  • Often meets the customer at the start and end of jobs
  • Employs a handful of trusted employees to do the work for her
  • Tries to provide a good working environment and instil her own values in her employees
  • Keeps a friendship with employees bounded by employment legislation
  • Still knows the customer and remembers what they need
  • Still knows how the work works
  • Encourages colleagues to offer flexible services to meet customer needs
  • Still has a good idea of the value for money given to customers
  • Finds that admin has to start growing around the work

Retaining a great understanding of what is actually happening in the workflow allows Anna to keep excellent control of the business. Reputation grows and the company starts winning larger maintenance contracts. Long-term contracts and a good reputation make Anna’s business attractive to investors.

The increased demand for admin and red tape weighs down on Anna. It becomes a struggle to keep running the business the way she wants to and its not the small, friendly place it used to be. Stress is higher and the organisation needs capital to continue its expansion. New financing takes focus further away from the work though and brings with it fresh demands for traditional financial controls, procedures and structure.

Anna becomes disillusioned and decides to take one of the offers that come here way, selling to Private Equity Investors. The organisation transforms into:

3. Large plc – MegaCon

The Board and Senior Management Team;

  • Have important strategic work to do
  • Know what their shareholders need
  • Employ managers to employ front-line workers
  • Do not trust workers to have the same values as them
  • Do not trust workers to be talented enough
  • Break up work into small, repetitive tasks that are easier for the workers
  • Create a series of admin rules to govern the work
  • Create procedures that prevent staff offering flexibility of service to customers
  • Create a system of targets to motivate workers to do the small repetitive tasks
  • Cultivate a relationship with employees based around legislation and HR
  • Do not have time to see the front line
  • Rely on KPI’s and monthly reports to know how much value for money is provided to customers
  • Create a system where the same KPI’s and monthly reports determine how much pay is received by the people who prepare the reports

The business has become a source of wealth and an important provider of jobs for a large number of people. Along the way though, it has lost the ability to delight its customers and the working environment stifles innovation, where once it encouraged it.  

If you want to grow an organisation, does it have to follow the path to MegaCon? Can you become a stadium rock band, but still retain the youthful energy of your first single?

Think how much better MegaCon would be if the Board and Senior Management Team;

  • Behaved more like Anna and spent time on the frontline, with their customers
  • Trusted the people they employed to get on and do the work.

Why do we make it so difficult?

Summary of the three stages of growth:

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About Ian

Perfect Flow specialises in logistics, but good service is far too rare across all sectors in the UK. That is why I am driven by a strong desire to improve customer service levels. The Vanguard Method of Systems Thinking is my chosen methodology to achieve that aim. Why Vanguard Method? Because it works. I know it does, because I have used it myself. Perfect Flow have been named in the Smarta100 2012 - the 100 most innovative and disruptive small businesses in the UK

2 comments on “Growing Pains

  1. Charles Beauregard on said:

    I saw this myself when I worked for a housing group that had – in a short time – taken over a number of housing associations. The people in charge clearly feared the loss of control, so brought in more rules, procedures, etc. Completely the wrong way to do it, but at the same time I can understand the thinking.

    It does present a puzzle – when an organisation grows (expecially if it grows quickly), how does it make sure those small organisation values and ways of working remain consistent?

    Although they’ve not got everything right, Netflix do attempt to tackle some of these issues in their Freedom and Responsibility manifesto – http://www.slideshare.net/reed2001/culture-1798664. Particularly in slides 41 to 78 (don’t worry – there aren’t many words on each slide).

    The other question to ask is this – is growth necessarily a good thing in the long-term for this particular business? If values and quality do suffer as the result of growth you could lose all the customers you gained in the first place because of thos values and quality, and ultimately go out of business. Perhaps it is important to understand whether your business – when you look it as a system – is restricted by ‘limits to growth’? http://en.wikipedia.org/wiki/System_archetype#Limits_to_growth

    • Thank you for your comment Charles – some interesting points you raise.
      Most businesses set out with the objective of growing but you’re right, some are better off staying relatively small.

      In my experience it’s the style of leadership that forces the loss of values and change in principles. As organisations grow, the leaders allow themselves to be isolated further and further from the frontline. The leadership team will often be supplemented by newcomers who are experienced in the (traditional) ways of large organisations and so the monster is created.

      Strategy is important, but not at the expense of managing the present. The further detached that leaders are from the work, the higher the probability that the original values will be lost. There’s probably an equation for that!

      I’ll go and check out those links now, thank you :-)

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