[Note: We first published this in September 2000 – Issues for Growth Vol.11, No.9]
The business is profitable. It still generates cash. There seems to be no end to new ideas and plans to invest the cash and grow the company. But ideas seem to almost never get evaluated, or if evaluated, never are seriously considered. The company continues to focus on the familiar strategy, with the founder maintaining, “This is what got us here.” Many small and midsize businesses can be held back by past success. Their early strategies are so powerful and deeply ingrained in the fabric of the company that change is all but impossible.
Yet most of us acknowledge that continuous change and improvement is critical for survival. Tests to the status quo can come from varied, unpredictable, and often unimaginable sources. The life cycle of a good product and sound strategy has become shorter, as technology and communications gains have encouraged competition from new industries and different countries. As the product life cycle shrinks, dependence on a “familiar” strategy can be hazardous to your business’ wellbeing.
Continuous rebuilding of strategic direction is not only healthy, but important to company growth. Where once a change in strategic direction occurred every generation or two, the pace of change now requires a new direction every five years…much faster in technology industries. Yet we find that “strategic renewal” is rare in closely-held entrepreneurial companies. The reason can often be traced to the source of their success.
The business strategy which ultimately emerges from the entrepreneurial survival phase is the product of many years of trial and error. The successes and failures of personal interaction with customers, products and markets forge the confident and unshakable strategic view of the founder. Entrepreneurs with highly creative and successful strategies are often so charismatic and strong-willed that few managers would have the self-confidence to challenge by fighting for fundamental change. Admiration and respect for the accomplishments of the founder can also discourage open disagreement. After all, if the strategy could be improved, wouldn’t the founder have already done so?
There is another reason that strategic change is difficult in successful entrepreneurial organizations. The founder surrounds himself or herself with people who believe in the founder. These people tend to view the world in the same way. This homogeneous group is reinforced through hiring, training, and leadership. The similarities are further strengthened by a shared company culture. This singleness of purpose helps greatly as the founder’s initial strategy fosters rapid growth, and consistent delivery of products and services is essential. These people are the implementers of the founder’s vision. However, when a fundamental change to strategic direction is necessary, these same implementers are not likely to contribute a creative perspective. They are more likely to review the reasons for past success than they are to visualize a different future.
In short, the founder’s creative strategic insight and charismatic organizational leadership will typically create blinders to the urgent need for fundamental change. When everyone shares the same perspectives and experiences, we have a very vulnerable business – even if it is successful today.
Studies of the strategies of entrepreneurial companies confirm this. The founder invents a great business concept. New strategies, however, rarely emerge until a new generation of leaders emerges. If talented potential successors eagerly advance their new strategies before they are in control, painful, destructive conflict often results.
As the founder, what can you do to avoid the pitfalls of strategic stagnation? Consider the following suggestions:
· Share the credit for past successes. Describe them to the organization as group insight rather than as “my strategy”. Stress that change is critical to survival. Express frequent concerns about competitive threats to the current ways of doing business. Do not let anyone become comfortable with the status quo.
· Celebrate the diversity of opinion in the organization. Look for ways to recruit new people with different backgrounds and experiences into the company. Even consider hiring people outside your industry.
· Make strategic planning everyone’s responsibility. Encourage everyone to challenge current strategic assumptions. In management meetings, ask everyone to identify the critical assumptions for continued success. Ask your outside board of advisors, or outside board of directors to question your intended sources for future growth.
· Be open to new ideas. Be “non-defensive” in your thinking. Encourage “non-linear” thinking and “what if” questions. Avoid justification of past actions or quick responses such as “we tried it before and it didn’t work.”
· Don’t accept a poor economy as an excuse! Too much credit is given to strategies that succeed in a good economy, but cannot hold up during a poor economy. Don’t accept a poor economy as an excuse. Make your company and its management stand on its feet regardless of the economic climate.
The greatest challenge for an entrepreneur to create the second strategic success. The critical review of the reasons for past success is a vital part of the process. If the founder and leader of the organization will demonstratively lead the challenge to his or her own aging strategic insights, new ideas and perspectives will be encouraged and the company will profit from consideration of a greater number of strategic alternatives.
