The imperative of young businesses to grow and the issues surrounding that growth is the subject of this practical and highly accessible book by Rupert Merson, adjunct professor of strategy and entrepreneurship at London Business School.
Most businesses start high on leadership and low in management, but things need to change as a business grows. Introducing a layer of professional management moves a business from one where there is entrepreneurial excitement and a high-octane environment to one in which the discipline of management has great sway.
However, while it is true that a business without decent management will not survive for long, a business in which the entrepreneurial spirit is squeezed out will become “just another overmanaged, underinspired middle-aged business on a glide path to history”, as Merson puts it, adding that premature ageing in an organisation is almost as worrying as a refusal to let it mature.
Much of the thinking around business growth is influenced by growth models, and various ones are discussed here. In one popular model, for example, a five-phase process starts with creativity, with the founders’ energies consumed by doing rather than managing. This ends in a crisis of leadership, which involves the recruitment of a professional business manager.
The next two stages are direction and delegation, in which this new manager stamps their authority on the venture. Phase four, co-ordination, involves centralising functions and often ends in a crisis of red tape. The final revolution results in a phase of collaboration in which teamwork, social control and self-discipline replace formal control, with the focus shifting from process to problem-solving and from headquarters to interdisciplinary teams.
As Merson notes, all the growth models have their weaknesses and the academic community has begun to doubt their validity. One Danish theory that is worth considering suggests it is more helpful to think of growth as a wheel and to consider the end of the business evolution to be a process of re-creation, with the last stage in a successful business containing the seeds of new businesses that end up demanding their own growth models.
Another obvious problem is that not all businesses grow at the same pace. Revolutionary high-tech businesses fall into this category, for example, and pass simultaneously through several of the early stages described in the growth models.
Managers experiencing hypergrowth need to do more than just hang on to their hats. They need to consider whether the growth they are experiencing is a consequence of external or internal drivers. Externally driven growth is likely to hide internal weakness, and as noted here, hypergrowth will probably be driven by the top line, but managers must remember to secure the bottom line.
The danger is that the business will overtrade. Turnover is great and technical profitability is even better, but poor cashflow and bad debt-management are issues that can destroy seemingly successful businesses. It is vital to ensure that there are sufficient strong sources of external finances in place.
A hypergrowth company needs both the qualities that enable a small company to grow fast and those of a big company that can sustain that growth. Such a company is in particular danger of failing to remember to grow up as well as to grow, which superficially is fine until the very factors that fostered the hypergrowth weaken, as they inevitably will.
The book also addresses growth triggers and barriers, and the implications of growth, financially, culturally and personally for those in the business. It also contains a useful A-Z glossary of growth terms covering many of the financial subjects entrepreneurs need to address and should prove useful to business owners on the point of significant expansion.
