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How to avoid hitting the Growth Wall

by on January 7, 2015

When building your company you’re bound to hit “growth walls”.  All growing companies encounter walls of complexity, usually when they hit certain revenue milestones. For some there is a wall at $10 million, then $25 million, then $50 million, then $100 million, and so on.

But what does that mean?

In truth these “walls” aren’t really related to revenues at all.

They just happen to coincide with those numbers as companies grow.

Businessman climbing over wall with rope

Factors that drive initial successes are seldom enough to sustain a company as it begins to accelerate through the growth stages. The external demands and opportunities change constantly, the company’s value chain and internal capabilities must adapt, and the company’s growth and evolution will ultimately necessitate a shift to professional management.

Simply put by Jack Stack in his book The Great Game of Business, “The more successful you are, the bigger the challenges you have to deal with.”

When faced all at once, these challenges will suddenly appear as an impenetrable wall. Thus “hitting the growth wall” is a phase in a company’s life cycle where operations reach out-of-control proportions: Cash runs out, top line revenues flatten out, and key employees leave for more stable jobs.

Companies typically hit that wall after some very good results and it takes them by surprise.  Growth has been strong, so the decision is made to invest in doubling or tripling capacity.  But the growth doesn’t follow.  Now there are new issues to address.  There is increased frustration.  This often leads to restructuring but not always to “escape velocity”, allowing the company to emerge into a new, higher growth trajectory.

What Management Practices Stall Growth?

As originally written by Robert Price, the following reasons are listed here:

1. Treadmill Mentality

A poor management practice where the management team is working harder than ever. Because they are not moving forward, they then believe that they to have work even harder.

2. Management by Insanity
The management team is doing things the same as they have always been done, but expecting different results.

3. Rear-View Mirror Management
The team knows where it has been but has no firm idea where it is going.

4. Management by ESP
A practice when the CEO says the business plan “is in my head” and the team is expected to be “mind-readers.”

5. Midas-Touch Management
The CEO and/or executive egos are in the way. With so much politics, the management team is focused on keeping internal superiority. They lose touch with customers, competition, and what is actually going on in the environment.

Breaking Through the Growth Wall

Some companies never recover from this wall.  They either decline and either sell for a discount or go out of business. Others simply plateau and become Zombie Companies.

The best emerge from these walls with fast growth feeling invigorated and excited.

The only way to avoid or get over the growth wall is by being prepared to lead and manage growth with effective strategies grounded in sound management skills and controls.

Only exceptional managers have the capacity and the will to make changes that enable them to break through the growth wall. The passage from a small company to a large corporation requires entrepreneurs to develop new skills and to perform new roles.

In order to burst through wall after wall and innovate with growth, a company must develop a reliable system that prompts leaders to be proactive and pivot when the need arises.

The change you want must be clearer than the path you’re on.

A great way to avoid or get over every Growth Wall is to create a clear roadmap of actionable steps to improve your leadership and your management team. This roadmap will position your company to be able to support long-term, sustainable, and profitable growth.

By learning from the organizational structures and leadership teams of successful and failed rapidly-growing companies, this roadmap provides a new process to better understand and predict what makes a growing company successful in getting over the “wall” and to its next phase of development.

Just by identifying your red flags and improving operational processes you can increase the value of the business 27.4% on average.

By executing and operating according to your roadmap the average annual increase in a company’s value is 21.6%.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

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From → Strategy, Valuation

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