Oganizational Growth Stages

Where are you?

The following is an excerpt from Bruce Hunter’s newest book, The Success Cage.

Chapter One

Organizational Growth Stages.  Where are you?

 

The sun was just rising as I sat in the restaurant waiting for my first appointment of the day.  “I wonder what this one will be like,” I thought as I sipped that wonderful coffee elixir.  Just then, a well put-together gentleman came in through the door and looked around.  My appointment had arrived.  “Over here John,” I exclaimed, pointing him to the chair across from me.  After the niceties of sharing thoughts about the weather and the sports teams’ play the night before, we got down to business. 

John turned out to be a very interesting person, with a terrific business and outlook. He was exactly the type who would make a good addition to my CEO group. He was a lifetime learner with solid values and a desire to share.  My group, 12 men and women business owners, met once a month for a full day to share perspectives on each other’s businesses and challenges.  Outside of the meeting, I also met each month with each for a couple of hours to go a little deeper.  At the end of the meeting, I outlined the group process and details on membership, also indicating that he seemed to be a good fit.  And that’s when “it” came out.

My business is different! 

The words that came after that statement played out as a buzzing noise in my ears.   He explained that his business had been around a long time and that he’d learned from this experience and that experience what worked well.  Growing his business had been a long period of experimentation and hard knocks.  The industry in which his business was participating was very unique, as was the experience that got him to where he was with the business.  He was skeptical that anyone else could provide him with valued advice if they didn’t have deep understanding of the industry. 

More times than not, it started this way.

I let John continue until he had finished his soliloquy and then responded.

“I think you’ll find that each business is uniquely the same.” 

“What?” he replied.  I repeated, “each business is uniquely the same.  Each business owner, and for that matter, each leader I have met with, regardless of whether they were entrepreneur or executive over the past 10 years has had a fervent belief that their business is unique.  Further, they’ve all believed that unless someone has had deep experience with their industry, they are unlikely to be able to provide much value. The evidence through my experience and that of at least 15,000 of the business owners of our organization as well as the preponderance of business literature would paint quite a different story.  While I will agree that your business has its own DNA which makes it unique, it shares characteristics and challenges that at least 98% of the other businesses face at any point in their growth.  Furthermore”, I continued, “there is a pattern to growth.  Each business follows a very predictable growth trajectory with distinct stages.  Each stage has unique challenges, characteristics and landmines.  Understanding where you and company stands in terms of its growth stage, is an important bedrock from which to build a roadmap for growth.  At the risk of lecturing, would you like to know more”? I asked.

“Absolutely” John responded with enthusiasm.  “Anything that helps me understand my business better and helps position me for further success, I’m in.”  “Ok,” said I, “Strap in.”

Growth Fundamentals.  The “S” Curve.

My fascination with the idea of growth cycles began as a VP of Strategy for a large multinational.  The company, like many its’ size and age, had gone through a period of explosive growth through the post-war period.  Unfortunately, that growth had slowed to a trickle, with the company becoming more inward-looking as it strived to meet the expectations of the “street”.  Top line growth was more difficult to come by as markets became saturated and truly new products harder to come by.  In order to fuel the bottom line, the company focused increasingly on cost reduction, which unfortunately exacerbated the top line growth challenge.  As more and more energy was focused on obtaining cost relief, the search for organic growth slowed, creating a downward spiral as cost reduction became more difficult to achieve once the low hanging fruit had been picked.

As I stepped back from the challenge facing us, I turned to a very simple concept that I’d grown up with through my years in marketing.  The idea of a product life cycle.   If products had life cycles, why not companies? Cycles were all around us.  Civilizations were born, flourished and died.  Life cycles of organisms, the cosmos etc.  (I know, a blinding glimpse of the obvious.)  I then turned to business literature to determine whether this phenomenon had been studied.  Of course it had.  A number of prominent academics had developed conceptual frameworks to describe the movement of a business from inception to decline and eventually death.  The simplest framework was built on the “S” Curve. 

 The sigmoid curve, more commonly known as the “S” curve, was given its name in the mid- 1800s by Pierre Francois Verhulst in relation to population growth.  It is broadly applied to a number of fields of study including artificial neural networks, biology, demography, economics, chemistry, probability and statistics.  It also forms the basis for George Ainsworth Land’s seminal work on the growth of organisms and change entitled, “Grow or Die”. 

Land postulated that there is a pattern to change which is found throughout nature.  That change is also reflected in organizations with sustained growth being represented by a series of interconnected “S” curves.  Each “S” curve is divided into three phases.

“S” Curve Growth

 

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Phase 1 represents the birth phase.  This is the phase in which an organism or organization tries to establish a connection to its environment.  If a connection is established (food, shelter, a customer in the case of a company), the organization survives. If not, it dies.  This is the period of highest experimentation and unfortunately, mortality.

Phase 2 is a phase of exponential growth.  Because the organization has survived phase one and established a connection to its environment, it can now focus on the task of replicating the successful system.  The organization builds and becomes efficient in its go-to-market activity.  It is able to grow rapidly because it doesn’t have to expend resources in searching for alternate paths for survival.  It is focused and efficient.

Phase 3 is characterized by slower growth and ultimately decline and possible death.  As the organism depletes resources (food; products; lines of service) growth slows.  Unless a new resource is found, the organization stagnates, declines and dies.

“The Island of Growth”

Thomas Robert Malthus (1766 – 1834), a British demographer and economist, used a simple illustration to explain the workings of the “S” curve.  Imagine an island with a good supply of vegetation, no predators and a hospitable climate.  Now, introduce to that island a pair of breeding rabbits and watch what happens. 

