Growing from medium to large is a big deal
Photo by Dino Reichmuth
Many of my mid-corp clients aspire to grow or reposition to make a meaningful difference in the lives of those they serve. They run excellent midsized service companies and see opportunities to create a more significant impact. Often, they combine unique relationship management with flexible services and have a team of very engaged colleagues that safeguard the promises made to customers. People love to work for this type of company, and customers experience the familial and engaged culture.
Developing this successful business model further sounds attractive, but successful growth is more challenging than expected. From my experience, here are some thoughts to consider before deciding to grow towards the next level of organization.
Formalize the informal
At some point, the company will need to formalize corporate functions such as IT and HR. Usually, this means that the colleague who was always so clever with IT or the assistant who kept track of birthdays and did the job interviews must let go of these informal but influential roles.
I remember one client where the colleague responsible for procurement was also responsible for IT service management. He had no formal education in this field; he just enjoyed IT and was eager to find out how to solve day-to-day IT issues. Since he was enjoying the stuff nobody else liked, it was convenient for his colleagues to consult him. However, when the company grew beyond 100 FTE and systems requirements became more complicated, he was no longer qualified to deliver the urgently needed quality. He had to let go of his loved side job.
Instead, IT service management became a formal function with formal service management procedures. Many colleagues found this frustrating. They could no longer drop by the procurement department to resolve their IT issues. They had to file a service ticket and wait until their ticket was processed.
Often, these unintended by-effects are unanticipated and cause unrest within an organization.
2. The changing role of the owner
The entrepreneurial and energetic owner who builds a beautiful company notices that his influence is declining. He finds himself back in all sorts of meetings, gets overwhelmed by the number of questions and decisions he has to make during the day, and misses the entrepreneurial spirit that gave him the energy to get out of bed every day. Formal structures and processes take over.
I vividly remember an encounter with one of the founding partners of a consulting firm I worked for. He and his friend founded a successful business straight out of university. With an unfettered attitude and entrepreneurial spirit, they grew their company to 150 FTE.
One day, I sat with him while a colleague entered the room to ask permission to attend a conference. He looked at me and said that although he founded the company, he could no longer decide about this expense. He agreed on the procedures to approve these requests with the other partners and directors. In his perception, even simple decisions had to go through formal decision-making processes. This event and other occasions were a starting point for him to evaluate his role within the firm and step back as a partner not long after that.
Today, the company has grown beyond 300 FTE and is led by a CEO appointed by an investment firm. It has become a corporate organization.
3. Embrace a temporary dip in results
During a growth process, costs increase due to hiring new colleagues, investments in systems, and reorganizations to get the right people in the right place.
On top of this, flaws in the current service delivery become apparent once the company grows. The design of the existing processes does not meet the requirements of a larger-scale organization. Usually, a company needs to make additional costs and investments for service recovery and redesign of operational processes.
For leaders, this accumulation of negative financial results feels uncomfortable, especially when investors or a board hold them accountable for the initial plan and anticipated financial prospects.
I worked with a subsidiary of a large family-owned business. The company suffered significant losses for many consecutive years. Customer satisfaction was low due to poor service delivery and poor after-service. At one point, poor customer experiences even went on national television. The financial results and reputational damage were a disgrace for the family.
The company asked if we could help them make a turnaround to improve the results dramatically. Together with the management team, we projected how the results could improve and which interventions were needed.
Due to several unanticipated root causes for the problems, financial results didn't improve as planned. However, the senior managers had personally committed to achieving the results. They met with the family owners each month, explaining why the financial results hadn't improved. And why the company needed additional investments in systems and staffing.
In the end, the management team was able to improve results. Initially, the financial results were still lagging, but the interventions helped sustainably enhance operational performance and created an economic turnaround. In retrospect, the management team experienced this period as stressful. They felt they had to keep their promise to the family.
It helps to be held accountable for delivering financial growth, but it can be stressful.
4. Adapting to a corporate culture
The company becomes more complicated with more and larger departments, cross-functional cooperation, additional management functions, and formal processes. Not everyone feels comfortable or competent with these internal complications.
A couple of years ago, I worked for a family-owned business owned by three brothers. They succeeded their father in the late 1980s. In these days, the company was 50 FTE. The brothers had a pragmatic management style. For instance, when they had to make an announcement, they would call everyone into the cafeteria and spread their message at once.
Because of their success, the company grew beyond 400 colleagues from different cultural backgrounds and working across multiple locations. The pragmatic, entrepreneurial management style no longer guaranteed the engagement of every individual. They needed more professional management practices like HR, IT, and Finance—and more experienced leaders working for larger organizations to facilitate further growth and development. The brothers felt like they were losing control of their own company. Eventually, they stepped aside and created room for the next generation to thrive in the business.
The entrepreneurial organization became a corporate organization that enabled them to comply with new market requirements.
Want to learn more?
Don't let my thoughts discourage you from aspiring to grow your organization to the next level of meaningful services. Learning from my experience might help you overcome foreseeable challenges in an anticipated and effective manner.
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