Successful companies don't grow in a straight line. Here are three ways growing companies manage their growth through the ups and downs.
There is no cookie-cutter approach to growth. Success stories never turn out the way they were meant to be. When entrepreneurs set out to build a business, they have grand plans about investment, customer acquisition, and eventual stardom. They show a typical hockey-stick chart that shows investment and low revenues in the first few years, followed by a sudden and sustained surge of astronomical growth.
This steady growth story rarely comes true, but that doesn't mean the business won't succeed. The most successful businesses rarely follow the script. Growth businesses are developed through trials and tribulations, multiple failures, and happenstance. The best businesses are created through real-world learnings that are hatched by lost clients or cost overruns, events that cause the management team to take a step back and build the business in a better way. This repetitive pivoting and enhancing is what creates great businesses.
Here are three ways we see companies take a crooked path to growth:
1. They take two steps forward and one step back.
Growth businesses are not always moving forward. In the long run, they may show an upward trajectory, but along the way they are reshaping their business and even shrinking before they grow. They tend to take two steps forward, getting out ahead of their skis, which puts them in a vulnerable position. They learn from this experience, take a step back to regroup or pivot, and put themselves on a better foundation for growth. Each time they do this, the company grows stronger.
2. They go slower, not faster.
If success comes from trial and error, it makes sense that companies that grow slower have more opportunity to improve their model as they grow. Slower growth also typically results in greater profitability, since profits aren't being rapidly invested in new opportunities, many of which will be failures. Taking the time to test and learn gives the company a better foundation that results in steadier growth in the long run.
3. They start over often.
The most successful growth companies are constantly "zero-basing" their business. That means they, at least figuratively, fire the whole team, assess what they have and rebuild the company with the best people and assets. They divorce themselves from the business's past and think of themselves as outsiders taking a fresh look at the business. They ask, "How would we build the business if we were starting from scratch?"
Successful growth companies are built through a series of ups and downs, right and left turns that ultimately result in a better business. CEOs and investors who embrace this chaotic approach will build more value in the long run.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark