How to avoid or resolve three organizational crises that can occur after start-up and early-growth phases
In 1865, a German physicist, Rudolph Clausius (1822-1888), coined the term entropy during his research on heat. The word’s meaning “a turning towards” (in Greek, en+tropein), “content transformative” or “transformative content.” Claudius used the concept to establish a mathematical foundation for the second law of thermodynamics: without the injection of free energy, all systems tend to move (however gradually) from order to disorder, if not to chaos.
Chris Zook and James Allen may have had this phenomenon in mind when writing this book, one in which they examine the paradox of growth, a process that besets all companies as they mature that growth creates complexity and complexity, is the silent killer of profitable growth. That is why only 1 in 9 achieves more than modest levels of profitable growth and hit their targets over a decade and why 85% of executives say their biggest challenges are internal and self-inflicted.
They identify and discuss three predictable crises that can result from growth. Each of the three occurs at a different phase of an organization’s lifecycle. Here they are:
o “The first crisis, Overload, refers to the internal dysfunction and loss of external momentum that management teams of young, fast-growing companies experience as they try to rapidly scale their businesses.”
o “The second crisis, Stall-Out, refers to the sudden slowdown that many successful companies suffer as their rapid growth gives rise to layers of organizational complexity and diluted the clear mission that once gave the company its function and energy.”
o “The third crisis, Free Fall, is the most existentially threatening. A company in free fall has completely stopped growing in its core market, and its business model, until recently the reason for its success, suddenly no longer seems viable.”
Zook and Allen go on to observe, “These three crises represent the riskiest and most stressful periods for businesses that have made it successfully through their start-up and early-growth phases. The good news is these crises are predictable and avoidable. The killers of growth that these crises contain can be anticipated and even turned into a constructive reason for change.”
With regard to the book’s title: “The founder’s mentality constituters a key source of competitive advantage for younger companies going up against larger, better endowed incumbents, and it consists of three main traits: an insurgent’s mission, an owner’s mindset, and an obsession with the front line.”
These are the major business challenges on which Zook and Allen focus
o How to develop the founder’s mentality in workers at all levels and in all areas throughout the given enterprise
o The three predictable crises of growth and how to avoid or overcome them
o How to use the founder’s mentality to overcome the chaos of rapid growth
o How to reverse stall-out by rediscovering what made your organization great its growth diminishes
o How to use the founder’s mentality to save a business in rapid decline
o And as indicated previously, how to infuse the founder’s mentality at all levels of your organization
Will it be easy? Hardly. However, Zook and Allen provide business leaders with the information, insights. and counsel they need. “These three crises represent the riskiest and most stressful periods for businesses that have made it through their start-up and early-growth offices. The good news is these crises are predictable and often avoidable. The killers of growth that these crises contact can be anticipated and even turned into a constructive reason for change.” I hasten to add that change may involve only a minor adjustment or two. All three crises have early-warning signs.
In The Elegant Solution, Matthew Matt shares a mantra that he cites again in his latest book, Winning the Brain Game:
“What appears to be the problem, isn’t.
What appears to be the solution, isn’t.
What appears to be impossible, isn’t.”
More than 50 years ago, Peter Drucker observed, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
That is excellent advice. Zook and Allen would be the first to agree that it is important, indeed imperative to focus on the right question to answer, on the right problem to solve. Keep that mantra and Drucker’s advice in mind when absorbing and digesting Chris Zook and Jim Allen’ concluding remarks:
“Imagine if you were the leader in your core business. Imagine if you were faster to the ball than anyone else in your industry. Imagine if you had employees highly energized and as committed. If you could make that happen and you can make that happen, your company would be the best place for talent to work, and you would become your competitors’ worst nightmare. You would be a true scale insurgent.”
Hey, why not now?
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Chris Zook is a Partner in Bain & Company’s Amsterdam office and has been co-head of the Global Strategy Practice for the past 15 years. He specializes in helping companies find new sources of profitable growth. He is the author of five books with Harvard Business Review Press in the past ten years including his Repeatability: Build Enduring Businesses for a World of Constant Change, published in March 2012. Among his best-selling books are Profit from the Core: a Return to Growth in Turbulent Times (HBRP, January 2010), an updated edition of his 2001 book, Profit from the Core: Growth Strategy in an Era of Turbulence, Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth (HBRP, May 2007) and Beyond the Core: Expand your Market without Abandoning your Roots (HBRP, November 2004).
James Allen is a partner in Bain & Company’s London office and a co-leader of Bain’s Global Strategy practice. He has served a variety of leadership roles at Bain and is the founder of the Bain Founder’s Mentality 100, a global network of high-growth companies mostly led by their founders. Allen has more than twenty-five years of consulting experience and has worked extensively for global companies in consumer products, oil and gas, technology & telecommunications, healthcare and other industries. He has advised clients on the development of global growth strategies, emerging market entry strategies, and turnaround strategies.
If you read a better business book than this one in 2016, please let me know immediately.