The recent flare out of once high-flying Fuhu - a previous #1 on the Inc. 5000 list for not one, but two years in a row - proves once again that early success, however spectacular, is no guarantee of sustained success.
Most worrying for leaders of fast growth companies is the unavoidable conclusion that early success can be more than problematic - it can be fatal, no matter how compelling your business model.
So how come this pattern of fast, early success followed by even faster catastrophic collapse is so prevalent? (Google "Fast growth companies that flamed out" for a few hours' worth of eye-popping examples.) In fact, just like mixing hydrogen peroxide with potassium iodide, if the right elements are in play, it's an entirely predictable - and utterly unavoidable - outcome.
Here's How It Works
First, we need the ingredients, which are:
1. A highly Visionary leader.
The more Visionary (big picture, bored with detail, loves hyperbole), the better. In Fuhu's case, this role was played with considerable panache - and entirely according to type - by Robb Fujioka, described by Inc. as "Fuhu's mastermind and headstrong president".
2. A hard-charging Operator sweating the detail.
For our combustion to occur, the busier they are spinning plates, the better. And boy did Fuhu's CEO, Jim Mitchell, fit the bill. An ex-Accenture consultant, Mitchell was a perpetual motion machine for Fuhu, signing deals, negotiating financing, jollying along disgruntled big box customers.
3. A product or service that's good enough to achieve fast early growth.
It doesn't have to be world-changing (though that will read better in the subsequent journalistic autopsies), just good enough for early success. Fuhu morphed from writing software, to tricked out Android tablets, to manufacturing its own cuddly tablets for kids. None of which changed the world, but all of which, added together, fueled a meteoric rise from a standing start in 2008 to sales of $196m in 2013 - eye-watering growth that secured that coveted Inc. #1 spot.
Now We Need the Catalyst
It happens when the business hits Whitewater. Whitewater is a stage of growth that every fast-growing business encounters eventually, at the point when the complexity induced by growth overwhelms the ability of the Visionary- and Operator-led team to improvise their way to success (which is how they've been managing up to this point).
For Fuhu, 2014 was the year when Whitewater hit. A series of missteps stretched the fast-growing but still viscerally-managed company to the extreme. A new 'bet the ranch' product (the Dreamtab) bombed. A highly touted new partnership - with DreamWorks of all people - was widely derided. Batteries caught fire. A class-action lawsuit emerged.
Now here's the thing: While it's always extremely painful, Whitewater doesn't need to be fatal. Many companies successfully navigate through it over time. But, for a certain percentage, there's no way out.
The Difference Between the Survivors and the Lost
What separates them? Hubris, plain and simple. A belief that the hard-charging, highly improvisational magical realism that got the business here will get it to the next stage, if only we'll double down our efforts and do more of what we did previously. (It's no coincidence that so many Whitewater fatalities were previous media darlings - all the attention and media coverage feeds the Visionary's Icarus-like belief in their own indestructibility.)
In Fuhu's case, the hubristic double-down came in the form of The Big Tab - a 'not in the current strategic plan' notion founder Fujioka had of building a gigantic mobile tablet that he envisaged an entire family would gather around and use together.
What Turns Hubris Into Disaster?
Another, amplifying pattern in Whitewater crashes: The extinction of a challenge factor.
Whitewater survivors are led by Visionaries who recognize the need to change. Specifically, they viscerally understand the need to introduce a third leadership style - the Processor. Processors build the systems and processes that will tame the chaos caused by the complexity of growth and, in turn, provide the strong foundation for sustainable scalability.
Whitewater fatalities are led by extreme, dysfunctional Visionaries who may intellectually understand the need to introduce systems and processes, but who are repelled by the Processor's logical, literal mindset and consequently sideline them, ignore them, even - at their worst - demean and undermine them.
Cue this quote from Inc. Magazine's recent profile of Fuhu, "When finance [the Processors] shared its concerns with Fujioka and Mitchell, neither could be bothered. 'We didn't really care for how they thought through the numbers,' says Fujioka. 'It was kind of like, "Can you go do the stuff that needs to be done for the IPO, and leave us alone?' "
And so, guess what happened when Fuhu's finance team told Fujioka that The Big Tab was going to run up a big tab - specifically, losses of at least $65m? You guessed it - he told them their model was wrong. The rest, as they say, is history. If you don't know the story, you can guess the outcome. (Hint: Have you ever seen a Big Tab?)
If You're a Leader in a Fast-growth Company
Ask yourself this question: When you hit Whitewater (and you will), do you have the self-awareness and inner confidence to embrace the need for a personal change in your leadership style, and lead your business to the next stage - Predictable Success?
Or will you insist on doubling down on what got you here, guaranteeing at best a limbo-like existence in perennial Whitewater, and at worst, the end of all you've worked for?
The choice is yours.
Get the Strategies You Need to Navigate Whitewater Successfully with Inc. Consulting.