San Francisco, CA (PRWEB) October 10, 2013
The challenges of creating and building a business that can scale and generate real wealth for its founders are many. Navigating the maze of steps required to create marketable products or services; building customer demand; financing growth; recruiting and retaining employees before cash flow is sufficient to pay good salaries—all this is not easy.
In grappling with these and other challenges, most entrepreneurs tend to make one or more “Type I” errors. These are the errors that come from executing a company’s strategy meticulously—even as the company is headed to failure. The company is adhering to its plan—but it’s not growing; isn’t profitable or isn’t meeting the metrics that measure progress in execution of its strategy. The founder/CEO is beginning to lose the trust of investors, customers or employees, or all three. How did things come to this point? The founder/CEO may have trusted too much to intuition or may have cherry picked information to support key assumptions instead of subjecting the business plan to rigorous testing. Or the founder/CEO may not have built a comprehensive model to really address how the different parts of the business fit together and how they are funded.
Needed: Admit you’re wrong
For a company that is going the wrong direction, changing course requires personal change on the part of the CEO, the sort of change that enables the CEO to admit “I may be wrong.” This admission leads to looking hard at “legacy” beliefs—bedrock convictions that the entrepreneur has never before had to question. For example: “customers will pay more for our products because they are so much better than the competition’s.” Or that, because the sales manager was right for the company in its early stages, he has what it takes to catapult the company to its next level of growth.
Four steps to help middle market CEOs face reality and change course
Step 1: Question what has never before been questioned
Unquestioned views are what inhibit business innovation. The CEO fails to ask the most challenging questions—well before bankers, investors or customers start to ask them. Questions like: Why are inventories so high? Why are product lines so complex? Are distribution channels too rigid to meet customer demands? Asking these questions pro-actively is part of the process of letting no assumption go unquestioned.
Step 2: Get new data
The CEO’s direct reports (and even employees who haven’t previously been in the inner circle) need to be engaged to gather new data. It will be their ticket to take part in a discussion of the company’s identity and direction. The goal should be to build a new, robust fact base, organized around categories like customers and competitors. Get employees to contribute insights--such as why the company’s new products are not in as much demand by the market as the business plan projected.
Step 3: Innovate, innovate, innovate
While we may all be tired of hearing about “thinking outside the box,” it’s still indispensable to getting past those beliefs that are self-limiting and holding the company back. The CEO and executive team must look beyond the current business of the company to see what other industries are doing in market or product innovation. As an example, grocery stores have increasingly embraced the “home meal replacement market”, adding rotisserie chickens and pre-made salads. But are they thinking beyond their industry or are they still thinking like grocers? If they are really thinking like food service innovators, wouldn’t a grocery store put in a drive-thru window? Think of innovations that show up in products; processes, and business concepts: Black and Decker’s snake light product, Wal-Mart’s cross-docking process or Zip Car’s lot-free rental business.
Now check the company’s track record on innovation. What was the last major change in the fulfillment process? What was the last product, service or business the company brought to market? How soon is the next one coming?
Step 4: Lose your fear of looking inconsistent
It’s time to face painful truths. It can be discouraging, even humiliating for entrepreneurs to face the fact that what they have believed—and had led investors, employees, and customers to believe--is not in fact the case. The CEO must clearly and compellingly explain why the company needs to change direction. Because there is new evidence about customer needs that suggests that the company needs to revamp products? Because social media marketing is replacing traditional advertising as the way to reach certain demographic groups? Because a new competitor can serve a segment of the market more efficiently?
However jarring the recognition that the company has to change course, there is a good chance that stakeholders will be more impressed than dismayed, once they see that the entrepreneur who created the company is receptive to new facts.
Search your soul/save your company
Change is hard. Change that involves giving up long held convictions is really hard. But doing so can be what saves the business, putting it on course toward renewed growth and profitability, toward achieving its potential. Honest CEO soul searching—without pre-conditions—is the first step.
Mike Kipp is a Managing Director of Newport Board Group in Nashville, Tennessee. Mike can be reached at (615) 414-6846.