“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” – W. Edwards Deming
From the moment a new company is founded to its appearance on the Fortune 500 list, executives must be able to transform the way they manage a company — shifting gears, often dramatically to a different management style — to ensure the company’s optimum development. I am not referring to individual executive style here. What I am talking about is the total adjustment and evolution of the context in which major management decisions are made. I call this the “Mode of Management”, which is very dependent on the company’s current developmental stage.
Would you make the same product development decisions in an identical way with one hundred dollars in the bank and no customers as you would with $50 million in the bank and 1,000 customers? Of course not! So why do many managers often run an organization in the same way despite the many gradual and often sudden changes that happen between these two extremes? It is human nature to continue to do what we have always done; to simplify and repeat what worked in the past, despite vastly differing circumstances. We need a system or context for adjusting and teaching the different “modes of management” as companies evolve. Some of these changes come naturally, but most are very subtle and linger far longer than they should. A failure to change can do substantial damage to a company before adjustments are made, or even doom the company to flat sales in the long term.
A key to ensuring corporate success is to let the various stages of a company’s development determine its overall management “mode”. It is a given that we must use the appropriate management mode for each and every decision and action we take in a company. The company’s existing condition and/or stage of development is always the major determining factor or context for almost every significant decision.
Companies can reap enormous benefits when the style by which they are managed is adjusted quickly to accommodate the company’s shifting complexities, stages, and sensitivities. In fact, quickly adjusting this mode of management can be a huge competitive advantage since most companies fail to adjust quickly enough. Just about every company exhibits often-overlooked, but critical, stress points that signal the need for decisive action or gradual reorganization. Recognizing these signs during a company’s gradual metamorphosis, and responding to them appropriately, may mean the difference between bankruptcy and survival, or at least will help avoid stagnation.
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Any good manager knows an adjustment in style and tone is warranted for different individuals and situations. People have different motivations and often respond differently to the exact same circumstance. This is natural; people react to other people’s tones and body language in very individual ways. We receive immediate feedback in the form of facial expression, body language, and actions, and adjust our reactions accordingly. However, a company, which is a much more complex organism that consists of many individuals interacting with complex outside market conditions, provides little immediate feedback. Therefore, it is very difficult to use direct feedback to fine-tune your management mode. Only years of experience can build enough data to form theories and adjust management modes.
“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” – Stephen Hawking
Why We Simplify Too Much
Millions of years of evolution have taught us to run from danger and created a mind that adheres to simple “rules” that have worked for us in the past. Our mind wants basic rules we can reuse and has been designed to use these learned shortcuts again and again. For example, we all know that fire is hot, don’t touch it. The more pain (failure) or pleasure (success) that results from a lesson, the deeper these rules are ingrained. This is why people who experience a single, huge success often have a tougher time changing or accepting input from outside sources. They take this success as proof that they are “always” right and begin to repeat what has worked for them before. If they use their one learned mode in a different context, then they are very likely to fail.
Unfortunately, the world is much more complex, and changes much more rapidly, than ever before. In fact, this trend is accelerating because human knowledge is now doubling every few years. One hundred years ago, most people still used horses to get around, and technology of any kind was primitive by today’s standards. Because life is currently so much more complex, we need these mental simplifications more than ever. Yet now, we must overcome these past evolutionary behaviors and discipline ourselves to take hundreds of variables into account for complex and unique decisions we may never again make under the same circumstances.
Overcoming evolution can be difficult, but it is simply an exercise in conscious thinking that can be facilitated by some simple methodologies that force us to review important circumstances. The challenge as an executive is to force ourselves to think through all the variables of a given situation and make a decision in the proper, current context, not simply by referring to experiences or rules of thumb.
Cognitive dissonance, the mind’s tendency to see only those factors that reinforce what we are expecting to see, greatly aggravates this problem. We tend to distinguish only those things that reinforce our beliefs, and actively avoid or explain away those things that disprove these beliefs. At the extreme, this can become the proverbial ostrich with its head in the sand — the “What I don’t know can’t hurt me” pose. Of course, this statement couldn’t be further from the truth. Any company that fails to adjust to rapidly changing world, economic, and market conditions is doomed. Even great Fortune 500 companies are rarely still there 25 years later. As managers, we have to overcome human nature and cognitive dissonance in order to make the proper contextual decisions for the benefit of our company.
