I have been pondering lately why entrepreneurial organizations seem to grow so rapidly. Oh, I know: Start-ups naturally grow at a very high rate of growth merely because they are starting with very small numbers at the outset. The start-up that did $1,000 in business last year and is doing $50,000 this year, the firm had 5,000 percent growth rate over the current year.
But that's not what I'm talking about. I'm talking about the ability of many start-ups to grow rapidly in absolute dollars: $50,000 in year one; $1.5 million in year two; $22 million in year three, for example.I contrast this with, for example, the 15-year-old company that's presently hovering around $25 million in revenues for several years. It is extremely unusual for such a company to make another dramatic leap of $20 million in any given future year.
What changes over the years as a company "matures"? What stops the dynamic growth?
Don't mistake this for an article you might read in the Harvard Business Review. I have not done reams of research and analysis. All my analysis comes from observing and comparing mature business enterprises with new, up-and-coming organizations with which I have worked over the last 25 or more years.
Entrepreneurs are forward-looking
One thing I see in all of the entrepreneurial firms with which I have worked is the simple fact that the CEO and the rest of the management team are virtually always focused on what lies ahead. They don't spend a lot of time analyzing the past. They learn quickly from their mistakes and move on.
History-keeping is reserved for the accountant and the accounting staff.
Not, yet, being needlessly "sophisticated," the executive and management team are not being confused and misled by cost accounting and fancy allocations of overhead to products or departments.
Entrepreneurial organizations immediate recognize and manage based on "Throughput"--which we define here according to Theory of Constraints: Throughput = Revenue - Truly Variable Costs (TVC). On the back of a napkin over lunch, the managers can compute the Throughput for almost any opportunity they see on their horizon.
Being able to make these simple and speedy calculations about Throughput (T) allows such firms to stay focused on the future opportunities that are likely to make the largest contributions to T with the smallest possible increase in Operating Expenses (OE).
Entrepreneurs don't see their organizations as "machines"
Most entrepreneurs are very close to their employees. They have built their organizations with people they trust--and, not infrequently, with people who trust them, in return.
Entrepreneurs and their management teams tend to treat their employees like real people. They do not see these folks as interchangeable parts in a machine. They do not see the people who work for them like cogs and gears churning out profit (or, losses, as the case may be).
As a result of this difference in mindset, entrepreneurial organizations also tend to invite and even give significant credence to the ideas contributed by the workers--even those at the lowest levels in the operations. The workers, in turn, feel like they are valuable contributors to the enterprise's success.
Without ever intentionally setting up a POOGI--a process of ongoing improvement--the constant flow of feedback and ideas from virtually everyone in the organization, the company reaps the benefits of a de facto POOGI anyway. As a direct result, revenues and profits increase while operating expenses are held to a minimum.
Entrepreneurial organizations are constantly learning and improving
Another naturally occurring benefit of seeing the organization's employees as real people and valuing their input is that the company as whole becomes a learning and improving organism.
In the entrepreneurial firm, actions undertaken to "develop people" don't fall into generics where formal training, kaizen blitzes and formal certifications mark progress. In fact, "progress" is frequently not measured at all--but it is happening by leaps and bounds. Workers, managers and executives are constantly doing unofficial research to discover new approaches, new products, or to innovate processes and procedures, and much, much more.
When companies begin to fall into "machine" thinking, management falls into the belief that the important thing is to control their environment by "solving problems." Managers and executives become focused on looking backward--at what went wrong yesterday--in order to try to prevent bad things from happening in the future. In fact, they frequently are doing so much of this backward looking that they no longer have time to think about truly innovative things that might lead to great leaps forward in Throughput.
When backward-looking and "machine" thinking take over, significant leaps forward in growth become very rare. Sometimes, such leaps become nonexistent until something changes.
Nobody knows better than the people in your own organization what needs to change in order to take the next giant leap forward. They know, but frequently they don't yet know they know.
We say "they know" with the intent of pointing out that "the whole organization" likely has within it the kinds of "tribal knowledge" that can lead to the company's next breakthrough. But, the companies may not know how to help themselves, yet.
Helping companies unlock "tribal knowledge" for improvement in their own companies and, potentially, even improvement all across their supply chains is a great way to help other help themselves. It is the best way, we believe, to help companies restore their earlier vigor and refresh their bottom-line.
Please let us know your thoughts by leaving a comment below or contact us directly--whichever you prefer.