Systems for Growth

By Michael Tanner, Managing Director, The Chasm Group, LLC

Anyone who has started a company can vouch that doing so is a highly un-natural act and certainly not for the feint-at-heart. So executives who typically start and grow leading high-technology businesses tend to be made up of an entrepreneurial gene pool. They are often more comfortable focusing on agility versus structure, and ad hoc vs. planned controls. While processes are all about predictability, control and making the "right" decision, many entrepreneurs naturally lean towards making quick decisions themselves and then course-correcting. Other employees generally view processes as activities to endure rather than celebrate. New systems and processes feel like standing in-line at the department of motor vehicles. So you can see why getting effective processes into place early can be such a tough challenge.

Salespeople, for example, have long felt they had to endure the requirements of lost-sales reports, funnel-reports and other types of management systems. From a salesperson's perspective, the order and licensing "process" in many companies gets so complicated that they see the operations group or legal team as synonymous with the "business prevention" team. So naturally, some simply learn to do what they feel they must, which is to learn how to game the system. And let's not forget that new CRM system! For all the benefits of CRM, ever wonder why so many accounts in the sales funnel that are ranked at 80% or 90% probability of closer somehow fail to materialize at the end of the quarter?

While this melodrama is playing out in sales, marketing and development have their challenges too. As a company moves to more complicated positioning across multiple product lines, the first control system to raise its head is often what I affectionately call the "logo police" - folks in corporate marketing who rightly want to insure that what is said to the public is consistent with corporate positioning and branding- and that nothing inconsistent is put out. Of course, human nature being what it is, this is perceived by some in the organization as a "power-play" when it begins. Also somewhere around this stage of corporate development another age-old debate begins. Just "whose job is it to define what the market wants," "who really is responsible for the product's success in the market," or my favorite often-heard comment comes up: "we don't really release products around here….they just escape."

While the various folks who are not actually building the product thrash about on these subjects, R&D begins to become seriously bi-polar as they swing back and forth between being the visionary inventors who started and grew the business, to being a service organization that builds what someone else specifies. They often just throw-up their hands, saying something like: "just tell us what you want; vary the mix of time, money and people- and we'll tell you what you get…"

All these debates are quite natural and can be healthy. In fact, they are probably taking place in hundreds, if not thousands of companies as this is being written. But when the processes and systems begin to feel like you're back in line at the department to motor vehicles, entrepreneurially-minded employees sometimes just follow in the footsteps of other mature managers in history. They pick-up their marbles and go home. They write a business plan, raise venture capital and start their own business! They create a sort of entrepreneurial brain-drain from the larger, more mature businesses they left.

Then, some quarters or years later, after the newly-minted CEO gains initial success in the marketplace with the new venture, some unsuspecting manager scampers into their office and starts suggesting that the company "really needs to put standard processes and systems in place to plan for growth." What do you think happens?

My purpose in relaying this little parable is only to suggest that in large companies, it is a natural stage of evolution for systems and processes to become barriers rather than catalysts when left unchecked. Evaluating which processes and systems are core, and which are not, is a healthy exercise that can not just streamline decision-making but purge the system of potentially carcinogenic DNA. Likewise, it is similarly quite natural for entrepreneurs to want to avoid processes and systems at all cost, instead relying on their own management and decision-making authority. The challenge is that both of these situations are mental-models that arise from knowing what to avoid, rather than knowing how to create a business capable of scaling and evolving without becoming overly-bureaucratic.

Since human beings are theoretically the most evolved and successful animals on the planet let's use ourselves as an example. All of us humans have approximately the same number of genes - 30,000. What makes us unique are how these 30,000 genes are organized, and the capabilities (DNA) that each gene has. The body has a sort of 'system' hard-coded in it that allows some genes to be switched-on and switched-off based upon the body's life experience and its environment, and it has been only-recently that scientists are learning how these systems work. The entire job of some genes is just to perform these switching operations. But as a result, we each grow differently, we each evolve within our environment and we each become different and successful human beings.

Now to use my analogy loosely, startup company growth can be something like what would happen if a benevolent mad-scientist were to breathe life into a brand-new organism by pulling-together bits and pieces of other organisms (employees of companies) and somehow patching them together to create an entirely new organism (company). By targeting the right skills and experience (DNA) and injecting an over-abundance of nourishment (guidance, capital and vision), the good scientist almost magically grows the new organism to the point where it becomes successful in its environment.

