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Earl R Smith II, PhD

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It’s seldom the dog that you love that bites you
it’s almost always the one you can barely tolerate.

Many companies fail for reasons that have little to do with their core product or service. It is often the afterthoughts or ‘under-thoughts’ that cause failure when success has been looming on the horizon.

Companies with cutting-edge technologies are regularly beaten by those with more conventional ones – organizations with first rate value propositions find themselves losing to others which do not meet their high standards. The world can seem patently unfair – until you look at the competition – and the competition with the competition - differently.

Evolutionary Ideas

Early in my career as a recidivist entrepreneur I learned, sometimes by the hardest methods, that the business of business is different from the business of the business. You may want to go back and re-read that sentence a couple of times and sort it out before going any further but I will try, in what follows, to show you clearly what I mean.

When a company first comes into existence it is most likely that the entire senior team is composed of individuals who are minor variations on a common pattern. (Age, education, experience, ethnicity, interests, etc) They are comfortable with each other and that goes a long way towards developing the spirit of intense camaraderie that is necessary for any initial success. Each team member may assume (or be assigned) a unique role within the team and company but it is their underlying common characteristics that dominate and define the initial corporate culture .

In the early years a company grows by turning the connections of senior team members, often most notably the CEO’s, into an initial client base. Sometimes this may be possible because some of the senior team have recently left a company which subsequently becomes a client. At other times potential clients may have been supportive of the team’s intentions to launch the company. But, however it occurs, companies which survive the initial stages of growth do so because they have generated, and then cultivated, an initial client base which helps them turn a burn rate into a run rate.

During this stage, corporate functions are serviced either by founders (making it up as they go along) or by narrowly experienced personnel in the business disciplines. So the HR function is managed by a good recruiter and the financial system is handled by a controller. Some of these functions may be outsourced either partially or completely during the early years. The business of business takes a back seat to the business of the business.

The Dogs You Don’t Like

As a company grows in size and complexity the requirements in these ‘business of business’ areas become more critical to its success. Mistakes or errors have more serious implications. The journey from burn rate to run rate – from draining away financial resources to significant levels of net income - is a difficult one for most companies but, once achieved, many companies find themselves in completely uncharted territory and suffering from extreme vertigo. However this transition is managed, a company enters into uncharted waters when it moves into the black.

Companies that manage this transition effectively enter a new evolutionary phase. The transition is non-linear – change is quantum. Some of the characteristics of a start-up are left behind. For instance, they cease being ‘science projects’ and begin the serious journey towards becoming a fully functioning company. They enter onto a path that, with skill, dedication, persistence, wisdom and more than a fair share of luck, may lead their ‘science projects’ towards corporate maturity.

In these early months and years management can mostly provide for the needs of the growing company by sticking close to the ‘dog they love’. By this I mean that, if the company is involved in a particular technology or service, close connection with that technology or service permeates the corporate culture and defines the experience of team members – a gathering of similars. But success and growth brings its own set of issues.

At some point the company’s needs for further growth exceeds the senior management team’s ability to generate new clients and expand the business base. Around this time other – management – issues such as an increasing need for appropriately qualified people to service client’s needs and a rising appetite for financial resources begins to push the management team’s attention towards those ‘dogs that they can barely tolerate’.

Evolutionary Pressures

It is at this critical juncture that two fundamental rules of evolution come into play. The first is ‘evolution or extinction’. Organisms – including companies and CEOs – have to continue evolving as the requirements of the environment they find themselves in change. Without appropriate evolutionary responses to these changes, increasing irrelevance then disappearance defines the future. The second rule is ‘your excess will limit the impact of your excellences’. Aversions have a tendency to produce such excesses. Ignoring a need assiduously, for instance, is such an excess. Aversions lead to conflicts – among the senior team and between the team and the evolving needs of the company. It is these conflicts – completely tangential to either the growth of the company or its evolving needs - more often than inadequacies in the value proposition – that bring down companies.

During this time of transition the culture of the company, along with the core skill sets that have made up the senior management team, begins to undergo a substantial distortion - as an attempt to meet the new needs comes into conflict with the limitations imposed by the ‘old order’. Seen one way, this distortion is actually a movement towards generally accepted business practices and requires recognition that the business of business is becoming more nearly as important as the business of the business. Seen another way it is a threat to ‘traditions’ within the emerging company. CEOs and the senior team will either participate in or oppose these pressures. Their decisions, as much as the competition, will determine the company’s future.

Natural Selection – Surviving the Barrier

Evolutionary pressures tend to, over time, weed out weak and inappropriate behaviors in favor of the strong and relevant. The awful physics of the process can often seem inhuman and arbitrary. But arguments over its humanity or arbitrary nature are red-herrings. Where survival is the imperative, evolutionary accommodation is the only effective response.

So, what does survival mean in this situation? It means appropriate responses to the pressures for growth. It also means that there are real penalties incurred for inappropriate responses to those pressures. Let me provide an example of the later in order to bracket the term ‘appropriate’. Faced with this challenge, many CEOs embark on an ‘educational journey’ to become more sophisticated in one or more functional business areas. Two of the most common are finance and marketing. They seek to become better at these disciplines than the people they have hired. While laudable, this is essentially a reaction to an aversion – a distancing from the ‘dogs they can barely tolerate’ - a distraction from the fundamental challenge that they, as CEOs, face. The company’s needs are changing as it grows. The CEO and senior team need to evolve in order to meet those changing needs – and change can be a difficult proposition even without the pressures of building a company.

Surviving the journey through the barrier has more to do with the maturing of individual senior team members than with the accumulation of additional specific skills sets. Becoming ‘appropriate’ as a leader of a growing company begins with matching that maturation process with that of the company. As adolescents do not tend to do well in adult environments, immaturity in a CEO will, more effectively than almost any other trait, limit the future of the company.

For a CEO, the challenge of evolving along with a growing company can be a daunting one. But, as uncomfortable as that journey might be, the alternative – holding back the company until it finally expires from exhaustion and frustrated aspirations – should motivate any CEO to ‘take the bull by the horns’ and prevail over their own limitations.

© Earl R. Smith II, PhD

I look back on the first three months of my work with Dr. Smith with wonder. My journal reflects a journey of self-discovery so vast that I hardly recognize the person who wrote the first entries. It's been a year now and I am happier now than I have ever been.

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