“Your most unhappy customers are your greatest source of learning.” – Bill Gates
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The Stages of a Company's Development
1) Raw Startup
None (by definition)
a) Innovation as a priority
b) Always in flux, high risk
c) More unknowns than known
d) Product or service looking to prove its market exists
e) Everything is fragile
2) Early Revenue
$100 to $5MM
5 to 100
The product delivered, proving some value proposition, but still no proven sustainable or profitable business model.
Most companies slow or stop growing here due to organizational and people limits. This is often the hardest leap to make, which requires the most changes in the smallest period of time.
3) Established Customer Base
$500,000 to $20MM
20 to 200
a) Profitable or clear path to profits based on scaling business.
b) A proven market and value or price formula, with profits clearly available in a steady state world when scaled.
4) Expansion/Growth Phase
$1MM to $1 billion
100 to 1,000
The market opportunity is many times larger than the company, and there is a desire and ability for significant market share and/or revenue growth.
5) Mature (or large)
$2MM to $100+ billion
100 to ∞
a) Slow growth, stagnation of market or company, or focused on harvesting past investments.
b) Slow/little change in the market and/or company or commoditization of products, forcing a focus on costs above innovation.
c) Consolidation of competitors and focus on finding new distribution and/or leverage.
Defining the Stages of Development, How Many Stages? How Many Modes? Why?
Companies come in many types, styles, and sizes, and an approach that works tremendously well at one company can be a miserable failure at a different place and time. Every company and situation is different, so there are literally hundreds of possible “styles” or “management modes.” For practical purposes, it is necessary to create a simpler, more workable model, which can be used to illustrate a company’s major plateaus and organize this infinite spectrum into useful stages. Then we can probe along the required dimensions for key issues.
The only experience at executive levels in large, medium, and small companies can help to identify the pivotal developmental stages that dramatically affect the context of a given company’s decisions. Success comes from implementing a management mode that is a direct function of the company’s current stage, industry, and market conditions. The risk is that a company will be run in the same way as its VPs, managers, and/or CEO have always run their past companies or departments, irrespective of the important and differing macro variables created by this stage of development.
What is Different about This Philosophy? Conduct a search via Amazon.com or the Internet on the term “management” and you will literally find tens of thousands of books on the subject. From project management to company management, lots of authors push their particular methods and styles. These range from micromanagement and the One-Minute Manager to how to transform “good” into “great” behavior. What you will not find is much discussion in any of these books about an approach that helps you define and implement a management mode that clearly correlates to your company’s current status and position in the market.
“The function of leadership is to produce more leaders, not more followers.” – Ralph Nader
Yes, there are a few good books and some successful startups, but, in general, there is little on this topic available in the millions of books in print! I don’t know if the lack of discourse is just because authors want to appeal to the broadest possible audience, or if they are actually naive as to how one must manage differently according to the different stages of a company. I am certainly not the first person to recognize this natural phenomenon. I suspect that authors are addressing the stage of the company they are most familiar with without much thought to the others. Unfortunately, for the bulk of their readers, this can make the majority of their recommendations and advice wrong, which is of little help. When making a major decision, too little credence is given to the enormous number of variables that make every corporate situation unique.
Actually, I have seen very successful executives with significant experience in large company environments give perfectly good talks on management that are 100 percent true for large companies — and almost 100 percent wrong and potentially fatal if followed by smaller companies. They are talking about steering an oil tanker when their audience consists of nothing but little speedboat captains. These executives must have little experience and perspective beyond that large company perch, and they often wind up preaching to a crowd of entrepreneurs about things they must do, when in fact, following that advice could kill their companies. The problem is that there was no context defined for the lecture and no language or thinking in the advice about a company’s current stage. If it had been qualified as advice for companies over $70 million in sales, for example, it would not have been a potentially lethal lecture for the many startups and entrepreneurs in attendance that day. It seems we pay little heed to the simple fact that what can be right for a small company can be totally disastrous for a larger company and vice versa.
