Inside the cramped boardroom of ClearFit, a Toronto developer of recruitment software, is a whiteboard covered with a scribbled list of strategic commandments. About five years ago, when co-founders Ben Baldwin and Jamie Schneiderman embarked on a drastic business reinvention, they scrawled their guiding principles on that board. The notes, which have never been erased, serve as a reminder for all ClearFit staff to keep their software simple and focus tightly on customer requirements.
It’s an attempt to avoid repeating a mistake that almost torpedoed a huge opportunity. Founded in 1999, ClearFit originally catered to large multinationals, selling sophisticated applicant-screening software to their HR departments. After a few years, the partners decided to adapt their system to small businesses. But the resulting product, loaded with features, made explaining it to prospective clients feel like “a slow ache,” Baldwin recounts.
One day, an outspoken customer said to the owners, “Guys, you need to change your game.” The system simply had too many bells and whistles for small firms to navigate. It was an aha moment. “The harder you work on a product, the easier it is to get away from your customer,” reflects Baldwin today. “The technology doesn’t matter if the patient doesn’t desire the medicine.”
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That epiphany led the partners to rethink their approach as they sought to better align their service to clients’ actual needs. Trying to clear their heads of daily operating routine, they turned to some distinctly non-business pastimes. “We played a lot of tennis [and] went on long walks for gelato,” says Baldwin, a muscular 39-year-old with a taste for extreme Frisbee.
The ClearFit founders’ experience is increasingly common among entrepreneurs as they fight to stay abreast of rapidly changing technology, innovative rivals and new market opportunities. The realization that your business is stagnating or failing to reach its potential presents a tough challenge: to come up with a fresh way of thinking when you’ve always done things in a certain way. Complicating matters, busy executives struggle to carve out the time to step back from their operations and reflect on the big questions: Is the business model working? Are there new opportunities to pursue? Should you be doing things in a fundamentally different way?
Trying to reinvent a business requires a mindset open to measures “quite a bit more radical than just battening down the hatches,” says Barry Levine, an associate partner in Ernst & Young Canada’s performance management advisory group. This exercise may lead to a decision to enter new geographic markets, launch adjacent products or services, even reboot the business model entirely, although experts point out that stem-to-stern overhauls are rare. But, Levine notes, “A lot of owner-managers have trouble stepping back from the weeds and figuring out when to do a reinvention.”
The consequences of doing nothing can be a precarious sort of lethargy, or worse. Research conducted by the Corporate Executive Board, a U.S. advisory firm, shows that once companies’ growth stalls, only about 10% survive.
The time to tackle a reinvention is when business is good and sales are rising, says Accenture Canada president and managing director Michael Denham. “When times aren’t good, it will be too late,” he says.
For those who do manage to pivot their firms, the upside is a reinvigorated operation, new clients and more sales. In the case of ClearFit, Baldwin’s team put the existing enterprise business on life support and proceeded to strip the complexity from their small-business offering until they had a lean, easy-to-use service. On the advice of a fellow entrepreneur, Baldwin has augmented the technical fix with savvy marketing improvements: an 800 number on the website, free trials and explanatory videos.
The reinvention took hold with both existing and new customers. Five years later, ClearFit boasts 5,000 small-business clients. “When you get it right,” Baldwin says, “it’s like logarithmic growth, which is what we’re going through right now.”
Great companies innovate and reinvent themselves constantly. Amazon.com founder Jeff Bezos, for example, has rewired the US$48-billion-a-year company several times, expanding from its origins as an online bookseller into an ecommerce general merchant, an e-reader distributor and, more recently, a logistics and software platform for other businesses. To formulate such transitions, Bezos makes a point of going on quarterly three-day retreats by himself to contemplate the strategic landscape and game out Amazon’s next moves.
It’s the sort of regular introspection that all owner-operators should consciously incorporate into the way they run their companies, but few, in fact, do, says Seattle-based creativity consultant Chris Grivas, co-author of The Innovation Team: Unleashing Creative Potential for Breakthrough Results . Many entrepreneurs, he explains, have a “bias towards implementation… We don’t spend enough time reflecting on what we’re doing.” In his view, “If you haven’t reset your vision in the last five years, you’re overdue.”
How do you know the time is ripe for a big rethink? Paul Nunes and Timothy Breene, reinvention experts at Accenture, point out in their book, Jumping the S Curve, that most firms’ fortunes follow a similar pattern: a period of slow initial growth that leads to accelerating expansion, which, in turn, yields to a revenue plateau. Even the most successful companies eventually run out of room to grow unless they do something big and new, the book argues: “The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief.”
Some firms on a rapid growth trajectory, the book notes, stop planning for the next major development, innovation or market, and focus instead on driving down costs and increasing margins. Those are rarely the stars. To successfully reinvent, companies need to pay close attention to what’s happening at the edges of their organizations and markets. “Front-line employees, far-flung research teams, line managers—all these individuals have a vital role to play in detecting important shifts in the market,” Nunes and Breene write.
Kirk Layton knows all about S curves, and has spent the past several months pondering his firm’s problematic location on the growth continuum. Layton is president and founder of eServus, an online concierge service geared toward commercial tenants in large office buildings. Layton’s firm focuses on distributing discounted tickets for shows and sporting events, a service that he knew from working for two major office developers was the most popular concierge offering. Since launching eServus in 1999, he has signed up almost all the major office buildings in Toronto, Calgary, Vancouver and Boston.
And therein lay the problem: In the past year, Layton began to realize the opportunities for growth were limited because he’s already tapped most of his market. He had reached the plateau on his S curve, and he knew he had to act. As he pondered his most recent strategic plan, prompted by increasingly pointed questions from his board of directors, Layton saw that his 13-year-old business model had a fundamental flaw.
