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Sub-chapter from
Managing an Early Stage Company for Rapid Growth

Modes of Management – Shifting Management Gears

Adjusting Your Management Style to Your Company’s Stage

From the moment a new company is founded to its appearance on the Fortune 500 list, executives must be able to transform the way they manage a company — shifting gears, often dramatically to a different management style — to ensure the company’s optimum development.  I am not referring to individual executive style here.  What I am talking about is the total adjustment and evolution of the context in which major management decisions are made.  I call this the “Mode of Management”, which is very dependent on the company’s current developmental stage.

Would you make the same product development decisions in an identical way with one hundred dollars in the bank and no customers as you would with $50 million in the bank and 1,000 customers?  Of course not!  So why do many managers often run an organization in the same way, despite the many gradual and often sudden changes that happen between these two extremes?  It is human nature to continue to do what we have always done, to simplify and repeat what worked in the past, despite vastly differing circumstances.   We need a system or context for adjusting and teaching the different “modes of management” as companies evolve.  Some of these changes come naturally, but most are very subtle and linger far longer than they should.  A failure to change can do substantial damage to a company before adjustments are made, or even doom the company to flat sales in the long term.

A key to ensuring corporate success is to let the various stages of a company's development determine its overall management “mode”.  It is a given that we must use the appropriate management mode for each and every decision and action we take in a company.  The company's existing condition and/or stage of development is always the most significant determining factor, or the main context, for almost every decision.

Companies can reap enormous benefits when the style by which they are managed is adjusted quickly to accommodate the company’s shifting complexities, stages and sensitivities.  In fact, quickly adjusting this mode of management can be a huge competitive advantage since most companies fail to adjust quickly enough.  Just about every company exhibits often-overlooked, but critical, stress points that signal the need for decisive action or gradual reorganization.  Recognizing these signs during a company’s gradual metamorphosis, and responding to them appropriately, may mean the difference between bankruptcy and survival, or at least will help avoid stagnation.

Any good manager knows an adjustment in style and tone is warranted for different individuals and situations.   People have different motivations and often respond differently to the exact same circumstance.  This is natural; people react to other people’s tone and body language in very individual ways.  We receive immediate feedback in the form of facial expression, body language and actions, and adjust our reactions accordingly.  However, a company, which is a much more complex organism which consists of many individuals interacting with complex outside market conditions, provides little immediate feedback.  Therefore, it is very difficult to use direct feedback to fine-tune your management mode.  Only years of experience can build enough data to form theories and adjust management modes with proper timing.

Why We Simplify Too Much

Millions of years of evolution have taught us to run from danger and created a mind that adheres to simple "rules" that have worked for us in the past.  Our mind wants basic rules we can reuse and has been designed to use these learned shortcuts again and again.  For example, we all know that fire is hot, don’t touch it.  The more pain (failure) or pleasure (success) that results from a lesson, the deeper these rules are ingrained in our minds.  “Experiential” learning like this is remembered better because it involves more senses and pain and pleasure than simply reading something.  This is why people who experience a single, huge success often have a tougher time changing or accepting inputs from external sources.  They take this success as proof that they are “always” right and begin to repeat what has worked for them before.  If they use their one ‘learned’ mode in a different context then they are more likely to fail. 

Unfortunately, the world is much more complex, and changes much more rapidly, than ever before.  In fact, this trend is accelerating because human knowledge is now doubling every few years.  One hundred years ago, most people still used horses to get around and technology of any kind was primitive by today’s standards.  Because life is currently so much more complex, we need these mental simplifications more than ever.  Yet now, we must overcome these past evolutionary behaviors and discipline ourselves to take hundreds of variables into account for complex and unique decisions we may never again make under the same circumstances. 

Overcoming evolution can be difficult, but it is simply an exercise in conscious thinking that can be facilitated by some simple methodologies that force us to review important circumstances.  The challenge as an executive is to force ourselves to think through all the variables of a given situation and make a decision in the proper, current context, not simply by referring to past experiences or rules of thumb.

Cognitive dissonance, the mind's tendency to see only those factors that reinforce what we are expecting to see, greatly aggravates this problem.  We tend to distinguish only those things that reinforce our beliefs and actively avoid or explain away those things that disprove these beliefs.  At the extreme, this can become the proverbial ostrich with its head in the sand — the "What I don't know can't hurt me" pose.  Of course, this statement couldn’t be further from the truth.  Any company that fails to adjust to the rapidly changing world, economic, and market conditions, is doomed.  Today even great Fortune 500 companies are rarely still there twenty-five years later.  As managers, we have to overcome human nature and cognitive dissonance in order to make the proper contextual decisions for the benefit of our company.