Once on the island, the rabbits begin to consume the resources of the island (the vegetation).  In “S” curve parlance, this is Phase 1.  The organism has made a connection to the environment and is able to survive.  Once survival is assured, the rabbits do what rabbits are known to do quite well.  They replicate…quickly, all the while consuming the resources of the island as their population begins to grow.  This is Phase 2 of the “S” Curve.  That phase of the organisms growth which is the quickest.  Resources are plenty and the rabbits are focused on eating and making more rabbits.

At exactly the point at which the resources remaining equal those having been consumed, Phase 3 is obtained.  From here in, the resources are depleted and unless a new resource is found, the organism stagnates and eventually dies off.

The island analogy is helpful in understanding the bedrock of literature describing the organizational life cycle.  Although many thought leaders have built their own versions, (Greiner, Adizes etc.) all use as their base, a cycle of growth that replicates the cycle found in nature.  Some, like Land, use as little as 3 phases, some have over 12.  All follow a similar path.  Birth to death.  It’s not more complicated than that.

It’s also easy to build an understanding of the requirement for sustained growth.  Just like our “island of rabbits” analogy, the organization must find a new resource to sustain its growth or face death.  Timing is also important.  The optimum time to conduct a search for a new resource is exactly when you are experiencing the greatest growth (and unfortunately the time which you are least likely to feel the need).  That is the time of plenty.  From an organizational standpoint, you have the resources to test and experiment.  You have the time to see which of the seeds planted, will successfully spawn new resources.  You can also afford to take a few wrong turns.  Mistakes will not have a major impact on the overall health of the organization.

Unfortunately most searches for new resources are conducted under the pressure of either the stagnation of growth or worse, impending doom.  The pressure and importance of “getting it right” and finding that new resource increases as growth declines. CEOs and leaders have shorter and shorter runways with which to operate.  The prospects of success decline as the organization heads toward the brink.  At that point, the business is either blown up and reconstructed or it dies. 

Land’s framework helped describe the situation we were facing at that large multinational.  It also helped to identify the pattern of earlier growth the company had experienced (and many others).  Since that time, I’ve worked with hundreds of companies in varying stages of development.  The “S” curve is a very robust and simple model which accurately reflects an organization’s growth path.

Organizational Growth Stages

I looked at John who was obviously deep in thought.  “What are you thinking about?” I asked. 

“Oh, sorry,” he replied.  “I was just reflecting on your analogy of the Island of rabbits and thinking that I really need to get on with figuring out my “next thing”.  Our business has been going gangbusters lately but I’ve also felt a small slow down.  Everyone else just feels it’s a normal course of business but I’m a little concerned.  Somehow, this feels more like a longer term trend and I’ve been concerned for a while.  You’re analogy helped me to see it more clearly. We’ve got to get onto this quickly.”

Would you mind if I gave you a quick overview of the system that I’ve been using to help others to create a roadmap for their companies?  After I lay out the basic system, I can also provide you with a questionnaire to help you figure out where your company is on the growth continuum.  Knowing that will help you build your own roadmap for continued growth.”

“Anything that would help, I’m up for,” replied John.  “I’m all ears.”  (Pardon the rabbit pun).

Navigating Smart Growth – An Overview

As I noted before, there are a number of systems through the business literature which describe the general stages of growth.  The stages make intuitive sense and generally follow a development curve not unlike the stages of growth of an organism.  Birth.  Youth.  Adolescence. Maturity.  Old Age.  Unlike an organism’s growth cycle however, the wonderful thing about a company is that managed properly, it has the potential at least to last forever. 

According to Biz Aims, a web site which documents the world’s oldest companies, many have been built and run for over 1,000 years.  The oldest to date was Kongo Gumi, a construction company founded in 578 which was operated by representatives of its family through 40 generations.  It closed its doors in 2007 (wonder what happened?) but still holds a substantial lead on the number two company still going strong.  That company is Hoshi Ryokan, itself founded in 718 in the hospitality business in Japan. 

I’ve created a growth cycle framework which has been used successfully with over 500 SMEs. It consists of five stages, each of which has unique characteristics, leadership needs and land mines.  Here they are, starting from a company’s birth.

The Architect:

The company inception.  The company, which existed in the mind of the entrepreneur or small group, has received validation of its offering from at least one customer.  The organization is created from the outside-in to fulfill the customer need. 

The Engineer:

The second stage in a company’s development.  This is the stage in which the company’s go-to-market mechanisms are fine-tuned.  The business systems are built to support the sale of usually a single or limited offering.

The Conqueror:

The business has progressed beyond a single geography or product line.  This stage sees the business complexity increase with new skills and specialization begin to be added from the outside.

The Conductor:

Now a complex business encompassing many geographies and business lines, the organization transforms, requiring more process and discipline to manage a diverse and far-flung enterprise.  Experienced managers and more disciplined processes are required to keep the ship pointed in the right direction.

The Renovator:

Once a vibrant and exciting business, the business has grown increasingly in-ward looking. Growth has slowed to a trickle, often buoyed by financial engineering and cost reduction.   It may have grown its own toxic eco-system, focusing on itself rather than its’ customers.  This is the end of the road.  It must be torn down and renovated or die.

I’ve developed a questionnaire to help you determine the stage your company is at.  Once we’ve determined that, it’s a short step to creating a targeted path forward for you and your business.

 

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