Archive for the ‘Managing Growth’ Category

If It’s Not Changing It Must Be Broken

Monday, April 19th, 2010

Having run and worked with many companies that are experiencing growing pains, one thing that is very clear to me is that the CEO must be constantly changing the focus of the company as the organization goes through the various stages of maturity.

Just as in child rearing, different approaches are needed for a company in the infancy, adolescent, teen and adult stages of maturity.  A parent would not use newborn tactics with a teen and a CEO must be sure to adjust the operating practices as a company matures.

I recall one particular off-site meeting with the executive team of Cardiff Software in which there was some discontent with the ongoing changes being driven across the company.  I countered the resistance with the title of this post – “if its not changing it must be broken”.  Change is an essential element of a healthy growing company and it is the CEO’s responsibility to drive change in order to build a successful organization.

The CEO needs to be reinforcing the (1) the overriding mindset, (2) attributes of the core staff, (3) the financial thrust, (4) and the core concentration of marketing, sales and R&D as the company grows from infancy to adulthood.

Infancy Stage (under $5M in sales) – During this period the overriding mindset is to prove the business viability.  The core executive team needs to be able to articulate the vision of the company and be ready, willing and able to do any task at hand to establish the business.  From a financial perspective, it is all about cash flow and ensuring the company has ample runway to get to break even.  In most cases, marketing resources are educational in nature by effectively reaching the influential leaders to legitimize the segment and offering.  It is also imperative that R&D be nimble and iterative – with quick adjustments to the offering based on the priorities of the early customers.  Finally, sales staff needs to be creative and nimble with greater concentration on business development to get to the right decision makers and get deals done.

Adolescent Stage ($5 – 10M in sales) -  In the Adolescent stage, the overriding mindset changes from viability to scalability.  It is essential to prioritize resources on tasks that will grow the business in a repeatable way.  The core executive team can no longer be the “free wheeling” creative types predominant in the infancy stage, but must be “change agents”.  At this stage you should expect to experience limited turn-over from staff who are resistant to process and prefer to operate in the past.  The financial focus is on EBITDA.  For every percentage point of revenue growth, the operating expenses must grow at a slower rate.  Meanwhile, product development must be formalized and a clearly documented product roadmap must be committed to across the company.   Normally, marketing concentration (separated from sales) is focused on lead generation to feed the growing sales team.  The core product and business model is working and sales leverage is top of mind.  As such, alliances, OEM’s and expanding channel partners are top priority.

Teen Stage ($10 – 25M in sales) – At the teen stage its about expansion into new markets.  This requires a greater understanding of the ecosystem and a look beyond the point solution that may have started the company.  In the Teen stage, turn over among the leadership team is expected.  The “generalist or visionary” skill set is no longer viable, now it’s about specialization and having experienced and tightly focused resources working on many facets of the expanding business.  In the teen stage, the CEO’s role of keeping the team integrated and aligned on the top imperatives is critical.  Experienced financial leadership and consideration of  inorganic growth as well as preparation for an exit is important.   Within marketing, raising the visibility of the company with industry analysts and partners is paramount.  Meanwhile, the R&D team should be pro-actively managing product extensions and product lines and direct account presence to drive greater adoption in new markets.

Clearly, each company has its own unique position and these guidelines may not be universal, however its the CEO’s responsibility to initiate the changes to mature the business as quickly as possible.  I hope this framework allows you to better identify your companies position, identify the necessary changes and drive your organization to adulthood!

Reflection in the mirror. CEO, are you running a lifestyle business or building a growth organization?

Monday, March 15th, 2010

It amazes me just how many small self (friends and family) or angel-funded software, internet and SaaS companies are out there that seem to just be flat-lined or oscillating in the $3 to $10M revenue segment. They are in every market sector you look at –  XYZ software, a business in the (fill in your favorite) billion dollar market-  B2B and B2C alike.

But why? Is there a common thread? Why do some break through and others just seem to linger, or sustain? There exists plenty of great academic reading, and thought leaders, that will explain the impact of the business life cycle, market timing and more. Take your pick; they all have valid points. I think, from a practical standpoint, that most times it all comes down to the CEO. It’s for good reason that they say “the company is a reflection of its CEO.”

The start up phase $0 to ~2M, is a ‘fly’ or ‘crash and burn’ zone. Companies come and go. Determined business owners can, and will, scale their business on sheer determination and survival instinct. At some point thereafter, they achieve a certain revenue threshold where the company settles in to a comfort or sustain zone; one that matches the initial organization’s (and more specifically the CEO’s) capabilities.

Many refer to this as the first major inflection point of a software company. To me, it’s the point at which the CEO has to make that decision – Lifestyle or Growth. That is when it is time for a look in the mirror, and to make some hard choices.  Interestingly, I think many companies get stuck at this inflection point because the CEO either does not recognize this or does not know how to tackle the next stage of growth.

Deciding to create, or to run, a lifestyle business is great. However, if you opt for a path of continued growth; it takes both recognition that you have reached this stage and a strategic decision to adopt change that will help you push through.

What has to change?

  • The team around the CEO will likely need to evolve. The people that helped start the business are not necessarily the same ones you need to build the business to the next level. Understanding what/who you need is very important.
  • Measurement and metrics have to be revisited. The way success was defined and assessed in the early days is not necessarily applicable anymore.
  • Processes will become more important. The business can no longer be subject to human (resource) bottlenecks or operate without repeatable and understood protocols.
  • And, perhaps most importantly, the CEO will have to evaluate his role and area of focus. Accountability and responsibility to the business, and the rest of the team, oblige.

Change is good, if you want to stay on the growth track. Embrace it.