After working with thousands of lower middle market companies over the past fifteen years we have observed that great companies possess something other companies lack: a leadership team that gets the right things done with effective execution habits. Harvard Business School Press states that over 90% of strategies fail. The authors describe in their study that “the ability to execute strategy was more important than the strategy itself.” Failure to execute not only lowers performance, it also prevents a company from breaking through a perilous growth inflection point. We call that point No Man’s Land.
No Man’s Land
According to David Thomson, author of Blueprint to a Billion, there are two inflection points where companies experience the greatest failure rate.
Companies enter No Man’s Land as they grow past startup and enter “adolescence”. Figure 1 depicts the disturbing fact that over 90% fail to survive No Man’s Land and achieve scale. It’s a period of strategic confusion and inadequate resources, as Doug Tatum describes:
No matter how good their core business concepts, the companies I’ve seen have been pushed by growth into an uncomfortable situation where the resources and approaches that had allowed the firm to grow in the first place suddenly became insufficient and even an obstacle to further growth. Customers went away dissatisfied, and the entrepreneur in question felt disoriented, as if he or she were gradually and inexplicably losing control.
In No Man’s Land, growing companies experience difficulties in four distinct managerial categories…
No Man’s Land market issues center around the relationship between company and client. Companies often find it difficult to identify their most profitable clients or the cost of acquiring a profitable customer. They also have a tendency to make promises to customers that they are only 70% able to keep:
It is so important to decide carefully which promises to extend to which customers. The correct decisions will keep you growing through No Man’s Land, while the wrong ones will kill you. An entrepreneur might make some promises that lead to stadiums full of new customers, whereas others might lead to dead ends, tangling up the company with promises meaningful to only a few clients or customers. The key is for you as the leader to make the right decisions that lead to a growing and profitable customer base. (No Man’s Land)
- Customer Satisfaction Gross Margin
- Product Commoditization Profitable Clients
- Profitable Products
- Customer Promises
- Cost of Customer Acquisition
Question: does your company have a clear and compelling Value Proposition that it can fulfill?
It’s tough to make changes that involve replacing loyal staff; but CEOs must make strategic hires and fires when necessary to put the right people in the right positions. These experienced individuals will lead the company through No Man’s Land:
If someone tells entrepreneurs that they need to let a close friend go, they typically react defensively, acting as if it were somehow their own fault that things have gotten as bad as they have. They lose confidence in their own decision-making process. Yet entrepreneurs must realize that the transition to outside management is a normal progression; it has nothing to do with entrepreneurs or the particular people they’ve brought with them on the journey thus far. As a business changes, it requires people with different skill sets. The entrepreneur needs to match the people in charge with the skills the business needs; otherwise the business will fail… The Founder must hire at the top first, not the middle to navigate through No Man’s Land. (No Man’s Land)
- CEO Role
Question: does your company have the right people in the right positions?
One memorable Superbowl commercial a few years ago showed a young group of entrepreneurs throwing the virtual switch to open their online store. The first orders produced hoo-ahs and high fives; but when the order counter started spinning like a pinwheel in a hurricane, their smiles turned up side down. Many companies in No Man’s Land can’t make money at higher volumes:
To make it through No Man’s Land, firms must develop a new economic model that allows them to provide its value proposition at scale and earn a profit. In addition, the firm must constantly analyze its performance in light of this model to assure that the company will achieve sustained profitability. (No Man’s Land)
- Key Metrics
- New Products Infrastructure for Growth Profitability at Scale Systems
- Competition Strategy Forecasting Growth Initiatives
Question: Does your company’s financial model forecast decisions before you make them?
Many rapid-growth companies roll in profits but have no cash on hand; worse, they have more cash going out than coming in. Private Equity firms are less interested in a company’s pro-formas than they are the company’s ability to reduce the risk on their investment.
Most companies enter No Man’s Land without enough capital to leave it. If and when they fail, “undercapitalization” is seen as the cause. Yet undercapitalization is not the cause but rather a fatal symptom. The true cause is a company’s inability to raise capital because it is perceived as too risky. To raise money, firms must focus on reducing their real and perceived risk by addressing the issues described in the previous three chapters. Yet even with the appropriate measures in place, transition through No Man’s Land is difficult because of institutional barriers that exist in the capital markets. Hang on—it’s going to be a wild ride. (No Man’s Land)
- Reducing Risk
- Speed Limit
- Exit Strategy
- Capital Allocation
- ROI on Assets and People
Question: Do you know how to reduce your company’s greatest risk?
Teams out of sync on the No Man’s Land issues experience great difficulty getting the right things done. Great companies have teams that maintain effective execution habits so they can break through No Man’s Land.
The 5 Execution Habits of Great Companies
Habit 1: Get radically objective about the business
“Embrace the brutal facts,” as author, Jim Collins states. Great companies ask tough questions from the No Mans Land categories to get an accurate picture on the extent of team misalignment and the degree of urgency on each issue. Tough questions usually reveal tough decisions that must be made; decisions that stir the pudding but can also throttle the company through No Man’s Land.
Habit 2: Set a clear direction by focusing on a handful of priorities
More than 5 priorities result in no priorities. Strategy can be simple. Teams can focus and when they are responsible for a handful of priorities with actionable points and deadlines.
Habit 3: Align the team through routine communication
We have observed that over 98% of teams are out of sync on the No Man’s Land issues. On the other hand, companies experience at least a 20% increase in performance when teams are aligned and focused on the right priorities. Aligned teams can stay in sync with a routine review of priorities and key performance indicators.
Habit 4: Keep score to hold each other accountable
As stated previously, team accountability is rare; but it is at- tainable. A simple dashboard that includes priorities, assigned action points with deadlines, and metrics will provide the catalyst for team interaction. Offering the team an opportunity to vote on the priorities and action points can also fuel accountability.
Habit 5: Adapt and learn quickly
Our nation’s Special Forces utilize the same strategic decision process on every battlefield around the world. The foundation of their strategy is based on the team’s ability to make a decision and then quickly learn from their unfolding circumstances, outside information, and the evolving interaction with their environment. By using this process the team adapts and learns in order to choose their next move. In other words, they remain “agile” at all times. The Wall Street Journal described the need or a company to remain flexible:
Now, even though the economy is slowly picking up, those fresh habits aren’t fading. “This downturn has changed the way we will think about our business for many years to come,” says Steve Odland, Office Depot’s chairman and chief executive.
Walt Shill, head of the North American management consulting practice for Accenture Ltd., is even more blunt: “Strategy, as we knew it, is dead,” he contends. “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.”
From: Strategic Plans Lose Favor, Wall Street Journal, 1.25.10
Great companies have leadership teams that adapt and learn from their decisions. They are able to keep their strategy simple and remain focused on the top handful of priorities. They’ve developed the habits to execute.