In my work with companies at different stages of growth, I have developed a scale, which enables me to predict a company’s probability for ongoing success in today’s turbulent economy. It has five levels, which examine the internal operations of a company. A company’s internal operations mature as follows:
Stage 1: The Entrepreneurial Enterprise.
A company at this level reflects the entrepreneurial spirit in its purest form. All the company truly has going for it is an idea. The founder sees a gap in the market. This is typically the result of working for a larger enterprise and seeing how things could be done better or how things should not be done. The entrepreneur believes he or she can fill the gap better than anybody else and they give birth to a new enterprise. Internally, the company is driven by trial and error as the founder tries to figure out what the market will value and pay for. In this state, the company is intimately aware of customer needs and will do almost anything to fill them. With rising expenditures and uncertain revenue, unless the company figures out its success formula, it is destined to fail.
Stage 2: The Performing Enterprise.
A company emerges from the entrepreneurial phase and enters the performing phase when it has figured out the compelling value it can deliver and it does so profitably. This is an exciting time for companies. The market validates the founder’s vision and like a magnet, the company is able to attract talented individuals to share the vision and passion. This company’s Achilles heel, paradoxically, is the talented people it attracts. Its success depends entirely upon the Herculean efforts of these talented individuals. Unfortunately, this is not a scalable model. The growth, which was so exciting when emerging from the entrepreneurial phase, becomes a source of unyielding pressure and foreboding risk. Where the company was once at risk due to starvation, it is now at risk from indigestion. Its talented people are burned out because everyone is mired in firefighting, and no one has the time or energy to recruit and train the workforce required to keep the company going. All tasks are urgent and there is no time for what is important. Companies in this phase begin to upset their customers because they are stretched too thin. All of their service levels are compromised and they just cannot keep up with the dramatic growth.
Stage 3: The Systematic Enterprise.
Eventually, in order to survive, the founder realizes that he or she requires a more professional management team. The professional managers, usually from larger firms, bring proven systems and processes to address the disorder. These proven systems enable the company to scale. Consistent results are achieved through a systematic approach. Typically, at this stage of the company’s growth, the company’s culture becomes inhospitable to the founder and the original employees. Where creativity and confidence were once prized, consistency, caution and repeatability are now prioritized. Often, at this stage, the original employees leave and seek employment with smaller firms where their entrepreneurial spirit is valued. The remaining employees and the new hires focus on building an enterprise based around a winning formula. With their contributions, the company now functions like a human body, with various systems performing specific roles and yet fully integrated with other systems to achieve the firm’s overall purpose.
Stage 4: The Adaptive Enterprise.
While the Systematic Enterprise has a great advantage over the Performing one, it also has fatal weaknesses. The process of implementing professional management practices forces the company to take its eye off its customers and focus on stamping out internal chaos. When the professional managers finally have systems in place that resolve the chaos the firm was experiencing, they become wedded to those systems (strategy fixation). Companies are made up of human beings and human beings generally dislike the disruption of change. While the company becomes wedded to its systems, it fails to realize that what customers’ value is constantly on the move. So a natural divergence emerges between what a company values (the order and predictability of its systems) and what its customers value (having their ever-rising expectations met). An Adaptive Enterprise realizes that it must take input from its strategic customers on an ongoing basis. It realizes that its value is not in the products or services that it creates, but in its relationships with its strategic customers. The strength of the Adaptive Enterprise is that its processes and systems take input from the market on an ongoing basis and it has change and adaptation formally built into these systems to enable its ongoing evolution.
Stage 5: The Preemptive Enterprise.
The weakness of the Adaptive Enterprise is that it is reactive rather than proactive – it risks failing to evolve quickly enough. The Preemptive Enterprise takes nothing for granted. In fact, it is paranoid. It knows that its deepest and strongest customer relationships are constantly at risk. It knows that both existing and emerging competitors are able to create new value and it knows that its customers will always be attracted to that new value. Rather than wait for these nascent demands and threats to come to fruition, the Preemptive Enterprise is predictive. Through close collaboration with its most strategic customers, it is able to anticipate the new challenges these customers will be facing and position itself as a strategic ally in overcoming these challenges. This is an important point. Rather than wait for customers to tell it what is needed, the Preemptive Enterprise anticipates the next generation needs of its customers before its customers are able to articulate them. Through the use of competitive intelligence and scenario analysis, it is able to understand the goals, strategies and capabilities of its competitors and consistently dilute and diffuse any new value that its competitors plan to bring to the market. In so doing, it sustains the momentum of a continually unique and compelling value proposition.
Understanding where your company is in its maturity and knowing what steps to take to get to the next level is critical to your success. This is not just a question of increasing sales or market share; it is a question of survival.