But the environment is not stable and changes. For the organism to gain higher-intelligence and evolve it needs instinct, self-awareness, and the ability to learn on its own. But the scientist gave it no pain response; no ability to heal on its own; no ability to learn and make mistakes or even to reproduce on its own; no system that would allow the organism to evolve naturally. Instead, the scientist directed all the major responses of the organism to the world and its environment. He or she may even have hired other brilliant scientists to help.

Such a hypothetically simple organism might live and be very successful to a point. But as it grows and becomes increasingly complex it will eventually be out-maneuvered by other organisms that learn to respond more rapidly to changes through their own evolution and instinct.

So what are the systems required for a successful business organism? Of course, that depends upon what specific objective is being sought. Were it possible, space would not allow a full description. But for any objective I believe there are five levels that, when taken together, represent a sort of "whole-product" for systems and automation. Some are more important at earlier stages of corporate development, while others are more important at later stages:

The Idea System. We all have skills and capabilities. When we become employed we take our skills, solve problems and see the results. Based on this experience we then create our own mental-models of what works and what doesn't. As a result, the next time we see something similar we naturally want to do what worked before. The problem is that in high-technology there are at least five different stages of market development, five different business models, and five different kinds of competitive environments. Very few people have actual experience in all of these environments. So an accepted "Idea System" can become a standard set of mental models that allow managers to use common terminology, lexicon, and mental frameworks. It is a standard set of models about "how things work." While such a system is historically not required by many companies, I believe it is at the root of why many managers can communicate directly with one another but end-up hearing entirely different things. For example: two account executives in your company are independently asked to deliver their strategy for penetrating a certain major account. Would they cover the same topics? What would their definition of "strategy" be based upon? Now what if you wanted 40 such plans to review?

The Information System. An Information System is the framework for how ideas and plans are to be presented and communicated. For example, if you are a CEO think of your board of directors meetings. In all likelihood, some of your directors have made specific requests about how the budget or financial review should be presented. They may have requested that some items be presented as an expense vs. capitalized. They might have requested that all budget items be shown as a percentage of sales. Imagine if each director was on four boards and saw financials presented entirely inconsistently at each meeting, with no accounting rules. It would be virtually impossible to quickly draw conclusions. Or, imagine if you are CEO and have asked two different divisional managers or product managers to present their business plans for approval. Manager A comes in and presents a detailed business plan over the course of an hour, delivers a 30 page written document, a snazzy Powerpoint presentation and lots of technical details. Manager B comes in with one 8 ½ x 11 page with bullets and just talks intelligently for 30 minutes. Regardless of which style you prefer the lack of a common information system makes decision-making difficult because you can't be sure whether all the facts are there. As an organization scales, a standard set of expectations becomes important.

The Procedural System. For key business objectives, this is the standard work-flow process by which events must occur to get things done. A classic example of a procedural system that starts to be hugely important as a company scales or increases product complexity is its product management process that defines how a company will propose, define, produce, launch and track success of new products. As a company grows it simply can not scale unless the organization learns how to accomplish the process of invention-to-market-success without all decisions having to bubble up to senior executives. In a sales team it is the notion of a standard selling cycle. To be sure, each customer has its differences. But for a sales team to effectively scale and improve it needs to have a common view of just how the sales process is supposed to work in the first place.

The Control System. Standardizing processes allows the organization to get things done without the day-to-day detailed involvement of senior executives. The process defines what decisions are being made and by whom. But a Control System makes sure that the right executives are involved at key points along the way, and that the process does not just run-along left unchecked against resource realities. A standardized procedural system, without a control system to measure results, produces surprises. If you are being regularly surprised is it because of a process failure, or in-adequate controls?

The Automation System. Only once the other systems have been defined, whether rigorously or loosely, can real automation start to occur. Inadequate controls make it impossible to track automation. Inadequate processes leave no way to implement controls. A process that has an incomplete information system at its root will in the best case be clumsy to implement, and in the worst-case be gamed. And for the entire system to work, an effective idea system must be at the root. If not, we all run the risk of becoming highly effective at automating and systematizing the wrong or inconsistent approaches. That, of course, is why hiring the right people is so important. But that's another article.

Mike Tanner is a Managing Director at the Chasm Group, where he provides advisory and consulting services in the areas of new venture development, market development strategy, operational planning, portfolio investment strategy and market positioning. Mike holds board seats for Apexion and Savi Technology, and sits on the advisory boards of Entivity and Unicru. He can be reached for comment at: mtanner@chasmgroup.com