The measured organization is deliberate, intentional, and appropriately restrained. Its leaders count the cost of doing business and mindfully plan and define objectives relative to investment, both capital and human. Measured organizations are focused and have no illusions or delusions with respect to identity, purpose and strategy. It clearly understands the market, the financial opportunities it affords, and the cost of building a sustainable, profitable, and value-driven organization.
In March, Mark Cuban posted an article citing his belief that most private equity investors and/or so-called angels, are deep under water. I recently met with an active private investor who told me he expects one in 20 investments to pan out. And he is happy with that scenario! I can’t think of another field where success rates that low would be tolerated.
Why the abysmal success rate? According to Cuban it’s because privately funded firms have zero liquidity. He goes on to say, “all those Angel investments in all those apps and startups. All that crowd-funded equity. All in search of their unicorn because the only real salvation right now is an exit or cash pay out from operations. The SEC made sure that there is no market for any of these companies to go public and create liquidity for their Angels. The market for sub 25mm dollar raises is effectively dead.”
While liquidity may be a symptom of the problems facing start-ups and in many cases established businesses as well, research from a study completed this year by Bradley University and the University of Tennessee for Entrepreneur Weekly Small Business Development Center suggests the root causes are tied more closely to management’s failure to plan—what we at MindMeld call “Counting the Cost”—before launching a new enterprise, extending a product line, or scaling the business into new territories.
For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?”
— Jesus of Nazareth, The Gospel According to Luke, 14:28 NASB
According to the study, 44% of all businesses fail within the first three years of operation. That figure jumps to 71% by year ten. The research found “incompetence” (46%) as the leading cause of business failure, including lack of a plan, emotional pricing, no knowledge of competitive pricing, and poor record-keeping practices as specific reasons for management’s shortcomings.
The research concluded most startups lack the discipline and knowledge needed for cultivating workplace efficiency and establishing a competitive position in the marketplace. Few recognize that it takes more than a great idea, killer app, or “can’t miss” product to realize success. Others are in it for what Cuban referred to as a fast exit with a big cash pay-off, often the result of patent trolls seeking an even faster return and yet bigger payout.
At MindMeld we work with clients at various stages of the business lifecycle, but almost always our consulting engagements revolve around firms attempting to successfully navigate inflection points that have a significant impact on the growth and sustainability of the organization. A standard “S-curve” model illustrates the point.
Note the crucial trouble areas for most business leaders are the Entrepreneurial Phase—where a viable vision must be cast and implemented, the Management Phase—where systems and processes that allow for nimble, consistent, and profitable growth must be engineered and installed, and the Maturity Phase—where innovation and process transformation must occur, typically at break-neck speeds.
It is also worth noting that the skills, talents, and mindset needed to succeed in each phase are the ones cultivated by a healthy, forward thinking organization in the previous stage of growth.
Using a lifecycle continuum like the one above is helpful in plotting out what must happen at each stage of the organization’s development. Doing so is more difficult than most entrepreneurs first imagine because it involves an in-depth analysis of the market, its major players, prospective customer/client behaviors, realistic pricing models, a plan for scaling operations, and most importantly, unbiased and intensely uninhibited introspection. If you ever watch Shark Tank you will quickly recognize this is where most show participants fail. They simply have not accurately or properly counted the cost of sustaining the business or whether they have the requisite talent to make the vision a reality.
For example, we were intimately involved in the launch of a firm in the information technology space that has struggled mightily in crossing the chasm between the vision-driven Entrepreneurial Phase to the process dependent Management Phase. Despite being extremely profitable and establishing a growth trajectory that is the envy of most firms in their industry, the company has failed time and again at scaling the business into new territories. The resulting growth curve will eventually look something like the one illustrated below.
Over time the firm is able to develop and fine-tune efficient processes [reach equilibrium/capacity], but sales and the resulting profit margins stagnate, drop off, or fall into an oscillating pattern because the firm has reached critical mass relative to the total addressable market in the regions where it operates. High turnover, lack of a coherent identity, uncertainty around the organization’s strategy, and poor execution are symptoms of firms headed in this direction.
Performance of this nature usually arises from a lack of trust and inability to think globally [see the big picture] on the part of the founder or vision caster. The more the firm grows the tighter the owner holds on and the more control they exert. This is why the first person replaced at fast-growth firms when they are purchased or merged into a larger organization is the CEO.
By comparison, a firm with a clear and workable strategy not only grows at a consistent rate, it consistently and significantly outperforms the expected norm. Characteristics of firms that operate on the blue line above are a concise, simple, easily understood mission, well-defined positioning that conclusively communicates value, top to bottom shared, uncompromising core values, and methods and processes that deliver exceptional client experiences.
The invincible Japanese Samurai warrior Miyamoto Musashi wrote in his classic A Book of Five Rings, “When you attain the Way of strategy there will not be one thing you cannot see.” These words have even greater, more far-reaching application because for Musashi achieving mastery in one discipline enables you to transfer those skills to other areas of life. Hence, the Way of strategy is a blueprint for success in any endeavor you wish to apply it.
Have you achieved “the Way of strategy?” Taking a measured approach is the first step in the journey.
About MindMeld: Our vision is that your business will grow, prosper, and make a positive and lasting impact on the world. We accomplish this by helping you discover and communicate the inherent value of your products and services and capitalize on that value in lasting, meaningful ways. To learn more please contact me at doug.knuth@mindmeldmarketing.com.