Into the Valley of Death - the phases of growth

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Why is this important? 

As Consulting Engineers we often see companies who are 'going for growth' as if it is a magical cure that will make all their other problems go away and it is often companies that have gone for growth and achieved it that are in the most need of help. For some companies the worst thing that can happen is for all their dreams to come true! The truth is that many companies have no idea where they are going, how they are going to get there or worse still, what they are going to do when they get there. As Laurence J. Peter (author of the Peter Principle) says "If you don't know where you are going, you will probably end up somewhere else."

Expanding and contracting

Many companies have no idea of what growth and expansion involves and the skills necessary for this. More importantly they do not realise that the skills that got them to their present size are NOT the skills that they need to grow, expand and be successful at the next level.

Take the example of the need for a new 'Sales Director'. It is common for the best salesman to be promoted to the position but the skills needed for a successful salesman are very different from the skills needed for a successful sales director. Promoting the best salesman into the position can create a sales director who fails as well as the loss of the best salesman. A double loss. This is the Peter Principle, which states that employees within an organization advance to their highest level of competence, are then promoted to a level where they are incompetent, and then stay in that position or "In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence".

The same is true of companies, as they grow there are changes that must take place to allow further growth and to prevent failure at the current level. These changes are the barriers to growth and they occur at various stages of development. Sometimes a company's energy and momentum will carry it forward over a barrier and up to the next level but if they do not develop the new skills necessary to succeed quickly then they will inevitably fall back to the level that is appropriate to their structure and skills. We often see this in companies that have developed and then suddenly fall back to their competency level, i.e. they contract until they are again competent to deliver what the market wants. Growth involves changing the skills of the company and the staff and the process can be painful for all concerned. Growth is not a 'no-risk' strategy. Failing to grow successfully can be a one-way street to oblivion.

The 6 ages of companies

Our experience shows that there tends to be 6 growth stages for window fabricators and most companies pass through these as they grow. For each stage there are different areas that are important and there are different skills required for success - the only constant is change.

The Stages of Growth

Windows / week (approx)
Development
stage
Important Areas
Skills needed
0 - 100
Start-up
Accounting - Budgeting
Cash flow control
Purchasing
Management training
Energy
Accounting
Selling
100 - 250
Small
Technical services
Budgeting
Cash flow control
Quality control
Planning
Customer relations
250 - 600
Medium
Business planning
Departmental structure & planning
Sales and marketing
Market development
Productivity
Managing
600 - 1300
The Valley of Death
Overhead control
Recruitment
Systems development
Market research
Product development
Planning
Structural changes
Recruitment
Delegation
Coaching
1300 - 2500
Large
Diversification
Feeding the manufacturing beast
Strategic planning
Investment analysis
> 2500
Super
Legal and accounting
Acquisition
Use of outside consultants and specialists
Communication

 

The Valley of Death

One of the most important transitions is when a fabricator wants to go from the 'medium' to the 'large' category. The skills required to develop to the 'Medium' level are generally easily developed from the earlier skill sets but to get to the 'Large' level there is a need to pass through 'The Valley of Death' level. It is here that many companies find huge and sometimes insurmountable difficulties. These are mainly in three areas:

Financial - Huge changes required financially whilst in the Valley of Death. To give some examples, up to 600 windows a week can be handled by a small fleet of vehicles (2-3) that essentially schedule themselves. Above this level there is a need for more vehicles and a need for a Transport Manager to manage the transport function. Similarly for finance, up to 600 windows a week can be handled by an accounts clerk, above this level there is a need for a Finance Director. In 'The Valley of Death' it is common to find that overheads rise very, very quickly and a profitable operation can suddenly become unprofitable! Pausing the growth here can be disastrous.

Skills - The skills needed change dramatically in the Valley of Death, up to the 'Medium' level it is possible for the original founder/owner to have almost complete control with little real delegation. In 'The Valley of Death' and at the 'Large' levels the owner must really delegate and let the people get on with it. The skills of the people who functioned well at the lower levels can rapidly become stretched to failure and recruitment of the right people suddenly becomes an important area - promoting from within can be suicidal at this stage and ruthlessness in promoting people (or not) becomes absolutely necessary. In the worst cases the owner cannot make the necessary transition and the result can be terminal.

Systems - The systems used to run a company can generally be scaled up easily until the Valley of Death level but at this stage there is a need to fundamentally change the systems used to run the company. The old systems (that worked with lots of human assistance) can suddenly fall over if they are not robust enough, customers can become disillusioned and leave as the 'personal touch' is lost.

The Valley of Death is real and presents fabricators with real challenges: Business as usual (except larger) is not an option for companies that want to make this transition. The transitions can be uncomfortable and are not for everybody. The GIs in Vietnam had a T-shirt that read:

'Yea though I walk through the Valley of Death, I will fear no evil

For I am the meanest bastard in the Valley'

If you are not prepared to be the meanest bastard in the valley then maybe growing to this level isn't for you

The way forward

The moral is that you must be realistic about what you want and about your own skills and ability to make the transitions - growth is not simply about getting bigger, it is about changing the way you work and owners must decide where and what they want to be. It is not essential to be big - it is better to be in control, profitable and happy and than to be out of control, unprofitable and unhappy.

Last edited: 11/03/10

© Tangram Technology Ltd. 2005

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