How midsized companies can achieve and then sustain organizational health
The most valuable business books tend to be research-driven and that is certainly true of this one. As Robert Sher explains, “In December 2011, [he and his research associates] began a series of interviews with leaders of midsized companies to explore the factors that facilitate or kill growth…Between December 2011 and July 2013, we conducted 101 interviews, many of them recorded and transcribed, in which executives discussed their experiences at 110 companies [listed on Pages 211-220]. We conducted many (66) in person and the rest by telephone. Some executives spoke to us under the condition of complete anonymity, and are not [identified].”
Sher is one of the first business thinkers of whom I am aware who focuses entirely on midsized companies: those whose annual sales are between $10-million and one billion dollars. The almost 200,000 midsized companies in the U.S. account for about a third of the U.S. GDP and a third of all U.S. jobs. He wrote this book for those who are leaders in these companies to help them face unique challenges. He duly notes that their nature may be essentially the same but the extent (i.e. scale) of each challenge can differ significantly for those leading companies with $10-million in annual sales companies than for those leading companies with one billion dollars in annual sales.
I agree with Sher that there are no formulas, templates, solutions, and “secret sauce” appropriate to all midsized companies. During the last 25 years, I have worked closely with more than 700 owner/CEOs and their associates in companies with annual sales between $5-million and $50-million and learned first-hand that, although many of them ask the same questions and face the same problems, the answers and solutions not only differ between and among companies. Moreover, the answers and solutions for a company 3-5 years (or even 3-5 months) ago may not be the right ones for it now. In today’s business world, change really is the only constant and seems to occur faster and with greater frequency than at any prior time that I can remember.
Sher identifies and briefly discusses what he characterizes as “six factors in the DNA of midsized companies that set them apart from both larger and smaller companies and give rise to the distinctive challenges they face.” Keep in mind these are general rather than defining characteristics.
1. A low tolerance for risk
2. High barriers to internal collaboration
3. Few ways to develop talent
4. Less investor patience for leaders learning on the job
5. Less strategic thinking
6. Less seasoned talent
To repeat: These are general rather than defining characteristics.
Of greatest interest to me is what Sher has to say about the seven growth killers with which leaders in midsized companies must contend each day. He devotes a separate chapter to each. Keep in mind that all are risks to which all organizations are vulnerable. For midsized companies, they can be potentially fatal. He offers advice in two separate but related dimensions: How to avoid them, and, how to overcome them. Here they are, accompanied by my brief annotations:
1. Letting Time Slip-Slide Away
Comments: In Hemingway’s novel, The Sun Also Rises, one of the expatriates mentions that his company “back in the states” went bankrupt. How did it happen? “Gradually and then suddenly.” Everyone involved in the given enterprise must buy into the idea that “time is money,” a precious resource that must never be wasted.
2. Strategy Tinkering at The Top
Comments: I view strategies as “hammers” that drive tactics (“nails”) to achieve objectives. If you don’t know where you’re going, any road can take you there. It is also true that if you keep changing the destination, you’ll never go anywhere.
3. Reckless Attempts at Growth
Comments: Not all growth is progress so the objective should be profitable growth. Dozens of companies I have worked with became more profitable only after they became smaller. Think of an organization as a garden that must be constantly pruned. Less can be more if there is less waste. More can be less if initiatives consume resources that should be preserved or allocated elsewhere. I agree with Jason Jennings: “If it’s DOA, bury it.”
4. Fumbling Strategic Acquisitions
Comments: Most M&As either fail or fall far short of original expectations. With regard to midsized companies, an M&A could be fatal and often is. Focus on the degree of probability of what will happen after the courtship, wedding, and honeymoon have occurred. Also, be sure to re-read Chapters 3 and 4. In my opinion, with rare exception, a badly conducted and/or badly implemented M&A will do more damage to an organization’s health than anything else could.
5. Operation Meltdowns
Comments: I agree with Sher that midsized companies “usually lack both rigorous processes and dedicated operational troubleshooters. They are often surprised and overwhelmed by meltdowns in key processes, especially those that come from always-difficult process of automating systems.” Whenever anyone must make a decision, I think two questions must be asked: “Is this a sound business decision? and then, How do I know? Operational meltdowns are the inevitable result of bad decisions, including a decision to do nothing.
6. Liquidity Crashes
Comments: Unavoidable accidents do happen on the roadways but most in business can be avoided with constant tracking and alertness for early-warning signs. I also favor worst-case scenario thinking in combination with contingency planning and accumulation of reserve resources. Sher has much of value to say about all this in Chapter 6.
7. Tolerating Dysfunctional Leaders
Comments: Coping with this not-always-silent growth killer obviously poses different challenges in a publicly traded company than it does in one that is privately owned, usually by the CEO and her or his family. Governing boards are primarily responsible for the former. What to do about the latter? Again, Sher offers sensible advice. My own is to tolerate while locating another, better position. Many owner/CEOs see their company as a personal ATM. The only way I have ever been able to get their attention is to suggest that increasing the company’s profitability now will substantially increase the cost if and when it is sold later. Even then….
Robert Sher is to be commended on the wealth of information, insights, and counsel he provides in this volume. I think the material can be of incalculable value to leaders in midsized companies but also to those who provide services (banking, legal, accounting, insurance, etc.) to those companies. My only words of caution are these: Don’t assume that all leaders in midsized companies face the same degree of risk with regard to the “silent growth killers” discussed in this book. Also, don’t assume that the degree of risk for any one of them will remain the same.
I am again reminded of an incident years ago when one of Albert Einstein’s colleagues at Princeton playfully chided him for asking the same questions on his final examinations. “That is quite true. Each year, the answers are different.” Leaders in midsized companies, especially, appreciate the relevance of that incident to their own efforts.