For a little over a year, we’ve used this blog to discuss a fundamental question: How can insurgent companies grow and achieve the benefits of scale without sacrificing their Founder’s MentalitySM—the sense of mission, the owners’ mindset, and the maniacal focus on customers and the front line that powered their early success? We view this effort as a journey—the Journey North—and it mostly involves what we call tiger-by-the-tail companies—businesses that have broken through the start-up phase to earn a real shot at becoming market leaders, and in some cases, true world beaters.
There is a lot of good writing (see the short list at the end of this post) about the start-up phase, which serial entrepreneur Steve Blank defines pretty succinctly as the period between coming up with a great idea and developing a “scalable, repeatable, profitable business model.” There is also a long list of good books on those companies that have succeeded spectacularly—including In the Plex, an inside look at Google, and The Everything Store, the story of Amazon’s rise.
But the bookshelves and blogosphere are less full of stories about businesses in the middle—the ones that have developed a scalable business model but have not yet “made it” spectacularly (depending on your market, let’s call it $100 million to $500 million in sales). It is here we find the tiger-by-the-tail businesses—companies that don’t have growth problems so much as they have sustainable growth problems. Their major challenge is taming the tiger: figuring out how best to organize for hypergrowth so they can keep from self-destructing amid a turbulent, competitive market. These companies are steeped in the Founder’s Mentality and are just starting to profit from leadership economics (scale and scope benefits, marketing power and influence, and strong learning systems). In our framework, the goal of the Journey North is to capture the full benefit of scale without losing the speed and sense of mission that give these companies their true source of competitive advantage.
In our work with dozens of management teams embarked on the Journey North, and through our formal forums with DM100 members, we have begun to break down this journey into the specific steps these teams must address. Inspired by Microsoft senior director Tren Griffin’s “A Dozen Things I’ve Learned from…” series, we plan to use the next half-dozen blog posts to distill what we’ve learned. Here’s a summary of what to expect:
Step 1: Maintain the insurgency. Most companies that break through the $100 million to $500 million mark are insurgents. They are at war against their industry on behalf of an underserved or new customer segment. Maintaining the insurgency, however, is one of the hardest acts in business. As you become a “player” in your industry, you are increasingly evaluated by the rules and targets established by the incumbent, gradually reducing your own aspirations. Step 1 of the Journey North, then, is to reaffirm what the company stands for and why it exists. It’s critical to spell out the insurgency clearly and translate it into a strategy and a repeatable model that define the capabilities and frontline actions needed to deliver that model consistently—a process we call direct connect.
Step 2: Scale without sacrificing speed. These companies are in a period of hypergrowth, where organizational issues are often far more critical than closing the next sale. Why? Because too often, the sum of the organizational decisions made during this phase destroys the company’s most important strategic capability: speed. During this phase, the leaders must get three things spectacularly right: First, they must create an operating model for the business that is built for speed. Second, the organizational model must fully empower the ‘“kings” (those most accountable for delivering to customers what the company sells). Third, they must be clear about how they will scale the business and keep the model simple. Our goal is to force these leaders to consider the “cost of complexity” in all decisions and our hope is that “no” will turn into an important strategic concept.
Step 3: Balance heroes and systems. Tiger-by-the-tail companies are rapidly building the systems they need to support rapid growth. But too often these systems take on a life of their own and distract management from the essential task of finding an accelerated path to industry leadership. To our surprise, we spent almost six full months in DM100 meetings sharing best practices about this one issue: How to strike the right balance between installing systems to “contain the chaos” and encouraging “heroes” to stretch well beyond their job description. The answer we co-created with this group was twofold: First you must use the idea of a Monday meeting to establish a cadence for fast conflict resolution that forces the leadership team out of their silos on a weekly basis. Second, you must ensure that the professionalization agenda remains subordinate to the insurgent strategy. The new professionals and systems are there to strengthen the heroes, enabling them to reach new heights. They are not part of a professionalization checklist. Recruiting and integrating professionals that understand this is one of the most important and difficult jobs of the founding team.
