Since the beginning of this year, I have met with the CEOs or owners of over 120 private companies. These companies range from new technologies, products and services in such diverse fields as education, web conferencing, burgers, trucking, logistics, steel distribution, medical devices, focus groups, outsourced services, and social media. Some of these companies are growing - some quite rapidly; others are stagnant or stuck.
Why are there such differences? Certainly companies that depend on some industries such as homebuilding or construction have been severely impacted by the economy. However, blaming stagnancy solely on the economic malaise that has descended on the US since 2007 may be an oversimplification. I believe in some cases, the recession has just highlighted the differences between the good, well-managed companies from those whose fortunes rise and fall with the economy.
Companies that have become "Colorado success stories" over the past four years share certain traits:
1. Lifestyle or Equity Value. Be clear with what type of company you want to be. A lifestyle company can allow the owner to call his/her own shots and to move at his/her own pace. It is run for the cash flow and lifestyle benefits of the owner(s). In an equity value company, the owner strives to build real assets with a scalable, tangible value that can be bought and sold. This leader is willing to sacrifice some short-term gains in order to invest in growing the market value of the business.
These owners focus more on building value as seen by potential buyers: sustained improvements in revenue/EBITDA, and a strong management team that can operate and grow the business without the owner's constant involvement. There is no right or wrong answer to the lifestyle vs. equity value question, but owners must be clear in the distinction. Straddling both lifestyle and equity value camps is sure to generate both lower current cash (compensation for the owners) as well as lower growth and value potential (lower equity value).
2. Empower employees. Companies can't grow beyond a certain point if all of the real decision-making stays in the hands of the owner or a small group of managers. Growth companies look to empower employees to make decisions. They also develop a culture that allows employees to make mistakes and a mechanism so that they can learn and grow from the mistakes. NewsGator, a pioneer in enterprise social computing, uses a facebook-like platform to communicate project status to a broad audience of employees. Employees not involved directly with the project are encouraged to post suggestions and comments.
3. Hire for the next level. Companies that want to grow understand that they need talent that can manage at the next level. Successful companies hire people who can grow 1-2 levels higher in the organization so that the talent pool is constantly being strengthened. These companies also understand that paying more for top talent more than pays for itself.
4. Develop flexible strategies you can execute well. Traditional approaches to planning and execution assume away uncertainties and set a fixed plan in place for a year or more. Successful companies are developing multiple possible views of the future, developing a plan and actions, then revisiting the plan every 8-12 weeks to adjust to changes in the market or the competitive landscape. Otterbox, the designer and marketer of protective cases for smartphones, has grown 1500 percent over the past three years with a flexible approach that re-evaluates operating plans every 6-8 weeks for possible adjustment.
5. Develop an adaptable organization. Successful companies focus on creating a culture of adaptability. They develop an organization, and leadership that can react quickly and make necessary course corrections in response to market opportunities.
6. Focus on a superior customer experience. Dan King of ReadyTalk calls it developing "emotionally-connected" clients; Maria Vogt and Sonya Yungeberg of government contractor, Ayuda Management, call it "under-promising and over-delivering". These companies focus on wowing the customer and build systems and hire and reward people who want to delight the customer with every interaction.
7. Play offense instead of defense. If you do anything long enough it becomes a habit; then it becomes part of your culture. Many companies have created defensive cultures with several years of cost-cutting and deferring or eliminating new projects and new products. "NO" has become the operating word for "stuck" companies. Successful companies are looking for opportunities to develop and test new business models, new products and new projects. They see this market as ripe with opportunities to grow and innovate. "HOW" is their operating mantra.
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