During my recent trip to Brazil, one founder asked me to provide a list of the likely tensions his fast-growing company would face over the next couple of years. I prepared four key items, which I refer to as The Four Great Balancing Acts of fast-growing, founder-led companies:
1. The tension between nurturing the Founder’s MentalitySM (looking backward) while capturing benefits of scale and scope and building new capabilities (looking forward).
As the company grows, it is important to look back and rediscover how the company became successful. A founder is smart to trace the company’s history and try to codify the mindset, the repeatable models, the key routines and the nonnegotiables that led to the current growth. At the same time, the leadership team must also look forward and quickly capture the scale-and-scope benefits that come with growth. They will need to recruit new leaders who bring new capabilities; they will need to rethink customer and supplier relationships based on their new scale. On top of all this, they need to thoughtfully shape the evolving culture, including creating better processes to capture and embed best practices in the organization.
A great example of how to incorporate both comes from Brazil: One third-generation CEO encouraged his grandfather to come to company meetings and discuss the early days. His grandfather’s big theme was that for his first five years of business he never signed a contract—his handshake was enough and his word was everything. This led to a great discussion of integrity and of keeping promises. Paradoxically, the grandfather’s speech was always followed by the firm’s lawyer discussing the critical importance of good contracts in which every issue is nailed down before the company invests a centavo. The CEO always closed this part of the meeting by saying, “From day one, with our first customer, our word was all that mattered. Your handshake is your most important asset and every customer should feel that it is enough. But in fact, it isn’t enough—so shake hands with your right hand while handing out a contract with your left.” (The CEO noted dryly that his grandfather rarely smiled during his closing speech.)
Preserving the assets that created today’s success while adding new assets that will help with tomorrow’s journey is a balancing act. It takes two hands.
2. The tension between capturing the benefits of the similar (e.g., common processes, value propositions and systems) and the benefits of the different (e.g., local value propositions and frontline actions that serve unique local needs).
I’ve said in previous posts that a key goal of organizational design is to create the right conflicts. The most common “good conflict” is between the leaders in the organization who are trying to make things similar and those who are trying to make them different. Considering that both categories are valuable, there’s a fine balance leaders need to strike.
One example that came up in Brazil involved storefronts. As the company grew, leaders found there were huge savings to be gained from harmonizing their storefronts. They made all signs the same, all proportions among windows and doors the same, and coordinated all window displays. However, a lot of their best store managers were working hard to fit into their local environments by matching the fronts of the stores next to them and having window displays that reflected local tastes (e.g., the local football teams).
This is a wonderful conflict, and consumers can benefit either way: through more local offers that come with customization or through the cost savings that come with harmonization. But this one conflict can also burn up a lot of emotional energy, leading to hostility toward the bureaucratic corporate office, or the naïve managers on the front line. The founder needs to encourage the conflict, but find a way to keep it non-personal and nonemotional and, most importantly, to resolve it quickly.
3. The tension between tighter controls and greater frontline empowerment.
As companies grow, they add huge amounts of complexity. Far more is happening than the founder can monitor personally, and so the company needs more systematic controls. Equally, though, it has to be very careful not to disempower the front line or lose the entrepreneurship that led to early success.
One founder in Brazil recently put in new pricing guidelines, and it sent shockwaves through the company. Employees saw the guidelines as “central control” sucking the life out of the front line. When the founder reflected on the situation, he realized that the decision to introduce better pricing policies was the right one, but he didn’t go about it in the right way. “In hindsight, I should have worked with a couple of my best frontline guys to create the guidelines. It should have been a tool they developed to help each other,” he said. “And I should have focused more on the time-saving benefits, prompting folks to ask themselves, ‘Why should I come up with 100 individual pricing decisions a day when a set of guidelines could help me make them faster?’” This was the founder’s resolution: “Next time I want to bring in controls, it is going to be the front line that does it. I want them to realize it is something that will help them do their job better. I don’t want someone from the center making that decision for them.”
The way you go about creating tighter controls matters. It can be empowering, or it can be seen as a power grab. Paradoxically, creating an empowering process to add controls can work out well for both sides.
4. The tension between repeatability (the right set of routines) and adaptability (being able to change over time).
This tension is a big topic in our book Repeatability. On the one hand, you’re telling folks to do things the same way every time. On the other, you’re asking them to adapt and perfect the model, necessitating change.
The CEO of a chemicals company challenged me directly about this one. He asked, “How can I balance an agenda that demands my people pursue continuous improvement of our current model, while also asking them to decide when to change the model?” He went on to explain that early in the company history, his whole team acted like insurgents. Rather than just bid on a contract and try to win it, they would try to think of creative ways to change the bidding process and to offer something new and different. This worked very well 20 years ago, but the industry had matured—and now they needed to win within the rules of the contract. He had a culture of folks who wanted to endlessly adapt, in an industry that required continuous improvement within the existing model.
I told him stories of two CEOs who had somehow mastered this tension. The first was Sir Chris Gent at Vodafone, who designed a strategy process that allowed his whole leadership team to challenge every rule of the industry over a week-long strategy offsite. In exchange, they agreed to drive continuous improvement of the existing model for the rest of the year.
The second was the CEO of a Turkish company. His approach was to separate his employees into “doers” and “thinkers,” and assign each a role related to the repeatability/adaptability tension. “The majority of my people are doers and the heroes of my business. I tell them to ruthlessly focus on the existing model and improve it. But they are simply to report on new activities, some of which might demand we adapt our model, not to act on them,” he said. “Then, we have a tiny group of thinkers, who are their servants. They will tell the doers what changes to the model are needed, when they are.”
Capturing the benefits of Founder’s Mentality while capturing the benefits of scale and scope is a constant balancing act. While the task is massive, these four areas are a good place to start.