Growth Slows as Operations Consume Leadership
Businesses stop growing for a number of reasons. Even when the leaders have the ability, the ambition and the money businesses often slow when they reach 20, 30 or 50 people. Why? This post argues that it happens when operations gradually consumes most of the time to lead. The company never becomes process-driven.
92.2% of European businesses are “microbusinesses” with less than 10 employees. Only 6.5% grow to become “small” (10-50 employees) and a tiny 1.1% become “medium-sized” with 50-250 people (Ecorys, 2012.)
Financial crisis, poor growth and other difficult conditions are typical explanations. That may work in a mature market but if you are in a growth area then you can’t blame market conditions. Instead you have to look inside and ask yourself the question “why are we slowing down?” Let’s assume you have the skills, are willing to put in an effort and have the finances to support it. Then what is left is how you manage your time.
Finding time to develop the business
In an article about time management McKinsey Quarterly has this recommendation:
“Identify up to five things—no more—that you want to focus on for the year. You should spend about 95 percent of your time on those things. Why five things? Why 95 percent of your time? Because getting things done is all about focus. If instead of spending 95 percent of your time on your top five, you spend 80 percent of your time on your top ten, you lose focus and things start falling through the cracks.”
This recommendation assumes that a leader can spend 95% of his time on “focus areas”. How often is that the case? If you are a small business leader and look back a few years you’ll probably realize that more and more of your time gradually has gone into operations. The day-to-day handling of administrative tasks, client requests, employee issues, etc. Most leaders in growth businesses would be thrilled about even half a day devoted to focus areas per week. But half a day is not going to change anything. Ask yourself this question: If you are the leader and spend most of your time maintaining the status quo then who is going to take your business to the next level?
If you are among the 99% then your business will stop growing, since you will not take this problem seriously. I once heard that if you put a frog in a pot with water, put it on a stove and turn up the heat, then the frog will boil. The temperature rises gradually and the frog never finds the right time to jump. Similarly, the right moment for you to solve your problems at their root cause will never materialize.
How you end up as the boiled frog
Talks with other small business owners tell me that the real barrier to spending 95% of your time on business development is the complexity that comes from not being able to change the way you lead.
Let me give you an example, most leaders don’t know how to go from managing people directly to letting people manage themselves through clear roles, responsibilities, policies and business processes. This transition requires a leader that can let go of the attention to detail and addiction for control that made him successful in the first place. When companies grow from a few people to 20-25 then the CEO goes from spending 5% of his time on operations (there hardly is any) to spending 80-90%. This shift gradually derives him of the time and energy that is needed for developing the business. At this point he is on a burning platform (the heat from the stove) and wants to hire people to help him, introduce ERP systems and so on. The trouble is that now it is often too late. The culture has been shaped around him and is based on him making decisions on the fly. Any attempt to introduce clear roles, policies, business processes and ERP systems is now much more risky, costly and will require a significant amount of time and effort. There is always another urgent issue to handle so the decision keeps getting postponed and the risks and effort grow bigger.
Organize your business so early that it seems like overkill.
For some business models it is easier to avoid ending up like the frog in the pot than for others. A consulting firm’s customers often buy the skills of individual consultants. This makes it hard to introduce the roles, services and processes that allow the partners to develop the business. They become one with the business and cannot sell it. On the other hand a software company that delivers a single, standardized service via the web will find it easier to organize the business and make it process-driven.
I know of a small, 30 people software company where the CEO spends 95% of his time developing the business. He forms alliances, creates new services and spearheads the entry into new markets. Last year he even went on a three month drive across the US with his family! His company runs itself. He started introducing processes when they were less than half their current size. At that time the task was still manageable and he succeeded.
Not possible for you? Think about the famous book “The 4 hour work week” by Tim Ferris. He essentially talks about relentless focus, eliminating waste and then delegating “operations” to third parties through clear work processes. 4 hours is 5% of an overwhelmed small business owners’ work week, so there is your 95%!
Here is a short re-cap of what he says (my last attempt to inspire you not to end up like the frog)…