In the beginning, you are the centre of some exciting things. Decisions are easy to make.
You and a small cohort of co-leaders or co-founders are defining the rules of the game as you go. You are not bound by any legacy systems or inherent cultural constraints. You are at the centre of the small circle of leaders who make decisions, define their own rules and create their own futures.
Then gradually the business changes. First you come under increasing pressure to manage the workload. Then the workload becomes increasingly complicated. The business grows and needs you to employ experts in specific line functions. So you do that.
But these experts need professional, consistent ways of working so you hire middle managers to manage them. Wait, but who manages the middle managers? Senior managers. So, having neither the time nor the contextual patience to manage the middle managers you hire a group of senior managers. Senior managers report to some of your co-founders. Everyone reports to you.
Then one day you hear about something your competitors are doing or a new start-up across the pond. Why didn’t we think of that, you ask yourself? You call an urgent management meeting at the office. You place the issue of the pending disruption squarely on the agenda and then ask the question, why weren’t we the ones to think of this? From the back of the long boardroom a shrill but certain voice squeaks, “we don’t have the time.”
All organisations were once start-ups. Kodak, Nokia, Saambou bank and Metcash.
They were built to operate within a particular context, based on a specific assessment of the market and they were very successful. But, like all things, their context changed. And their leadership was too busy being busy to see the change coming.
I am very conscious to this. So I try to build an organisation that has both organisational rigour and agility. How do you do this?
1. Increase the transparency
Entrepreneurs and disruptors have many gifts. Their single most powerful gift is their ability to see the whole and then its component parts. Managers in large organisations are paid to focus and drill deep into a single component of the whole without due care for the whole. This is why large companies are often blind-sided by outsiders because the people with the insights do not see it broadly and strategically.
To overcome this, you must seek to deliberately increase transparency and collaboration as you build your business.
One of the ways to do that is to increase shared responsibility through line functions. So in our business, we have taken functional area leads and made them work on a project where they have to collaborate.
It could be a social media project, or audio visual project or even marketing project. But when they work together they have to share their expertise and increase transparency of knowledge.
2. Share image of success
Most people don’t take actions that will lead to the success of the business because they have no view of the overarching success drivers of the business beyond the profit motive. So, we want to make money. Then what?
Prof. Kotter calls it a compelling and clear vision of the future of the business. So if you asked the cleaner in your business, where will this business be in seven years, what would they say? Most of us are not planning that far ahead and if we are we are certainly not communicating it. If we are communicating it then we are not telling the people lower in the organisational hierarchy, so they don’t know what the image of success looks like.
Having consistently tried this in my business, let me tell you that emails do not work. You have to have an intense and deeply personal mode of communication for this to work. One-on-one or management meetings and then reinforce the message with communication tools like posters in the workplace, emails and brochures.
3. Simplify the reward system
To truly remove complexity and increase clarity you must start where it matters: With the rewards system. What do you pay people for and how do you measure it? The science tells us that if you measure people on anything more than three meaningful and explicit measures you will fail.
4. Remember the core
Most of us start a business with a particular core. For us, it was private equity as a corporate finance discipline. In fact, we started as a specialist in leverage advisory. So even though we didn’t yet have our fund, we were doing the advisory work necessary to build the business and the Watermark name.
As the advisory business grew and our network grew, we were invited to do capital raising, balance sheet restructures, business planning, debt renegotiations, the list is endless.
In the pursuit of growth and revenues, we dared not say no. So we did it all. The problem was that as the business and revenues grew, the costs also grew, because we couldn’t drive efficiencies.
We had so many deep disciplines that we had to continue investing deeply in the knowledge areas that were so far apart that we had the cost structure of a major investment bank, without the resultant guarantees of revenue or reputation.
Furthermore, there were then, and continue to be now, investment boutique houses emerging at every corner of Fricker Road. So we were too small to be a large investment bank with the history and heritage of JP Morgan, but too general to be perceived a subject matter expert.
Solution? Simple. Get back to the core. We are really good at leverage advisory, capital raising and business planning. So we focussed on that. This simplified the core of the business and whilst the early days of the transformation were harsh, today the business has experienced substantial growth in revenues and the margins are better than ever before.
When LEGO got into trouble, my good friend Jurgen Knudtsdorp simply took them back to their core: The plastic brick.
We start businesses because we want to leave a legacy and create wealth. But wealth comes from building scalable businesses. Scale adds complexity. So in truth if you want the business to grow, you must embrace the complexity. If not managed, complexity can destroy you. But if you see through the haze then it’ll deliver a superior return.
Venture Capitalist. Global Business Speaker