Step 4: Learn. There is one undisputable benefit of growth, and that is learning. Accumulated experience should create a deep moat around an incumbent company that keeps insurgents at bay. But in many cases the incumbent has lost the art of learning, which provides the insurgent with a unique opportunity to learn faster about the things that really matter. That starts with building feedback loops between the customer and the kings—a task that is easier said than done. When the king is head of a store or a branch, for instance, establishing feedback loops can be straightforward. But what happens when the king is a product-development manager? Too often, we’ve seen situations where marketing erects a wall between product development and the customer to maintain control of the relationship. The result is that the king of the business loses touch with the customer and an opportunity to learn is squandered. It is the leader’s job to break down these walls and create a culture that rewards peer-to-peer learning.
Step 5: Simplify to redeploy resources. Notwithstanding steps 1–4, growth will establish complexity, and complexity is the silent killer of growth. So leaders on the Journey North must continually spring clean, zero-basing all they do on a regular basis to speed things up and redeploy trapped resources. The simplification agenda is, first and foremost, about retaining speed. But it is also about freeing up resources. Companies experiencing hypergrowth can’t afford to have talent and investment trapped where they aren’t serving the strategy. A growing company’s success depends on its ability to “overwhelm” its biggest priorities with the right talent and the right resources on a moment’s notice. If the company is losing customers, leadership needs to flood the zone. If innovation is flagging, innovation needs immediate attention. Winning is making sure resources aren’t ensnared by complexity or caught up in yesterday’s problems.
Step 6: Adapt. In a world of limited resources, where revenues are growing faster than talent, the prospect of completing steps 1–5 already represents an extraordinary agenda. But there is a final step on the Journey North, and it assumes completion of the other five. What we’ve talked about until now is using your repeatable model to bring order to the chaos without sacrificing your insurgent mission. Step 6 demands that you consider fundamental changes to the model itself as the market shifts and evolves. If steps 1–5 are about continuous improvement of the model, Step 6 is about devising a new one. We refer to this as the “Engine 1 vs. Engine 2” issue. On the one hand, you need to invest ample time and resources in the engine that got you here, the one that accounts for most of your revenue and all of your profits. On the other, you need to constantly look over the horizon to determine when a new engine will be necessary to sustain profitable growth. Striking the right balance means creating a separate Engine 2 team with a separate mission—one that will look strikingly similar to the founding team. This will likely create competing agendas. But we’ve learned the conflicts are manageable by deploying strategic planning resources around a 70:20:10 model.
Completing these six steps brings us full circle: Steps 1–5 are about maintaining the insurgency and perfecting the Repeatable Model to fulfill your insurgent mission. Step 6 is about being fully prepared to find a new model or adapt the existing one fundamentally in response to industry turbulence. What all the steps have in common is that they require you to maintain your Founder’s Mentality as you scale. It’s the only way to ensure you retain the speed that is your most important competitive asset. You lose it at your peril.
Learn more about The Journey North and its steps:
- Step 1: Maintain the insurgency
- Step 2: Scale without sacrificing speed
- Step 3: Balance heroes and systems
- Step 4: Learn
- Step 5: Simplify to redeploy resources
- Step 6: Adapt
- Incumbents and the Journey North, part 1
Here are some of the best sources of good writing and thinking about start-ups and entrepreneurship:
- Tren Griffin brings the venture capital world’s endless search for insurgents alive in his “A Dozen Things I’ve Learned from…” series highlighting lessons from VC luminaries and company founders.
- Venture capitalist Ben Horowitz does a fantastic job of laying out how difficult it can be to run a small business in his book The Hard Thing About Hard Things and in his blog.
- Steve Blank and Bob Dorf’s The Startup Owner’s Manual, with its customer development process, is a great framework for managing through the start-up phase, as is Michael Gerber’s The E-Myth Revisited and his notion of the “franchise prototype.” See also Daniel Priestley’s Entrepreneur Revolution and his “ascending transaction” model.