Grow to Greatness

Smart Growth for Entrepreneurial Businesses

Edward Hess

• Publisher: Stanford Business Books
• Year: 2012
• ISBN:
  9780804781909
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Simply put, most entrepreneurial start-ups fail. Those fortunate enough to succeed then face a second, major challenge: how to grow. This book focuses on the key questions an entrepreneur must answer in order to grow a business. Based on extensive research of more than fifty successful growth companies, Grow to Greatness discusses the top ten growth challenges and how to overcome them.

Author Edward D. Hess dispels the myth that businesses must grow or die. Growth can create value. But, too much growth too fast outstrips effective processes, controls, or management capacity. Viewing growth as "recurring change, " Grow to Greatness lays out a framework for how to approach business development—and how to manage its risks and pace.

The book then takes readers through chapters that explore whether the time is right to grow, how to do it, and how to manage the vital reality that growth requires the right leadership, culture, and people. Uniquely, this book aims to prepare readers for the day-to-day reality of growth, offering up the lived experiences of eleven entrepreneurs. Six workshops to assess where readers stand now and a suite of templates that will prove to be useful over time help bring the book's teachings to life. After reading this book, entrepreneurs will have a real understanding of their readiness to grow and place in the growth cycle, as well as a concrete action plan for where to take their businesses next.

Many books address how to start a business, but this is a unique, go-to resource for readers who want to learn how to thrive beyond the start-up phase.

1 THE ROAD MAP TO SMART GROWTH

AN INTRODUCTION

Hello, I am Ed Hess. I am a professor of business administration and the Batten Executive-in-Residence at the Darden Graduate School of Business at the University of Virginia. I have spent the last ten years studying how public and private companies successfully grow. Before becoming a professor, I worked with growth companies first as a lawyer and then for over twenty years as a strategy consultant and investment banker. Along the way, I built four small businesses of my own.

THE CONTENT

The content of this book was derived from my business and consulting experience and from research that I conducted called the Darden Private Growth Company Research Project (DPGC) that studied fifty-four high growth private companies looking at the challenges of managing growth. That research became the foundation of a course that I have taught at Darden for years called Managing Small Enterprises. That research also led to the creation of over thirty formal business school case studies about the challenges of growing a private business—all of which were the basis for a business school text/casebook that was published in early 2011 by Stanford University Press entitled Growing An Entrepreneurial Business: Concepts & Cases.

In addition, I have written seven other books and have been fortunate to have my work featured in many prominent business publications and media channels. Through these experiences, I encountered more business builders from whom I have learned.

THE AUDIENCE

This book is about growing a small business, not about starting a business. It assumes that you have successfully started a business, have a commercially viable product or service, and have been able to achieve profitability. Now you want to grow your business—to get bigger. This book focuses on the common challenges that a growing business will face and shares the experiences of other successful business builders.

As you grow your business, new challenges will constantly appear. Growth is recurring change. The people, processes, and controls that worked at one level of growth may not work at the next level of growth. In fact, you will learn that the same people, processes, and controls will most likely not be effective as the business grows. In other words, as your business grows, it will continuously face new challenges requiring you to put in place different processes, controls, and people. Growth produces waves of change, and, like waves in the ocean, they naturally keep coming.

I think that you will find the foregoing to be especially true up to the $250M revenue level. Then at some point again—maybe at about $750M in revenue—your business will hit another big inflection point. Many of the issues discussed in this book are being faced now, as I finish this book in 2011, by many of the Executive Education clients whom I teach, whose businesses earn around $5B in revenue.

The lessons, tools, and concepts put forth in this book are applicable at each step of the growth journey. The point is that managing growth is not a one-time event; it is a continuous, ongoing process until you decide that it is time for your business to stop growing.

This book is an attempt to prepare you for the reality of growth so you can better plan for growth, proactively manage the pace of growth, and understand your risks of growth, which must be proactively managed so that growth does not overwhelm your business.

THE LEAD ACTORS AND ACTRESSES

You will meet twelve leaders in this book, all of whom have experienced the challenges and the ups and downs of business growth. Growth requires change. Growth is a bumpy ride. Through their experiences you can learn ways to prepare for and make your growth ride less turbulent.

That is the purpose of this book—to make your growth ride less bumpy and to help you avoid destroying your business in the process.

Yes, growth can destroy your business if not properly managed.

But from the experiences of the twelve leaders featured you can learn how others have successfully managed the turbulence of growth.

LEARNING TOOLS

Real-Life Growth Stories

Each chapter contains at least one story adapted from a Darden Business Publishing case that I wrote. These cases are used in business schools to teach MBA students. From the real-life experiences of these entrepreneurs, you will learn concepts and approaches to successfully manage growth. I suggest you read these stories twice and write down points that you find relevant to your current growth challenges. As you grow, you will face new challenges, so come back to these stories to reread them because new learning points will catch your eye.

These real-life cases are strategically placed primarily at the end of each chapter to maximize your learning. The cases will reinforce points made in the chapter as well as reinforce key points in other chapters. So, I recommend that you read the cases after you have read the chapter.

CEO Quotes

Within many chapters, you will find anonymous quotes from CEOs that participated in my research projects. These quotes represent gems of experience.

Workshops

The book contains six workshops that are designed to give you the opportunity to learn by doing. Three workshops each contain a discussion section outlining possible answers. In the other three workshops, you will apply tools and concepts from the text to your business.

Tools

You will also be given three tools for your use as you grow your business to help you make better decisions about whether to grow, how much to grow, how to grow, and what you need to do to manage growth.

Those tools are a Growth Decision Template, a Growth Risks Audit, and a Growth Planning Template.

Chapter Takeaways

At the end of each chapter, you will find a summary of key learning points that you can refer to easily and quickly as you manage your business. Different learning points will become more relevant at different points in your growth journey, and I recommend you review these Takeaways frequently in a disciplined manner.

