How to fight corporate inertia and continue to grow
Original Publish Date: Jan 22, 2020
It’s interesting to look at the evolution of companies – specifically the ones that survive the graveyard of startups and eventually become a publicly traded company.
At the start, the focus is entirely on getting the product/market fit right and hopefully appeasing the relatively small pool of investors. Fast forward few years, assuming the company has a successful IPO, the leadership team must start appeasing Wall Street quarterly. And the employees who’ve been with the company from the very beginning start to see the vigor of their startup days slowly sweating away.
Ask yourself these set of questions – Is there a clear inflection point where companies become too big for their own good? Is it easy to define or uncover this point? When do smart procedures evolve into unwanted bureaucracy?
You’ll see multiple books on these questions written every year. Yet, it seems like this is the story that repeats itself across all sectors, industries, geographies.
This got me thinking. If every company cannot escape its own success and the ‘well-intentioned’ bureaucracy that gradually develops, how can it continue to spend its time and money smartly to continue to create value for its customers and itself?
My proposal to fight this laggardness or ‘corporate inertia’ – like I prefer to call it – revolves around thinking slightly differently about time, scope, and money.
Thinking in timelines
I’m fascinated by the decision-making process of private equity and venture capital firms. There are critics who rip apart the way they operate and question the validity of ‘profitability’ defined especially by venture capital firms.
Either way, what’s intriguing about PE and VC firms is that they think in blocks of time. I might be slightly oversimplifying here but follow me on this train of thought. PE firms try to take advantage of a time sensitive business opportunity. They normally uncover a situation where they can swoop in, take on debt, build a new leadership team and support structures, and exit profitably within few years. They operate with an exit agenda already in place and with a mindset to exit profitably usually in about 4-6 years.
The time sensitivity of the business endeavor forces the PE firms to think longer than 3 months. At the same time, the timeline is not too far out that they still make smart day-to-day decisions.
VC firms, on the other hand, work with longer timelines (think 8 years or so). The probability of success for each of their investments vary quite a bit. Hence, their relentless focus on diversification hoping they hit the lottery with at least one out of every 7 to 8 investments.
What can big bureaucratic companies learn from this?
Well, it’s easy for every publicly traded company to be at the mercy of Wall Street giving the quarterly earnings review. It’s easy to get anxious to meet the profit expectations of Wall Street. Despite that, to continue growing and existing profitably, the company must really think about their short term (< 12 months), mid-term (2-3 years) and long term (> 3 years) efforts.
It’s worth challenging the corporate teams to identify value building, profit generating efforts across each of these time buckets. See how these efforts section out. If you’re too front loaded, this might be a sign that you’re heavy on short term thinking. If your efforts expect to generate profits in the longer term; you must really ask yourself if you’re not dropping the ball anywhere in the short or medium term.
Spreading bets
Every company needs to constantly audit itself to figure out how well it’s delivering customer value at any given moment. But it shouldn’t just stop there. A company’s very existence relies on delivering customer value profitably over a long time. Therefore, it needs to constantly uncover new areas of value, build a profit formula that captures that value, and direct resources to turn that formula into reality.
Talking about elements of value and business models can take us in different directions and its worth exploring them. For this write-up; I want to keep the focus on the directional choices a company needs to make after it uncovers different areas of customer value. If we assume that a given company can’t currently address these areas of customer value in its existing form; then the company must explore three different options – (1) product/service innovation, (2) operational innovation, (3) new business venture(s).
1 – Product/Service Innovation
This is probably the most straightforward among the three. A company can address a potentially new area of customer value by going the route of product or service innovation. Again, this assumes that the company has nothing in its current state to address this area of customer value add. A company might also choose to innovate in-house or look at funding certain startups (see next section) or think about bolt-on acquisitions to get its hands on valuable intellectual property.
2 – Operational Innovation
Alternatively, there might be situations where a company needs to strictly invest some effort in improving the way it’s delivering customer value. I’m talking about situations where it’s mishandling things somewhere along the value chain of meeting customer needs. For example, innovating its operations around how it sources materials, makes, delivers, sells the product. This might also include improvements around the go to market strategy.
3 – New Business Venture(s)
There will also come a point where a company discovers that they likely must go beyond their current offerings by either expanding vertically or even entering brand new markets. That’s the beauty of keeping customer value as the sole focus. Eventually, the customers directionally point you to your next venture. It’s up to the company to see if it can step up to the challenge.
Try challenging yourself to find out if there are plans in your company to deliver customer value using this project portfolio mentality.
Investing in increments
The fear of making a commitment in the form of a big investment stops many big companies from chasing promising ventures. It’s hard to justify this form of inaction these days especially given the ‘creative’ investment funneling options available.
You’re starting to see a massive growth in corporate venture groups that mirror traditional venture capital firms. Companies use these corporate venture groups to get their feet wet and de-risk themselves as much as possible.
One positive side effect of this trend is the increased collaboration of big companies in their markets of interest to truly exchange and grow promising solutions. Additionally, you avoid the big cost of acquisitions which in terms of cost goes beyond the initial capital outlay and includes the side-effects of post-acquisition integration not done properly.
Once you look past these inorganic strategies; you still see companies playing it safe with their R&D, product development, other overall growth efforts. They struggle with making mammoth changes in the way they generate customer value. There surely must be a way to get around this!
My proposal is to expand general agile principles to the corporate space. The agile framework encourages testing, learning, and quickly adapting. There needs to be a learning mindset when chasing growth in general but it’s even more valuable in organic efforts.
What does this look like in action?
Identify the most promising growth prospects across the project portfolio – ex: product/solution innovation, operational innovation, new business venture(s) – as discussed under the ‘spreading bets’ section. Start attaching ‘probability of success’ to each one of these prospects. This step doesn’t have to be perfect since we’re in the learning mindset. And finally, allocate investments to each prospect in view of the opportunity potential and probability of success.
That’s not the last step. You must add accountability to each prospect. Add key metrics to track progress while also identifying time sensitive key outcomes. Build a learning loop into the process as you advance each growth prospect and continue to increase your investment as they meet certain milestones. Offer yourself a way to exit if certain crucial, time sensitive outcomes don’t come true.
Fighting corporate inertia is never an easy task. It’s easy to be overwhelmed by the bureaucracy that you might see in your company. At the same time, it’s never a good idea to leave an opportunity to make a difference and jump in with your best efforts to address a problem.
Start small. Inspire other folks too. Chip away at this inertia one step at a time. And you’ll gradually build the inflection point of momentum to drive more growth for your company.