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by Tom Gordon, CFPIM, Missouri Enterprise Project Manager

“I will lift mine eyes unto the hills, from whence cometh my help.”
Psalm 121

It is an established and well-documented fact that small businesses, particularly family businesses, tend to fail.

There are many ‘traditional’ reasons given:

  • The entrepreneur spirit of the founders is diluted.
  • The founders get more interested in the Cayman Island beaches and private helicopters.
  • Tunnel vision.
  • The product/service goes out of fashion or has been overtaken by competitors’ products.
  • The next generation are not interested in investing their lives in an enterprise in the same way as the original founders.
  • The next generation do not see the employees as assets and stakeholders.
  • The next generation have developed an attitude of entitlement – or as Sir Anthony Gloster put it rather succinctly in Kipling’s poem, “The Mary Gloster”: “Harrer an’ Trinity College! I ought to ha’ sent you to sea”.

Perceived wisdom is rarely the complete story, there are other dynamics at work, hence the quote from Psalm 121.

As the growth curve implies, although more appropriately titled “Risk and Opportunity”, there are two definite phases in the life of a new organization, the two ‘optional’ phases – ‘Forward to the Future’ and ‘Decline’ – depend upon how the first two phases are handled.

Phase one is the exciting bit. Someone gets an interesting idea and starts to develop the idea, and organization, in their grandfather’s garage! As the idea develops the original vision gets diluted as more people are involved, who do not have the complete vision of the founder:

As the original vision is diluted, the Iron Law of Oligarchy1 comes into play as more people get involved. The ‘purity of the vision’ is replaced by an emphasis of ‘not rocking the boat’ – CYAing and so the business gets bogged down in algorithmic activity and, consequently, is ripe for failure, resulting in the Plateau phase.

Phase two is the plateau. The business has the appearance of robustness but, in fact, is a robust-yet-fragile system.

Scott Adams, in a DILBERT Cartoon, had Wally presenting a Disaster Preparedness Plan to management:

“What is in it for me” and “How do I survive and realize my investment in this organization?” determines the organizational culture. The culture of excitement and ‘can do’, which characterizes Phase one, gives way to this culture of self, apathy and blame.

All activities are shaped by culture, exacerbated in this phase by the fact that the span of control is now too broad for the original prime movers to change things or to really impact the organizational culture.

This is the time for management to look up to the ‘Hills’ of Phase three and take stock or to resign themselves to a truncated business, in which they can regain control. 

One attractive solution at this point is to sell out for the best possible price.

If selling out is not an option [and failure does not need guidance], the following tools will assist the organization to attain the next Phase in positive development.

Basic to this attainment is the realization that a good manager is not necessary a good leader. There must be leadership on purpose and direction and sensible owners would ask themselves the question, “Are we the best people to drive our organization forward or do we need to hire a professional CEO?”

The ‘product’ of leadership, which did not matter until the plateau, is a system within which people can be excellent. This means clear direction, clear metrics and clear levels of responsibility and authority linked to those metrics. In their absence the business will fail – end of discussion.

The main focus of the new system is to protect and grow the market share and to maintain the share of the customers’ wallets. To maintain this focus there must be metrics at several levels:

  • Strategic and tactical – a structured series of Balanced Scorecards linked to the monitoring of each major process
  • Operational – a catalytic performance grid that will ‘feed’ metrics up to the tactical and strategic level.

During the growth phase a high level of ‘tribal knowledge’ is required, as people wear many ‘hats’. As the organization grows this tribal knowledge must be captured and disseminated.

Organizational knowledge means that key information is shared and communicated, ideally every member should have a designated deputy. A documented system, which is controlled, is a vital attribute in growing out of the plateau.

Understanding the processes and ensuring that Value Stream Maps highlight waste in all the processes are the most effective methods for achieving sustained growth and continual improvement.

Many organizations offer the platitude that “employees are our most valuable asset” and then ignore their needs. Fred Hertzberg highlighted the different levels of motivation – intrinsic and extrinsic. Both are important in a growing organization.

ACUITY, a property and casualty insurance company,2 stresses having fun at work and enjoys an incredibly low level of employee turnover [about 2% annually] and approximately 30% of new hires come through referrals! However, it is not always necessary or possible to offer climbing walls and Ferris wheels in the climb out of the plateau but, at the very least, employee loyalty can be gained by:

  • Transparent reward systems;
  • Same rules for everyone;
  • Growth opportunities – giving people a reason to invest their lives in the organization;
  • Developing peoples’ skills and valuing that development;
  • Acceptable workplace;
  • A focus on a safe working environment; and
  • Most especially – Listening to the Voice of the Employee

Prophesying doom and gloom appears to be a growing trend at this time; insecurity abounds, especially in an organization that is taking the first few, tentative steps up the slope to Phase three.

Jack Ma built his Alibaba Empire from a search to find Chinese lager in Seattle3– this should be the model, each organization should search for its own version of Chinese Lager to sustain the climb up the hill of Phase three.

1 Robert Michels in his “Politic Parties” argued that however democratic an organization might be at its inception sooner or later it develops into an oligarchy whose aim is to perpetuate the organization and not the idea. All businesses are political in this sense.

Fortune Magazine, March 2016

Duncan Clark, “Alibaba: the House that Jack Ma Built” , 2016.