The head of Avondale’s strategy practice, Mark Baldwin, discusses some of the common patterns holding back mid-tier companies, and looks at how they can kick on to the next stage of growth.
Among other things, I head up the strategy division for Avondale. Over the course of a year, I work with a select number of medium-sized companies. Businesses this size typically turn over between £5m-£70m and employ more than 20 people, and have enjoyed a sustained period of stability within their business life.
Most of the owners and CEOs I work with have been quite successful, but they’ve reached a plateau. While things are generally ticking along fine, they want to build shareholder value and get to the next stage of the business lifecycle.
Over time, the reasons have become relatively easy to identify. I have listed 10 common issues that typically hamper medium-sized businesses from kicking on and achieving long-term stability.
1 – Hands off
There is often a misconception among mid-market leaders that strategy is only for bigger companies. Lack of time can be an issue, of course, and mid-tier CEOs rarely have the same day-to-day bandwidth for strategic leadership that the larger corporates enjoy.
Hard as it may be, carving out the time and space to work on the strategy of the business is the key to survival in today’s competitive and fast-changing marketplace.
A good leader needs to master the art of delegation. The analogy I use is: you don’t see a Field Marshall overseeing a war campaign by picking up a gun and fighting the battles himself.
2 – High-value person doing a low-value task
This logic also applies to other members of the executive team. The number of times that I see directors or senior managers working on low-value tasks is disproportionately high.
For example, one company had a director writing bid documents because he thought he was the best at it. Specialist bid writers in the UK earn 30-40k per year on average, while his salary was in excess of 120k!
As a leader, getting the right people to do the right job comes down to properly assigning roles and responsibilities. Know the true value of your personnel and utilise it accordingly.
3 – Stagnation
Invariably, mid-tier companies grow to a certain size and then run out of steam. Then follows a period where they flatline or even start to decline.
In most cases, this is attributable to either a lack of strategy or the management team has reached its limit in terms of business acumen.
The natural response is to seek outside assistance, but this doesn’t always help. There is an abundance of business books and consultants pitched at the SME market, but the emphasis is typically on smaller firms.
With most consultants coming from an entrepreneurial background, only a handful possess the experience of working at board level in a multi-million-pound enterprise. Few are familiar with the hard-nosed reality of running a commercial business.
4 – Shopkeeper mentality
During a period of stagnancy or decline, some leaders revert to what’s known as a ‘shopkeeper mentality’ or ‘prod method’. In an effort to change their current state, they roll out special promotions or incremental products/service lines, which have not been fully evaluated.
It’s akin to a shopkeeper offering promotions on products where footfall or sales have declined: they try different things (i.e. the ‘prod method’), but they rarely result in long-term enhancements or sustainable growth.
This is because quick fixes are only part of the puzzle. A company owner first needs to understand how the market and wider economic environment are impacting their business, and then design a strategy around this.
5 – Bored, bored, bored
Shareholder fatigue typically sets in after the company has flatlined for a period of time, and the owner or CEO has lost the enthusiasm needed to drive continued growth.
This is the point at which bringing in an outsider becomes highly worthwhile – a good consultant can help leaders work through the impasse and towards a new strategic direction, or will work with them to build value in preparation for a sale.
6 – People, People, People
Succession planning and personal development is a fundamental issue in mid-tier businesses. Very few companies I meet have any form of succession strategy, and virtually none have put formal personal development plans in place for their staff.
The most successful growing companies understand the value of investing in their people and the importance of business continuity after a key member of personnel leaves.
The key to success is having a human resources strategy that’s proactive rather than reactive. Providing a strong level of support will, in turn, allow you to set high expectations for your people.
7 – The three Ws: What, Who and Why buy from you
This may seem fundamental to many directors, but a lot of business leaders have difficulty articulating their proposition and their elevator pitch.
Most companies know they are selling X to a particular target market, but they don’t always understand the ‘why’ behind their business.
When I ask the question “Why do people buy from you?” it is often met with “We look after our customers and provide great customer service”. The problem here is that everyone else is saying exactly the same thing.
Being able to identify your core competencies then articulating and promoting them against your competition is critical for achieving competitive advantage. So too is knowing your target market – and what they want – inside out.
8 – Cultural to commercial
Growing companies often struggle with the transition to becoming a bigger company. The problem is often cultural: smaller mid-tier leaders have a habit of being too nice; they lack the ruthless, commercial streak found in larger firms.
This can prove costly. For example, I see business owners putting up with poor performance for far too long because of the legacy of their people. A familiar excuse is “I can’t get rid of him, he’s been with the company from the start.”
It’s a dog eat dog world and there’s no room for passengers. The most successful organisations treat their people extremely well, but they demand a high level of performance in return. Procrastination over making inevitable personnel changes will be someone else’s gain.
9 – Excuses, excuses
We all learn to make excuses from an early age: “The dog ate my homework, Sir”, “My pen ran out, Miss”.
In the commercial world, the excuses generally tend to have a cyclical or economic bent. “Revenue is down because it’s Christmas” is a familiar one. Or “It’s summer, of course people aren’t spending.” The list goes on.
The better people in business avoid the standard excuses by coming up with solutions to prevent future challenges from occurring. Justifying under-performance becomes a vicious cycle, and there’s simply no excuse for it.
10 – People, Process and Technology
There has been plenty of talk in the press about Britain’s businesses being inefficient because they are poor at investing in technology.
The three cornerstones of any business should be People, Process and Technology – in roughly equal measure.
Yet, through my involvement in business process re-engineering, I commonly see companies where the balance is heavily skewed towards investment in personnel rather than technology.
This is rarely the most effective way for a business to solve its growth issues. The rule of thumb should be: before employing a person to do a task, check to see whether technology can perform the same function more efficiently.
In the digital age, leaders should always be thinking about how they can invest in technology to provide a superior customer experience and improve operational efficiency.