COVER STORY: HOW THE 'GROW OR DIE' PHILOSOPHY CAN COST YOU EVERYTHING
by Jeremy Nulik
Even when his business was a basement startup company, Jason Fiehler, president and CEO of infuz, a digital marketing agency, had many unspoken business convictions. Any money is good money. All new business is good for the company. You must grow or die. Most of these were so deep-seated that they seemed tattooed on the inside of his mind. They were a silent force that gave him the optimism and passion that are so common among successful entrepreneurs.
Armed with these convictions, Fiehler moved from his basement to office space on Washington Avenue in 2005. He began winning new business and large local accounts, which, in turn, led to new hires … many new hires. The company’s high energy made the atmosphere electric and fun.
“I did the opposite of the ‘hire slow, fire fast’ rule,” says Fiehler. “Instead, I hired fast and fired slow. I didn’t do much research. I just asked employees if they had worked with a candidate and what they were like. We ballooned from 15 to 40 people within one year.”
All of this growth, however, came with a huge cost. Fiehler suddenly found himself constantly refereeing disagreements between project managers. Workplace gossip eclipsed productivity. Some employees began abusing the relaxed environment. In short, chaos ensued.
“It became obvious that the company was not going in the direction I wanted it to go,” he says. “We were still doing great work, but it was taking effort to get the work done. There were not any profits. That worried me. This place is more than a paycheck for me. I have a lot of my self-worth wrapped up in it.”
By the end of 2007, things had gotten out of hand. A flood had damaged the company’s servers. And instead of improving the workplace environment or winning new business, Fiehler was spending his time negotiating with insurance companies and lawyers.
The next year, Fiehler had to do something that every business owner dreads. He divided the employees into two groups. About 25 went with Fiehler, and 15 went with Jill Schanzle, now the COO of infuz. Schanzle’s group was laid off en masse. Fiehler describes the day in one word: traumatizing.
“Most people were in complete shock,” says Fiehler. “That was the first time we had done a layoff. Those people were not terminated because of something they did. It was because I was not able to provide for them. I had failed them. It felt terrible. And the way that I let them go lacked compassion. I thought I was going to be able to protect against widespread worry. Looking back, I should have been the one to talk to the group that was getting let go.”
Since it has become right-sized, infuz has been carving out a name for itself in social media and digital marketing. Last year it was just over $4 million in revenue and had 25 employees. However, employees still talk about that day in 2008 when so many of their friends and colleagues were let go in one day.
“That is the toll for listening to these anecdotes about business growth,” says Fiehler. “The ‘grow or die’ mantras can’t be universal statements, and they should be analyzed within the context of the business. I wish I would have planned better for growth. And asked myself why I wanted to grow in the first place before just doing it.”
Fiehler, however, is not alone. The mantras he refers to are tossed around as commonly accepted truths in the business world and even peppered in media and business books. However, as Fiehler experienced, growth for growth’s sake did little to help his company become successful.
“There is no scientific research or business reality that suggests that ‘grow or die’ is true,” says Ed Hess, author of “Grow to Greatness: Smart Growth for Entrepreneurial Businesses.” “Growth can be good, and growth can be bad. But the idea that you must grow or die is an outright lie and, at best, a half-truth.”
Hess, a professor of business administration at the University of Virginia, set out to debunk the ‘grow or die’ myth when he happened upon an interesting pattern in his research. Many of the successful companies he was interviewing were headed by an entrepreneur who had failed on his first attempt. Chief among the causes for these entrepreneurs’ failures? They grew too fast. The new growth put stress on processes, controls and people. And eventually, growth killed their companies.
For a well-known example of the downside of growth, Hess says that business owners need look no farther than their corner coffee shop.
“Between 2005 and 2007, Starbucks aggressively opened new store locations and made several operational changes that diluted its customer value proposition,” says Hess. “The company diluted its high employee engagement culture, violated its real estate site selection controls and weakened its high value-added ‘experience’ business model.”
Here are some of the realities associated with business growth that Hess has uncovered in his quest to disprove “grow or die.”
Growth is not linear; it’s often messy
When charting projected growth, business owners often create scenarios that seem logical and rational. However, in his research, Hess has discovered that business growth is best represented with biology or complexity theories as opposed to economics or finance.
“Anytime you are talking about business, you have got human beings, and they are not always efficient or rational,” he says. “They are complex. They have good days and bad days. They make mistakes. Growth is an evolutionary process, and it has to be approached like a learning process.”
Having the patience to deal with people as well as new learning curves is key to having successful and sustained business development.
Growth requires delegation
Entrepreneurs tend to be doers and not managers. But if the company is to grow, the owner has to learn to give some amount of control to others. This is an act that, according to Hess, feels unnatural to many entrepreneurs.
“You have to learn how to teach and not punish,” says Hess. “The owner has to move from being a doer to a manager of people and hopefully then a manager of managers or a leader. So, in order for a business to grow, the entrepreneur must grow too. Many lack the patience or emotional intelligence.
Growth requires sophisticated hiring procedures
As Fiehler learned the hard way, finding the right kinds of people and having a hiring process is key. This requires planning before people are desperately needed.
“Many entrepreneurs hire quickly and fire slowly,” says Hess. “You have to hire slowly because if you are a small business, you can’t afford to make too many hiring mistakes.”
Growth requires documentation of processes
Business owners are used to putting out fires. In a small company, many will spend their day jumping from fire to fire. However, for there to be any hope of growth, owners have to create what Hess refers to as fire extinguishers.
“Business owners put out fires and they don’t leave behind a fire extinguisher,” says Hess. “You have to take the time to create processes and on thinking strategically. Even if it is just an hour or two per week, you have to think about the big picture. Find out where there is risk. How are my people doing? Are they too stressed? Do they have enough recognition? Then you have to create the processes around those issues.”
Growth creates new risks
Growth stresses people, processes, quality controls and financial controls. It can dilute a business’s culture and customer value proposition and put the business in a different competitive space. Understanding these risks is critical to managing the pace of growth and preventing growth from overwhelming the business.
“To get a better handle on growth risks, consider how your strategic space will change as you get bigger,” says Hess. “You will probably enter a new competitive space, facing bigger and better competitors. Those new competitors may be better capitalized than you and be able to engage in price competition, driving down your margins.”
Hess believes that business owners cannot indulge in too much “what can go wrong” thinking. That is, before you consider growing, look at the risks and plan.
Visualize what growth would look like
Before making the choice to scale up, Hess suggests that business owners engage in a growth audit – a reality check on how ready both the business owner and the company are for growth.
“Sit back and pretend that you just won that big client or that contract,” says Hess. “Ask yourself what you would need to fix in your company. This is hard for most driven entrepreneurs to do.”
Here are some of the questions that Hess suggests business owners ask themselves:
• Where do I need to improve in terms of processes and controls?
• What equipment or technology would I need?
• Where could there be bottlenecks or problems?
• What people will I need, and how will I structure management?
• Do I have the cash to invest? If not, where can I get the cash?
• What processes do I need to create to ensure quality and good execution?
Remember that you have a choice
Hess says he is not anti-growth; however, his passion is around smashing the idea that growth is necessary for business survival. He believes business owners should change the mantra to “improve or die.”
“Business growth is like Mother Nature,” says Hess. “You have to respect it. And keep in mind that growth can be a choice. You have to know if you are really ready to grow and have a reason why. The real focus should be on improvement. I tell entrepreneurs all the time that they have to constantly improve and focus on delivering a better value proposition than competitors. Then you really can grow.”n