The Five Stages of Company Development

The Five Stages of a Company's Development

Stage

Revenue

Employees

Key Indicators

1) Raw Startup

Little or none (by definition)

0-50

a) Innovation as a priority
b) Always in flux, high risk
c) More unknowns than knowns
d) Product or service looking to prove its market exists
e) Everything is fragile
2) Early Revenue

$100
to
$5MM

5 to 100

Product delivered proving some value proposition, but still no proven sustainable or profitable business model.

Most companies slow down or stop growing here due to organizational and people limits.  This is often the hardest leap to make which requires the most changes in the smallest period of time. Most often it is the founder who can not shift gears.

3) Established Customer Base

$500,000
to
$20MM

20 to 200

a) Profitable or clear path to profits, based on scaling business.
b) A proven market and value or price formula, with profits clearly available in a steady state world when scaled.
4) Expansion/ Growth Phase

$1MM
to
$1 billion

100 to 1,000

Market opportunity is many times larger than the company and there is a desire and ability for significant market share and/or revenue growth.
5) Mature (or large)

$2MM
to
$100+ billion

100 to ∞

a) Slow growth, stagnation of market or company, or focused on harvesting past investments.
b) Slow/little change in market and/or company or commoditization of products forcing a focus on costs above innovation.

c) Consolidation of competitors and focus on finding new distribution and/or leverage.

 

Defining the Stages of Development

How Many Stages?  How Many Modes?  Why?

Companies come in many types, styles and sizes, and an approach that works tremendously well at one company can be a miserable failure at a different place and Text Box: The Number of Stages Is Somewhat Arbitrary Here – and In Fact There Is Really More Of A Linear Transition – But For Practical Purposes We Humans Need to Limit The Choices For Structure and Understanding.
time.  Every company and situation is different, so there are literally hundreds of possible “styles” or “management modes.”  For practical purposes, it is necessary to create a simpler, more workable model, which can be used to illustrate a company’s major plateaus and organize this infinite spectrum into useful stages.  Then we can probe along the required dimensions for key issues.

 

 

 

Only experience at executive levels in large, medium and small companies can help to identify the pivotal developmental stages that dramatically affect the context of a given company’s decisions.  Success comes from implementing a management mode that is a direct function of the company’s current stage, industry and market conditions.  The risk is that a company will be run in the same way as its VPs, managers and/or CEO have always run their past companies or departments, irrespective of the important and differing macro variables created by this stage of development. 

What is Different about This Philosophy?

Conduct a search via Amazon.com or on the Internet on the term “management” and you will literally find tens of thousands of books on the subject.  From project management to company management, lots of authors push their particular methods and styles.  These range from micromanagement and the One-Minute Manager to how to transform “good” into “great” behavior.  What you will not find is many books about an approach that helps you define and implement a management mode that clearly correlates to your company’s current status and position in the market.  Yes, there are a few good books on startup management, but, in general, there is little on the topic of “shifting management gears” available in the millions of books in print!  I don’t know if the lack of discourse is just because authors want to appeal to the broadest possible audience, or if most people and authors are actually naive as to how one must manage differently according to the different stages of a company.  I am certainly not the first person, probably not even the first 100,000, to recognize this natural phenomenon.  I suspect that authors are addressing the stage of company they are most familiar with, without much thought to the others.  Unfortunately, for the bulk of their readers, this can make the majority of their recommendations and advice wrong, which is of little help.  When making a major decision, too little credence is given to the enormous number of variables that make every corporate situation unique.

Actually, I have seen very successful executives with significant experience in large company environments give perfectly good speeches on management, or leadership, that are 100 percent true for large companies — and almost 100 percent wrong, and potentially fatal, if taken seriously by smaller companies.  They are talking about steering an oil tanker when their audience consists of nothing but little speedboat captains.  I suppose that these executives must have little experience and perspective beyond that large company perch, and they often wind up preaching to a crowd of entrepreneurs about things they must do, when in fact, following that advice could literally kill their companies.  I once heard an experienced senior executive tell an audience of entrepreneurs that it can, and should, take six to twelve months, or more, to make a change flow through an organization. Maybe this is true for a cultural change in an old-line (read incompetent and uncompetitive) organization with several thousand employees, but this advice is crazy for any company under 100 people, and maybe even most companies under 500 people!  I have done changes like this in a week in smaller organizations, and in a startup you may need to make many, many changes like this over six months.  The problem here is that there was no context defined for the lecture and no language or thinking in the advice about a company’s current stage.  If it had been qualified as advice for companies over $70 million in sales, for example, it would not have been a potentially lethal lecture for the many startups and entrepreneurs in attendance that day.  It seems we pay little heed to the simple fact that what can be right for a small company can be totally disastrous for a larger company and vice versa.

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