Welcome to No Man's Land

Running a successful company can be a thrill. But for many CEOs, there's a point at which it becomes no fun at all. Doug Tatum has a name for this phenomenon; indeed, he's written a book about it: No Man's Land: What to Do When Your Company Is Too Big to Be Small but Too Small to Be Big (Portfolio, September). Tatum, co-founder of Tatum LLC, an Atlanta-based consulting firm, is no stranger to no man's land; his firm negotiated that dangerous zone and now specializes in helping clients do the same. Tatum recently spoke with Inc. editor-at-large Bo Burlingham, author of Small Giants: Companies That Choose to Be Great Instead of Big, a look at entrepreneurs who made the conscious choice to avoid no man's land altogether and instead remain small.

Bo Burlingham: I'm curious how you discovered no man's land.
Doug Tatum: It was a year or two after we started our firm. Our business plan was to provide rapidly growing companies with financial expertise. We were all finance guys--me, my brother John, and the cadre of partners we'd put together. Every week, we'd have a meeting and talk about what our clients were doing. Pretty soon a pattern emerged. We saw that below one level of sales, you were sort of in a safety zone. Above another level, you were more or less out of the woods. But the transition from one level to the other was just incredibly painful. I remember saying, "My gosh, it's like a no man's land. You can't survive there. You've got to push through to the other side or go back to start." I began to see that it was a universal phenomenon, regardless of the business. Later, I wrote a little pamphlet about it.

Do you mean a marketing brochure? That's a funny way to market yourself: telling your customers how horrible their lives will be if they do the one thing they're hiring you to help them with.
It was for explaining, not marketing. We'd found it awfully hard to tell entrepreneurial CEOs what they would face in no man's land--especially how they'd have to replace folks who, in many cases, had been with them from the beginning. The pamphlet gave people a chance to read about it and think it through. They'd come back saying, "I'm going through that. I thought I was the only one." We described what happened in no man's land and explained why it happened in terms of their market, their economic model, their management, and their needs in the capital markets. Those are what we call the four M's--market, model, management, and money.

Okay, let's start with the first M. I suppose that's the market.
Right. When you think about it, a company's strategy is nothing more than what you tell me, the customer, you're going to deliver to me. It's about making certain promises to certain customers. A company enters no man's land when it begins to experience a disruptive change in its relationship with its customers. Something happens to the value proposition, which is the thing that makes a customer applaud you by paying you a profit over and above your costs. I view profit as the customers' applause; they're applauding you for something you're giving them. My partners and I saw that, at a certain point, the value proposition had to be transferred from the entrepreneur to the rest of the company. It couldn't just depend on the entrepreneur's personal expertise. The breaking point came when the company got so large that the entrepreneur could no longer be out there in front of the customers and still managing the operations.

But can't you choose to stop short of that? Maybe getting big isn't part of your vision.
I don't believe most entrepreneurs start off with a vision about what's going to make them successful. Their success comes from their ability to look around the corner and bet on things that the rest of us can't see. They're out there making promises to get customers and figuring out where the value is, and they're also keeping on top of operations, making sure the company is aligned with the customer, and delivering on the promises they've made. Each promise is a bet on the future. Then one day you make a bet that all of a sudden leads you into a stadium full of new customers. It drags you into growth and it's very hard to say no.

That's where things start to go wrong, because you aren't physically capable of doing it yourself anymore. So it all breaks down. The customers start moving away, and the business stalls. In effect, the customers stop applauding. They start complaining: "The only way I can get things done is talk to you." You put salespeople out there and they make promises, but they're the wrong promises. Sales and operations are at each other's throats because there's no alignment between the two. Meanwhile, the customers don't find it simple to do business with you anymore. That's my definition of a market-driven business: one that allows customers to get what they want in a very simple exchange. Think of Google. It's the simplest company in the world to do business with.

How do you make the exchange simple again? How do you get sales and operations realigned?
There are two ways to do it. One is to go back to where you were before. The other is to push on through to the end of no man's land, which means building an organization that can do on a larger scale what you used to do on your own.

That's the choice I was talking about.
Yes, and it's critical to make the right choice for you, because no man's land is no fun. You're going to have to make some excruciating decisions, particularly about people. You're going to have tremendous problems raising capital. You might never make it to the other side. No matter what happens, the experience will have a profound effect on you and everyone around you. So you'd better be sure the journey will be worth the pain.

You also better be sure that it's mathematically possible for the company to get through no man's land. What's really stupid is to force a business built around an entrepreneur, or around a human-scale concept, into a transition that will make it economically unviable. If you can't come up with a scenario under which the company becomes profitable again, you'd have to be crazy to go forward.

You're saying that people need a theory of how the company will operate profitably in the future--a theory that can be tested mathematically to see whether or not it's realistic.
Exactly. Unfortunately, most entrepreneurs don't take that crucial step. They say, "If I make this promise, I can probably get five customers to say yes right now. And if they say yes, there's a whole bunch coming in behind them. That's my theory." But they don't see how that models out financially. You have to decide whether you have a scalable business model.