Why do so many businesses reach a plateau?
The first thing I’d say is that while the reasons for growing very fast are very specific to the company – the industry sector, the offering, the talents of the key people – the reasons for slowing down are very generic across different businesses and sectors.
There are three main things. Firstly, there are the things that everybody needs to do to keep moving as they get larger. Secondly, there are issues to do with the passage of time. Thirdly, and most importantly, there are the psychological biases that make it difficult to identify and deal with the first two.
So what are the things that everybody needs to do to keep moving as they get larger?
Mostly, fairly familiar. In the early days any customer is a good customer, because you need momentum and you need cashflow. As you grow, you need to develop an ideal customer profile and stick to it. In the early days you don’t need much in terms of information and reporting, as the top people are in the middle of things all the time. As the organisation grows, the leaders are inevitably more detached and need regular reports and KPIs and all that good stuff. And you need more in the way of structure – organisation chart and job descriptions – to make sure that people don’t duplicate work or let things fall through the gaps.
You could say that a lot of this verges on the bleeding obvious, and in one sense you would be right. For an outsider it is usually very easy to see when this stuff is missing, but the challenge is to see the need from inside the organisation, when you have been working away 50-60 hours a week for years.
And what do you mean by “issues related to the passage of time”?
Technology companies usually get this because in their world things move so fast, but in other sectors it is less obvious because slightly slower. If you had initial success, it was probably because you came up with something new and unfamiliar that caught the attention of the market. But with time, that new thing gets old. You may need to make the jump from selling to early adopters to addressing the majority, or even come up with something new.
It’s funny that advertising and marketing agencies, for example, completely get the product lifecycle curve as it applies to their clients’ products, but when I suggest that they apply the same framework to their own capabilities it can be revelatory. I have seen marketing capabilities and techniques move from “black magic” to commodity in ten years. That is slow enough not to be obvious, but fast enough to be really dangerous.
What are the psychological biases you mention?
You could sum it up by saying that “the biggest cause of failure is success.” Suppose you have spent years working really hard and become really good at something and that has made you successful. It is then so difficult to recognise the point at which those capabilities and ways of doing things cease to create success, or even become the very things that are holding you back. Kodak and Nokia are the highest-profile examples but there are so many others.
If you ask how to overcome this bias, I’d say don’t even try. Get an outsider in to do it for you.