Leadership

Too Much Entrepreneurialism Can Be a Bad Thing

Why mid-sized companies need to stay focused instead of jumping at every available opportunity.

Written by Robert Sher

Startup companies that thrive react to a new market opportunity at lightning speed, long before big, established companies even recognize what’s happening. Facebook founder Mark Zuckerberg acted upon the need for an online social network in 2004, beating billion-dollar businesses like Google and Microsoft to the opening even though Zuckerberg was just a Harvard student.

But when startup firms grow up to become mid-sized companies, they can no longer simply react to every market opportunity they believe to be promising. They need the discipline to stay focused and build operational and leadership strength within their business.

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Indeed, I’d argue that having too entrepreneurial a mindset—if you define that as identifying, reacting quickly or diving headlong into to new market opportunities—is exactly what will get a mid-sized firm in trouble.

For example, making the quick decision to fire your entire staff to pursue a new opportunity destroys growth. Brian Scudamore, the Vancouver-based founder of 1-800-GOT JUNK, started his business in 1989 as a college student. Over the next five years it grew significantly, but that growth wasn’t sustainable.

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“I realized that I was not having fun anymore. I was avoiding time in the office,” Scudamore explained. “The business wasn’t delivering good customer service, it wasn’t friendly and we weren’t smiling. It was time for a change.”

Scudamore reacted by firing his entire staff, scaling back, then re-building his company in a fashion that could scale. He was able to recover because his business was still small. Mid-sized companies could not survive such entrepreneurial tactics.

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Mid-sized companies (generally defined as firms with revenues between $10 million and $1 billion) must be managed and led differently than small firms. No longer nimble enough to maintain growth by reacting to challenges, they must anticipate the business’s needs and plan for them in order to create stability and predictability. Such predictability requires that its leaders design leadership infrastructure: a team of leaders and leadership processes like business planning and governance.

Consider the case of Pinchin Ltd, an environmental and engineering consulting firm established in 1981 by Don Pinchin in Mississauga, Ontario. The company grew steadily over the years because they delivered the high quality services their clients needed to comply with environmental regulations.

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Yet the path to becoming what is today a 360 person organization with 16 offices—and a place on the PROFIT 500 ranking of Canada’s Fastest Growing Companies—wasn’t just about technical expertise. It was also about adroitly developing leadership infrastructure as the firm grew to mid-sized.

Without the appropriate leadership infrastructure, growing companies may be victimized by their own success.When they do achieve the growth they so desperately seek, they quickly outgrow their leadership infrastructure. Business procedures become chaotic and increasingly inefficient. Unfortunately, schools don’t teach classes in building leadership infrastructure, and the skill does not come naturally to most leaders. Many midsized company leaders equate such concerns with big-company bureaucracy. That’s wrong. To grow from small to big, you must build a leadership infrastructure.

How do you achieve this? Leadership infrastructure includes four key elements:

  1. Quality leadership with deep experience: Include the board of directors, the management team, subject matter experts and external consultants in the decision-making process. To plan for the future, you need leaders with experience in larger organizations. In 2000, Pinchin began recruiting seasoned technical leaders from its larger competitors to spearhead diversification within the general environmental field.  In 2007 they hired Jeff Grossi as COO, a non-technical business leader with a specific mission:  driving the development of leadership infrastructure including planning. “We had so many amazing technical experts with great solutions that we needed help coordinating them, keeping us focused and strategic,” Pinchin told me. “Jeff was a great addition and his skill set, focus on process and leadership have been essential to our growth.”
  2. Planning and governance processes: These can ensure that the leaders of the company stay on track, executing a thoughtful strategy. This includes forecasting, budgeting and performance management systems.  Grossi introduced business planning, driving it through the ranks until each management team member developed one every year.  He managed development of the leadership committees including the Board of Directors and Executive Committee in conjunction with Don Pinchin’s reduction in ownership of the company through their unique employee share ownership plan. In 2014, they modified the organizational structure, creating a regional general management structure to support growth and manage the day-to-day activities, along with a technically focused practice leadership team, led by Bruce Stewart (employee #2) to insure quality and knowledge sharing.
  3. Information gathering and analytics acumen: These activities look outwards, at markets, competition and the company’s reputation, and inwards at the organization’s culture, teams and performance levels. Pinchin, recognizing that its employees were its most precious asset, entered the Great Place to Work—Best Workplaces in Canada contest in 2005, with the aim of creating rigorous internal procedures for surveying employees and identifying areas for improvement. Pinchin increased focus on internal measures such as staff utilization and financial reporting. They introduced new non-financial measures such as training time and staff retention to their management system. Consequently, the company has ranked in the top 50 each of the past nine years.
  4. An effective communications rhythm: Strengthen the connections among leaders, between management and employees, and out to customers and partners. This set of procedures includes meeting management, performance management and external messaging. Although 1-800-GOT-JUNK has grown to 1,000 trucks operating in three countries with nearly $200 million in revenues, Scudamore keeps communication front and centre with a daily huddle of all employees at HQ. He credits the development and dissemination of processes with much of his incredible success.

Don’t think for a minute that adding leadership infrastructure was all cost and no benefit for Pinchin. In fact, it was quite the opposite. Since 2007, when leadership infrastructure building began in earnest, the company’s headcount has doubled. Top line revenue and profit have grown at an even greater rate, well above industry average.  The company has no debt, pays dividends to its employee-shareholders, and has the leadership and financial stability to remain an independent Canadian-owned company for years to come.

Mid-sized businesses are at particularly high risk for the seven silent growth killers.  The key to avoiding them is building leadership infrastructure as you grow, which allows you to anticipate many of the challenges most businesses face.

Robert Sher is the founder of CEO to CEO and the author of MIGHTY MIDSIZED COMPANIES: How Leaders Overcome 7 Silent Growth Killers (Bibliomotion; hardcover; Sept. 16, 2014). A regular columnist on Forbes.com, Sher has consulted for executive teams at more than 80 companies to improve the leadership infrastructure of mid-sized organizations.

Originally appeared on PROFITguide.com