THE RESEARCH

This book has been built on my research findings, case studies, and consulting experience. The DPGC involved fifty-four growth companies. The average age of those businesses was 9.6 years, and their average revenue at the time I studied them was $60M. Those companies were based in twenty-three different states. Twenty-one were primarily product companies, and thirty-three were service companies.

Other characteristics of these businesses relate to some basic metrics of their growth. Of the fifty-four companies,

• forty-nine had reached or exceeded $10M in revenue;

• thirty-six had reached or exceeded $20M of revenue;

• twenty-two had reached or exceeded $50M of revenue; and

• twelve had surpassed $100M of revenue.

On average, the approximate amount of time to reach particular revenue levels was

• $1M in revenue in 3 years;

• $5M revenue in 4.8 years;

• $10M revenue in 6 years;

• $20M revenue in 6.7 years; and

• $50M revenue in 8 years.

I also examined characteristics of the entrepreneurs themselves:

• thirty-four CEOs had prior work experience in their business’s industry;

• twenty-eight CEOs had no prior start-up experience;

• forty companies were self-funded by the founder, family, and friends;

• thirty-four companies had more than one founder; and

• five companies were started by women.

If the CEOs had prior start-up experience, their companies grew measurably faster than companies with first-time entrepreneurs. If a company had two founders, it reached the $1M, $5M, and $10M levels more quickly than companies with one founder or more than two founders, but it did not achieve higher revenue levels more quickly. There was no real difference in the time taken by product versus service companies to reach the $1M and $5M levels, but product companies reached the $10M, $20M, and $50M revenue levels much faster than service companies.

THE ROADMAP TO SMART GROWTH

This book approaches growth from four perspectives. Growth is viewed in terms of both organizational design and individual behavior and from both strategy and execution perspectives. In addition to looking at growth from different perspectives, this book provides discussions of the key research findings, extensive case studies and practical examples as well as workshop exercises to promote experience in applying the concepts. It is both a “thinking” and a “doing” book.

The book is divided into three parts. Part I includes Chapters 2 and 3, which deal with the issue of whether you should grow your business and arm you with the tools to strategically make that decision. Part II includes Chapters 4 through 6, which deal with the issue of how to grow your business. Part III includes Chapters 7 through 10, which focus on the finding that growth requires the right kind of leadership, culture, and processes.

EXHIBIT 1.1

Growth is change.

Growth is evolutionary.

Growth requires constant learning.

Growth requires disciplined focus and prioritization.

Growth requires processes and people.

Growth creates business risks.

Growth is constant improvement and scaling.

The takeaway lesson from the chapters is that smart growth requires the right leadership, culture, processes, and people. This book gives you tools to start planning and executing growth strategies. Throughout this book, you will see the themes outlined in Exhibit 1.1.

It is important to understand that this book focuses on growing a business after a successful start-up. All businesses go through a lifecycle characterized generally by birth, growth, maturity, and decline. Our focus is growth, not birth, maturity or fighting decline.

PART I : WHETHER TO GROW

Chapter 2, The “Truth” About Growth

This chapter explains what we know about growth from business research so you can think about growth in a realistic way. What does that mean? Well, we know from research that, contrary to popular beliefs:

1. Not all growth is good. Growth can be good or bad. It depends. Growth can stress people, processes, controls, and culture. Growth can create business risks: quality, financial, customer, reputation, and legal. If not properly managed, growth can destroy value and, in some cases, even destroy the business.

2. Bigger is not always better. The bigger a business gets, the more complex it becomes to manage. As it gets bigger, it requires more employees, processes, controls, financial strength, and experienced managers. Becoming bigger exposes your business to bigger and better competition.

3. The business axiom that all business must “grow or die” is not true. Your business does not have to keep growing. However, you do have to continuously improve its customer value proposition and do so better than your competition does. “Improve or die” is true.

Chapter 2 discusses the main themes of this book. They are as follows:

Growth is change. Growth requires the entrepreneur to put in place more processes, procedures, controls, and measurement systems. It also requires that the entrepreneur change what he or she does. Growth increases the likelihood of mistakes because it is dependent on the actions of employees who, being human, will make mistakes. Managing a growing business requires minimizing the number and severity of those mistakes. Some mistakes can create serious business risks.

Growth is evolutionary. Growth requires the evolution of the entrepreneur and the management team and more sophisticated processes and controls. Often, if not always, the business model and customer value proposition evolve, too. Furthermore, this evolution is continuous.

Growth requires continuous learning and constant improvement. The entrepreneur and employees must be constantly open to learning and adapting and improving in an incremental, iterative, and experimental manner. No matter how big you get or want to get, continuous improvement is required.

Growth requires disciplined focus and prioritization. The entrepreneur must strategically focus the business on a compelling differentiating customer value proposition and achieving daily operational excellence and consistency. One CEO described the concept of strategic business focus: “Be 2 inches wide and 2 miles deep.”

Growth requires processes. Growth requires implementing processes, which include controls. Processes are like recipes for baking a cake. They are the step-by-step instructions for how to do a task. Processes are necessary to hire employees and train them, to minimize mistakes and institutionalize quality standards, and deliver products and services on time, 99 percent defect free. Controls are necessary to set boundaries on allowable behavior and also alert management to deviations from processes.

Growth creates business risks that must be managed. Growth stresses people, processes, quality controls, and financial controls. Growth can dilute a business’s culture and customer value proposition and put the business in a different competitive space. Understanding these risks is critical to managing the pace of growth and preventing growth from overwhelming the business.

The good news is that you can minimize the big risks by planning for growth, pacing growth, and prioritizing what controls and processes you need to put in place prior to taking on much growt...