Diversify and expand the empire

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Your business has grown to a level of complexity that likely includes geographic as well as product expansion beyond the core.

The founder finds (or will find) the management requirements of the business to be an increasing challenge. This is the great divide – the divide between an entrepreneur/founder-managed business and a professionally managed firm. Many businesses fail at this stage primarily because the founder remains in control and is not willing to change the way the business is run.

To succeed, the business needs a very different operating model now. Leadership needs to start working “on”, not “in”, the business and the business needs to morph into a disciplined, professional operation. Those who are unable or unwilling to make that change will often see their businesses fail or sold.

This stage is a very vibrant time for your organization. It is growing and expanding quickly. The focus of the leadership is becoming more strategic. Leadership needs to improve self-knowledge and to start looking outward to develop a network beyond the immediate industry. At the same time, the urgent need for growth to fund business activity is reduced and the organization is beginning to turn inward to build the discipline and processes needed to handle the business’s increasing complexity.

Decision-making is becoming increasingly fact-based and the culture is becoming more formalized. Facts trump passion and management by anecdote. The core focus that was evident earlier in the organization’s life is expanding to include other activities and lines of business. A bottom-line, rather than a top-line, orientation is emerging. Human resources systems are becoming refined, with functional expertise increasing and in-house communication systems being developed. More employees are also being brought on board from outside the organization, which has the effect of diluting the strong culture.

Your company is breaking new ground in both the business and customer base. The pace of growth is forcing trade-offs in priorities. The need for planning and priority-setting is increasing. Feedback is harder to come by, both internally and externally. Customer intimacy is declining as the organization starts to create its own “ecosystem.” Innovation is becoming less intuitive and more structured.

Danger signs are starting to emerge as the organization hits the zenith of its growth. A number of potential landmines exist. Leadership turnover is a clear danger as founders turn to the first outsiders to run the company. Rifts between owner/founders and new professional managers can emerge for a number of reasons: The founder can’t let go. Professional managers are brought in who haven’t got the delicate skill balance needed to bridge small and larger organizations. Power struggles commence.

The core purpose of the organization wavers as new businesses and geographies are brought into play. Focus is diverted from organic to financial growth. New competition emerges.

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