Robert Sher has seen too many $10 million firms grow into $50 million businesses, only to be thrown off course by a growth obstacle. The founder of CEO to CEO—a consulting firm that improves the leadership infrastructure of midsized companies looking to accelerate their performance—noticed that these firms tended to fall victim to a set of “silent growth killers,” and identified seven common ones that organizations across industries were encountering.
The author of Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers shared what mid-sized businesses should look out for, and how they can ensure they don’t fall victim to these growth killers.
PROFITguide.com: The first silent growth killer you identify is “letting time slip slide away.” How can a business leader ensure they’re using their time efficiently?
Robert Sher: When you’re a small business, you don’t tackle massive projects that cost a million dollars and require three functions to collaborate. But when you get to midsized, all of a sudden it’s like “holy cow, to put in a new computer system, it takes a year and a half.” People who have founded businesses don’t plan for it because they’re not used to project management discipline.
Entrepreneurs, founders and CEOs want to do everything because it all seems so important. But no organization, especially a mid-sized organization, has enough money and time to do all the good ideas; they can only do the very best ones. So, prioritizing ruthlessly is crucial.
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How does a company fall into the second silent growth killer “strategy tinkering at the top,” and how can they come back from it?
Strategy tinkering at the top happens because those of us who have started small businesses and got to mid-sized came up with lots of interesting strategic ideas and one finally caught hold. But that becomes a problem when we’re trying to keep the bulk of our team focused on the core of the business—what’s working really well—and we keep distracting them with more and more ideas because we’re stuck in that idea mode.
What’s crucial is that we keep blinders on our core team so they stay focused. If we have other ideas—and we must have others because it’s important—we have to hide them from others. We have a small team maybe that helps figure out what the good, go-forward ideas are and that we de-risk them.
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Businesses want to grow, and that requires taking some risks, but you identify “reckless attempts at growth” as the third silent growth killer. How can somebody expand without becoming a victim of this growth killer?
You have to innovate at some level, and you have to look at new things, but when you’re going to put $34 million into something that will hopefully generate $10 billion a year in revenues, you have to be much more diligent about how you analyze the project.
There are three things to get right when you’re looking at a big expansion of the business to ensure it’s not reckless. First, you need to have a real understanding of the marketplace and very high confidence that the market wants what you’re creating.
Second, you have to have very high confidence in your ability to execute. The market wants it, but can you build it? And can you build it in time? And build it well? There are a lot of fumbles in that area.
Third, ask yourself if you have an ace team that can stand forecast? That means, typically a CFO that knows how to do a forecast, which is very complex and difficult. Do they have real experience at it? Do you have an executive team that has the discipline to stay on that forecast? Sometimes you have a great forecast and the CEO just runs amuck and does something different.
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How does “fumbling strategic acquisitions” become a silent growth killer for companies?
Acquisitions can be a beautiful thing and produce a lot of value, but more than half essentially fail to produce what they’re supposed to produce. Every business has key strategies, and acquisitions should line up and drive those key strategies. If we need to expand into the west from Ontario, and we can make an acquisition that does that, such as a Vancouver acquisition, then that supports the strategy. Too often we make acquisitions that don’t support a strategy. They’re just fun or interesting or add profit. That’s very dangerous.
We also have to look at our ability to execute the acquisition well. Is this a company that is small enough that we can manage it? Do we have the expertise to integrate another company when we buy it? Sometimes an acquisition is great strategically, but we just don’t have enough bandwidth to do it.
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How can a business prevent an operational meltdown, the fifth silent growth killer, from happening?
This is distinctive to high-growth companies. We’re hungry for sales, we’re pitching, we’re trying to sell everywhere, and then our dream comes true. We’re like, “Holy cow, Costco and Wal-Mart all said yes in the same day. Now what do we do?”
What’s absolutely important is that you have an executive that loves operations. Many CEOs don’t—they’re sales types, they’re creative, they’re engineers. You need executives that really pride themselves on seeing that the trains run on time. Secondly, you have to shift the organization from a sales culture to a customer satisfaction culture—a big difference.
The third thing I would say is that you have to keep extending your planning horizon. Companies are in big trouble if they realize that their plant or their manufacturing capacity will be insufficient say six months from their realization, but it takes a year to build another one. The antidote to that is having people on staff who can say, “I’m going to be looking at our capacity 18 months forward, so that when we’re 15 months forward, we know if we’re going to have a problem and we have time to fix it.”
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The sixth silent growth killer you highlight is “liquidity crashes.” How can a business ensure they’re prepared when this growth killer creeps up?
Running out of money happens in two ways. Sometimes, it’s a big upturn in the business—it takes money to grow a business, so you run out of money. The other way is to just erode your financial statement a little bit every year. You lose a little money, something goes a little wrong, and then before you know it, your bank is breathing down your neck and at the same time you lose a big customer or the economy crashes.
The most important takeaway is to keep your balance sheet strong. The balance sheet is like the airbag of a business. If your balance sheet is strong when something bad happens, you have ability to borrow some money. You have some cash on the books and some inventory you can sell off, so that when you’re slashing expenses, you have ways of getting liquidity until you’ve solved the negative cash flow problem. Too often in a downturn people weaken their balance sheet to survive, don’t rebuild it in the upturn, and then the second downturn kills them.
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How can a business ensure that they aren’t tolerating dysfunctional leaders, the final silent growth killer?
Too often, the people who help a business go from small to medium aren’t the people who take it forward. When you’re small, you sort of need a jack-of-all-trades—people who can react really fast and fix problems. When you’re medium-sized, you need more experts, less generalists. You need people who tend to look ahead and plan as opposed to just reacting.
But many CEOs are nice people who develop loyalty to the people who helped them get where they are. That loyalty allows them to tolerate dysfunctional leaders even when it’s not good for the business. The way to reset your mind is that the CEO, and all leaders, have to be loyal to the company’s mission first. Their job is to deliver that company where it’s supposed to go, and not to be loyal to an individual that’s hurting the company’s mission.
That’s not to say that I think you should just fire someone the moment they don’t perform. I look at loyalty as a sort of bank account: if someone does an amazing job, then the loyalty account goes up. If they get divorced and they’re not as productive—hey, that’s okay, the account goes down a little bit, but it’s still got a positive balance. But at some point when someone hasn’t been performing, the bank account runs dry, and it’s the leader’s job to make that change.
How do you avoid the seven silent growth killers? Share your tactics and ideas using the comments section below.