For years, he had viewed the tenants as his customers. But as he brainstormed ways to reinvent the firm, he realized he should be focusing on property managers instead. With the blessing of his board and senior management team, he rewrote the strategic plan. “I then went through our company mission, brand promise, BHAG [big hairy audacious goal], core values, core competencies, brand guarantee and slogan, and revised them to reflect our new strategy,” he explains.
Next, he surveyed all his customers, asking what other non-core tasks they’d like to outsource. The answers: event planning, tenant newsletters, tenant research surveys and the preparation of industry awards submissions. He now has begun adding these services to eServus’s existing offerings. “When I put the property managers at the top of the food chain, I realized I could ask what else we could do to reduce their pain,” he says.
Layton’s story shows that the old adage about not fixing something that ain’t broke is a dangerous way to run a business. Entrepreneurs must regularly stand back and scan the horizon for warning signs and opportunities, scrutinizing all the market and technology dynamics affecting their companies, says Accenture’s Denham. “You need to be constantly talking to your customers and your customers’ customers.”
For Lynn Cooke, president of 360 Visibility, a Vaughan, Ont.-based reseller of Microsoft productivity and customer relations management systems, cloud-based computing proved to be that disruptive force that pushed her to revamp her whole business. For years, her company had operated according to a straightforward and predictable business model: it sent its consultants out to customers’ premises to configure their systems. But the arrival of software offered via the cloud forced Cook to acknowledge that “if we keep doing things the way we’ve been doing them, we’re not going to be around two or three years hence.”
The breakthrough came when she realized cloud computing wasn’t just a threat but an opportunity: Cooke and her team could develop and market their own applications to other resellers. The reinvention shifted 360 Visibility from a billable-hours revenue model to one that revolves around application sales to clients globally as well as other resellers. The shift has opened up new markets and revenue streams and has left a mark on the company’s structure, with three outbound telemarketing jobs gone and several software developers hired instead. “It wasn’t any kind of brainstorm,” says Cooke. “We had to do this to survive.”
Some entrepreneurs, especially those working in highly fluid sectors, try to anticipate needed changes before they’re matters of survival by making a point of routinely exposing themselves to new ideas. Five years ago, for example, Liz Falconer, who runs Toronto ad agency Brees Communications, took a valued employee to a New York conference as a reward. “I was so blown away with where it took my mind,” she recalls. “It was like I got a jump start.”
Ever since, Falconer has been travelling to thought-provoking confabs, such as the World Leaders Conference and the Ad Age Digital Conference, twice a year as a way of stoking the inspirational fires. For a small firm whose industry is in upheaval, such experiences feed directly into the company’s ability to distinguish itself. Falconer inevitably returns with a “massive” shopping list of ideas for Brees. One year, she sat in on an electrifying session in which Twitter’s co-founders talked about their firm’s impact on advertising. Soon after, Falconer sought to hire a young sociology grad to help her team make sense of social media.
More broadly, Falconer has institutionalized her approach within the company. Every employee now is expected to “get out of the four walls and be inspired” once a year by attending a conference likely to boost their creativity, she says. The Brees team also started holding weekly meetings to which every employee has to bring in something—an object, an ad, a video or image they saw online—that really has grabbed their attention. “You have to have a culture of experimentation that supports the idea of breaking out of what you’re doing every day,” Falconer says.
Experts agree that to undertake a major transformation, founders must foster a culture where new ideas can take root and senior managers aren’t afraid to make daring suggestions. Still, such exercises in reflection and innovation will bear fruit only if the owners know how to translate ideas into action. “A lot of this is about change management,” says E&Y’s Levine. “The owner manager has to articulate the benefits [of reinvention] to the staff . If the owner doesn’t believe it, people will say, Oh, there goes the boss again.'”
Taking a systematic approach also is critical. Admiral Road Design founders Amy Ballon and Danielle Botterell, two MBAs who founded a custom baby blanket business as a way to escape the Bay Street grind, schedule what they call their “G2” summit for several days each year as a way of taking stock and plotting direction. They always meet off-site—Admiral Road runs out of an apartment in Ballon’s home. The meeting happens in January when, having just come off the holiday season trade-show circuit, the co-founders can use insights gleaned from the market to plan the coming year, covering everything from production and marketing to finance.
“There’s usually something that we want to work on, or that is demanding our attention,” Botterell says. One year, it was a website revamp. Another year, they worked out a plan for an expansion of U.S. sales. Ballon and Botterell also meticulously lay out a calendar with crisp timelines for each element of the year’s plans. As Botterell notes, “Once we determine a theme, it’s amazing how helpful it is to make future decisions in that year.”
Working with a strategy consultant, Kirk Layton also adopted a highly methodical plan for reinventing eServus, which remains a work in progress. Because the company’s new services are so new and have not been completely market-tested, he has taken care to protect the ticket-supply business for which eServus is best known. His advice: “Don’t put your core business at risk. It’s OK to risk what might be. If [the reinvention] doesn’t work out, we’re not hurting our core business. It’s not a total reboot.”
E&Y’s Levine agrees that most successful entrepreneurial companies reinvent themselves incrementally: “They won’t throw the baby out with the bathwater. They’ll bolt something on.”
Still, founders who have succeeded in reimagining what their companies can be and do say that significant transitions are always about more than just a plan. They invariably entail upending the status quo, reexamining basic assumptions, and pushing the sometimes reluctant operation to take new risks. As ClearFit’s Baldwin says, “A lot of it is gut, and knowing the market.”