Bruce Werner specializes in governance, strategy, finance and M&A. Author & Experienced Outside Director. Kona Advisors LLC.
A metaphor I often like to use is how building a successful business is like getting people on a bus and getting it headed in the right direction.
In driving a successful business, it’s important to understand how managing growth is different from managing change. Continuing my bus metaphor, managing growth is like building your bus. First, you create a solid structure with the right products, processes and systems. Then, you fill it with the right people to drive it forward.
Managing change is about assessing the situation and the road ahead: what’s changing, how quickly and the risks involved. You need to determine the right bus for the journey; if you misjudge, you won’t have the vehicle needed to reach your destination.
Navigating Growth And Change
For example, let’s take the example of “Sue.” After Sue bought her business, she realized it had more challenges than she thought it would. On the plus side, she had a strong brand, a great product portfolio and strong demand from major retailers. On the negative side, she didn’t understand what people did, how things got done, if all the orders were invoiced and if they got paid.
The bank was happy with the business’ performance, but Sue knew that there were too many things that just weren’t right; she was making good money but didn’t trust her gross margins.
Was she trying to manage growth or trying to manage change? The answer: She was trying to do both at the same time, which can get confusing. So, let’s break down the issues to understand what she was facing and how to prioritize actions in a situation like this.
Managing Growth
After a deep dive into Sue’s business, we learn that the business systems do not comply with customer requirements. Order processing is exceedingly manual, which introduces errors. The inventory methods are also inconsistent, so we really don’t know what we have or where it is. We are not collecting the cash we should since we can’t track customer deductions or apply cash properly.
Sue was attracted to the business because it had grown quickly and had strong growth potential. While she should have found these problems during diligence, she didn’t. However, she had a high risk tolerance and loved the market potential of the business.
In a situation like this, you would want to do a detailed order-to-cash analysis, starting with customer requirements and then work backward. Use these results to reconfigure enterprise resource planning (ERP) to match the customers’ requirements. Finally, you can install a warehouse management system to help you get a solid grip on inventory. This should help produce valid data, enabling better decision-making.
Managing Change
At the same time, Sue has developed several new product lines that are gaining traction and have the potential to drive growth, but she has not changed how she manages the business.
Instead of selling to a few traditional customers, she now has numerous new accounts to manage. Previously, she had only sold on a wholesale basis, but the new products will be sold directly to consumers. She wants to bring production back from Asia to her West Coast facility.
This part is harder. In this scenario, Sue is the point of contact for all customer activities. The new accounts, new markets and DTC channel will not happen if she doesn’t evolve how she manages the business.
Questions to ask in such a situation include: “How do you want to manage the business, and who gets to make what decisions?” It’s important to clarify what decisions need to be made, which ones require consultation and which ones should be communicated after the fact. This helps establish clear boundaries and expectations for decision-making within a business. This can be bumpy, though, because it means changing behaviors, and change is hard.
Here, a solution based on my past consultancies would be to produce a decision authority matrix to change how Sue manages the business. She should redesign sales management and account management to the new scheme, engaging external sales reps for some accounts and keeping other accounts internal.
This requires building an internal team to sell to and manage DTC orders, which, to save money, can all be outsourced to offshore staff. This can also include a new incentive system for the internal sales teams.
It’s important to focus on how you want to manage change and avoid getting lost in the weeds. Stay focused and take it step by step, making sure your actions align with the bigger picture.
It’s Always About The People
When working toward a new mode, often the people you inherit will be the wrong people to manage change and growth. Our example, Sue, has a unique management style. She likes to “fail fast” and fix things on the fly. She had to be face-to-face with her team. Her thought process could be circuitous at times, but she was usually uncannily accurate.
As the 100% owner, for Sue, that is simply the way it is. She needs a team that can manage growth and manage change her way. It is not about what should work but what works for you as an individual leader. To find people who align with your leadership style, you may need to change your hiring criteria and screening process to find people who are “all in” with the way you work and the culture you want to build.
So, you can see how we can rebuild Sue’s bus. The chassis remains the same, but the engine, wheels and transmission are all new—and we jacked up the suspension and rearranged the seats into a novel configuration. It can feel a bit unusual, but when it works, your company can then be in a position to head in the right direction with the right people.
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