Of course, the opposite situation can also be true, wherein entrepreneurs, more often than not, fail to change their company’s and personal management styles from raw startup mode to the next level. They cannot “let go” and delegate to others. This is why entrepreneurs are often replaced by “professional management” or people with specific experience in that stage of company development. It is also a major reason why most companies stagnate at a certain level, which is ultimately the maximum level or size at which a controlling entrepreneur can be effective or remain in their comfort zone. A Board of Directors of any company with more than a single shareholder has a fiduciary responsibility to replace such a CEO as soon as there are signs the entrepreneur is not evolving with the company to ensure that stockholder value continues to grow. I believe a solid, well-thought-out system can allow many entrepreneurs to make this evolutionary transition as their company grows.
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Adjusting to the Best Management Mode
My goal is to shine a light on this failure to preach in context and to create a methodology to qualify these recommendations and comments and adjust our mode of management. This needs a system of definitions, models, and language. To be successful, we must also have some guidelines for management modes that are appropriate for certain stages and situations in a company’s life. This would allow us to benchmark our management mode and proactively evolve it as a company grows.
Unfortunately, there are not many people who have experience and perspective in various different size companies and can speak to these vast differences. Academia cannot properly recognize and study this problem without first establishing a framework by someone with experience across most stages of a company’s development. After all, this is not so much a theoretical problem as a real-world experiential learning issue and therefore it is hard to define and bound properly.
Each decision we make is highly context-sensitive to many macro factors. Sometimes, these macro factors are developed or institutionalized over time. For example, IBM would never go after a very small market because doing so would distract management and resources from bigger market opportunities that would better serve its corporate size, overhead, and growth needs. Everyone at IBM knows this and, accordingly, would not present a plan to the IBM corporate machinery for a product with a very small market opportunity. However, at the other extreme, younger companies have not had the time or experience to develop such rules or systems, forcing executives of small and medium-sized firms to make them up as they go along based on the specific circumstances of the day. People may attempt to adopt their own “rules of thumb” from their former companies, but the odds that these are also appropriate for their new company are slim indeed. I have seen many young companies enter markets that were way too big for them to be successful in because larger companies will replicate what they do quickly and because they have not already secured a beachhead they can protect before evolving into the larger market. This classic startup without a market entry strategy is common in technology where technologists do not have enough experience in building businesses and attaching markets. I cannot possibly count the number of companies with a superior product that ultimately failed because they did not adjust their market entry strategy to the size of their company’s resources, or because they managed the company like a large one when it was just in its infancy.
“Leadership is not about being in charge. It is about taking care of those in your charge.” – Simon Sinek
An executive’s ability to shift gears in the face of a situation that appears familiar, but is actually ALMOST ALWAYS a different context compared to what they have seen in the past, can make or break a company. When a decision’s context is very different due to the corporation’s current stage, it must be recognized immediately to produce a vibrant, growing company.
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So what do you do differently along the spectrum from a raw startup to a mature company? There is enough information for an entire book, or at least a long series of articles. It requires many examples and structural models to aid the decision-context management. The first step toward success is acknowledging the need for a decision-context management framework, and an understanding that the biggest factor in almost any corporate decision is this framework. Upcoming articles will compare and contrast management modes for a wide range of companies, from small through large.
Bob Norton is a long-time Serial Entrepreneur, CEO and investor who founded six companies with four exits that returned over $1 billion to investors for a 25X ROI. Two others are still in development. He has trained, consulted and advised thousands of Entrepreneurs, CEOs and boards since 2002. ™. Mr. Norton works with companies to 2X to 10X growth rates and valuation using AirTight Management™, the world’s most comprehensive Leadership Operating System™. He also helps companies raise capital to fund growth. He is also the Founder of The CEO Boot Camp™ and Entrepreneurship University for early-stage companies that have not reached product-market fit and $1M ARR.
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