I’ve had 20 years of experience with large organizations, both from the inside (as an employee) and from the outside (as a third-party consultant). I’ll admit I often find myself jealous of the economies of scale and resource-rich environment enjoyed by large companies. More often though, I feel a stronger sense of disappointment as I see these same companies foolishly focus their resources on getting bigger instead of getting better.
Why does this happen? Here is the lifecycle I’ve observed in both start-ups and business units within larger companies:
- Team rallies around the ideal “do the right things and do things right” with a passion for offering the best possible product or service.
- That ideal is rewarded as the team is able to get early traction and establish a solid foundation of profitable sales by giving initial customers the Jerry Maguire treatment of superior service and attention.
- Key sales thresholds are established and pursued to make the business model viable (i.e. fixed costs can be distributed across sufficient volume to make pricing profitable).
- As initial sales volume is established, overhead starts to scale up in anticipation of supporting ongoing sales growth.
But then little compromises start to cause each of these to be replaced with something less appealing:
- The mantra of being excellent quietly gets replaced with a more fluid definition closer to “whatever is good enough…or at least as good as our competition.”
- As the list of needed improvements grows longer, any sense of urgency shifts to the mentality “we’ll get to it once things slow down a little.”
- Resources are focused on the pursuit of new customers rather than better service for existing clients or further improving products or services. This is justified by the need to cover the cost of expanded overhead and rationale that greater sales will eventually provide the funds to address that longer list of other issues.
- Along the way, products and services progressively inch toward mediocracy, making incremental sales more difficult and operational inefficiencies more costly. These combine to simultaneously depress volume forecasts and shrink profitability.
Why the intense focus on growth?
Companies aggressively seek growth or try to get acquired or merge for a variety of reasons. Scale theoretically brings new opportunities that can’t be done on a smaller scale and larger organizations theoretically provide more stability and room to recover from missteps.
And more sales should translate to more profit, right?
But size also has numerous, significant tradeoffs.
- Continuity and consistency disappear as organizational layers are inserted and more people change positions more often.
- In larger organizations, political skills begin to trump performance as employees learn to manage their career path by spending time on their personal brand, not better managing the business.
- Processes, standard operating procedures and impersonalized responsibilities replace passion for “do the right thing” with “do whatever will deliver the number”.
- Decision makers get further and further removed from the frontline, with spreadsheets and PowerPoints driving decisions, not intimate knowledge of or interaction with customers.
Despite the first-hand experience many have had with these consequences, small organizations continue to get lured into this bigger-is-better mentality, being led astray as they forget why their company was started in the first place or what the products did for early customers that drove the initial purchase and loyalty. Instead, they measure success primarily based on sales, profit and market share.
They focus only on activity that can deliver incremental sales and forget about what can give shoppers incremental value or deliver retailers incremental volume. They focus on transactions, not building a loyal customer base.
These companies have unintentionally become addicted to sales growth.
Companies that started with a passionate, efficient, profitable venture selling a superior product or service realize they are now operating a bloated, inefficient organization selling a mediocre product or service with shrinking profit margins. Placing big bets and hoping they pay off replace the discipline of establishing and executing systematic strategy and OGSM work.
Once an organization views growth as the path to success, the annual cycle of “more growth than last year” becomes the default goal and resources are allocated to focus on quantity over quality. Customer satisfaction metrics, if they exist, are lifeless numbers hidden deep in strategic documents, reviewed out of obligation, and often manipulated so leadership thinks they are clearing the “good enough” threshold. There is little or no desire to understand the true delight (or frustration) of existing customers, not to mention what it might take to better deliver that delight.
Why better is better
Have you noticed that the few companies that prioritize getting better over getting bigger are the ones written about in books like Good to Great? There is plenty of evidence to debunk the myth that success comes through pursuing profit at any price. These companies still know the importance of profit, but understand that growth comes as the result of doing other exceptional work.
These companies seek to identify and correct mistakes in a manner that makes the organization smarter. They also continually listen to their customers because they realize it is far easier to satisfy demand than to create it. They are also honest with themselves, not mislabeling mediocre work as excellent to make everyone feel good about themselves.
For these companies, getting better is how they got bigger. They fixed small problems in small organizations before they became big problems in big organizations.
It’s possible to be more profitable at a smaller percentage of current sales by running a smarter, more efficient organization. Focusing efforts on quality vs. quantity can lead to a stronger sense of pride in your product and with your employees (leading to better brand representation and customer service), while reducing costs on customer issues and complaints, and reducing risk in various areas.
Chick-fil-A took this approach and in 2016 was been rewarded with the highest per-restaurant revenue of any U.S. chain (see QRS report here). By focusing on high-quality interactions, customer service and order accuracy, Chick-fil-A has developed a loyal customer base that more than compensates for the sales they forego by being closed on Sundays. This focus on quality stems from the founder’s mentality, who famously said in an executive meeting to discuss how to increase the company’s rate of growth:
“If we get better our customers will demand we get bigger!” – Truett Cathy
You don’t have to be big to be noticed
Smaller organizations engaging in the proverbial “David and Goliath” battle can offset a lack of resources and experiences with honesty, earnestness and a passion to “do what’s right”.
We are fortunate to be living in the age of omnichannel that gives David better odds than he has ever had in the past. Small companies have numerous platforms to easily and quickly reach prospective buyers. The ability to economically drive awareness, create and distribute content telling your brand’s story and empower satisfied customers to promote your business to others has never been better.
Many market leaders remain focused on protecting their market share and continuing to do things the way their organization is structured and knows how to do them. Most aren’t ready or able to easily adapt to the massive change omnichannel is bringing. Look no further than P&G’s long-overdue response to Dollar Shave Club’s disruption of disposable razors or how the ability to mail compressed foam mattresses is changing that industry. The Goliaths are still living in a world where they believe they can tightly control the message by buying, instead of attracting, an audience.
Choose your path wisely
Perhaps it is ironic that many small companies simultaneously work to disrupt the business model of big companies while dreaming of being big companies themselves someday. They take pride being underdogs while secretly aspiring to become alpha males. Because of this ambition, many unnecessarily start acting like big companies in some of the most unappealing ways.
Don’t let me discourage growth. But please consider the practical benefits of getting bigger relative to the costs. Consider the hamster wheel you can find yourself perpetually running on if you get too focused on growth.
Take time to value the size that you are, for as long as you can. Don’t grow up too fast.
Thomas Tessmer helps companies develop and launch new products and has been into data-driven decision-making long before the term became a cliché. Contact Thomas today.