Merson - Growing a Business

GROWING A BUSINESS

RUPERT MERSON is adjunct associate professor of strategy and entrepreneurship at London Business School, where he teaches a range of courses around entrepreneurship and business growth. In 2015 he won prizes as best teacher at both LBS and INSEAD. Formerly a partner at BDO, he now runs his own consultancy advising firms on how to manage growth. He is also the author of Rules Are Not Enough.

GROWING A BUSINESS

STRATEGIES FOR LEADERS & ENTREPRENEURS

Rupert Merson

PUBLICAFFAIRS

New York

THE ECONOMIST IN ASSOCIATION WITH PROFILE BOOKS LTD

Copyright Rupert Merson, 2016

This is an extensively revised and updated version of The Economist Guide to Managing Growth by Rupert Merson, first published by Profile Books in 2011.

Published in 2016 in the United States by PublicAffairs, a Member of the Perseus BooksGroup

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Library of Congress Control Number: 2015959978

ISBN 9781-610396790 (EB)

Figures and tables

Figures

Tables

Introduction: the trouble with growth

THE FOUR FOUNDERS of a software resale and implementation business receive an offer to buy their company. They did not know that it was for sale. As they think things through, it occurs to at least one of them that they had not intended to found a business in the first place. They had all been made redundant by the same company at the same time, and as part of their redundancy package they had been allowed to see some projects through to completion; but a few projects had turned into a few more, and soon they were winning new clients, providing new services, recruiting more staff and finding offices.

The offer to buy the business forces these accidental entrepreneurs to think hard about the business and what they want to do with it. It also forces them to think about themselves. One founder argues that accepting the offer is the obvious thing to do: they had not intended to found a business and now someone is offering a decent sum of money for it; surely they should take the money and get on with the rest of their lives. Another thinks differently: the business has only just started; imagine how much more could be done with it over the next few years. The other two do not know what to think, but they do know that since the offer letter arrived they have gone from building the business to arguing about whether to sell it, and in so doing they have ceased to pay attention to the business itself.

Not having been in this situation before, the four founders do not know that the decisions the offer to buy the business is forcing on them are typical of the decisions asked of countless other managers in successful growing businesses. Selling the business is the easy thing to do: the problems of growth will be passed on to another set of stakeholders and the founders can go their separate ways. The implications of not selling the business are much more complex. For example, what will they do with the business? Should they invest in more service lines and products? Should they sell into different industries? Should they sell overseas? Do they need more office space? Rather than sell the company, should they look to buy someone elses? Is one type of growth better than another? What led them to contemplate accepting the offer to buy? Are they worried about things changing? How much does a business change as it grows, or does it just get bigger? If it does change, how? To what extent could and should they control the rate of growth in the business? What are the real costs of growth: not just the financial costs but the personal costs, particularly to those inside the organisation? What are the enablers of next years growth, and are there levers they could pull that would help the business grow further and faster? What are the barriers to future growth? Is growth necessary? Is growth desirable?

Part of the problem is the unstable nature of the subject; managers, particularly those ambitious for growth, have to get used to thinking about organisations as transient, in a permanent state of flux. Too much business thinking implies a future state when the business will have arrived; more than just achieving stability, it will have reached a stage where the principal management challenge will be to keep it going. But this sort of stasis, even in a successful company, is illusory. Many experienced managers will remember their younger, ambitious selves walking into a new organisation and quickly forming a view of what is wrong with it. When Im in charge Ill sort out this and correct that and fire him and promote her and everything will then be fine. But with the benefit of experience and hindsight these individuals realise that management is not that simple; that problems change even as you attempt to solve them; and that next years problem is complicated by rather than resolved by the solution to last years problem. Even if growth is a consequence of success, it brings organisational challenges that threaten the success that caused it. Conversely, to sustain growth it is important to realise that what worked last year will not necessarily work next year; an organisation that wants to manage growth successfully needs to change things that are not yet broken.

The problems brought by change inside an organisation are compounded by changes outside it. Indeed, growth in a business itself often triggers change in a market and industry, which in turn demands further change in the business. Growth may attract competitors, competing technologies and regulators, as well as customers from different markets with different expectations.

Growth gives rise to problems for businesses of all sizes. Different divisions in a big business evolve at different speeds and may therefore be at different stages of evolution, each with its own problems, presenting additional challenges to the organisation as a whole: how to reconcile the competing and contradictory plans of one division with another is a particular growth challenge for the bigger business. Mergers, joint ventures and acquisitions inorganic rather than organic growth options present even more challenges, not least with integration. Small businesses have their own particular sort of growth challenge as they seek to establish credibility as well as culture, brand and identity; develop secure lines of supply and sustainable relationships with customers, suppliers and financiers; and manage the changing relationship between owners and managers. An established business in one country investing in a small venture in another needs to acknowledge not just the legal and cultural differences between the two countries, but also the differences between managing a large, corporate business and a small entrepreneurial firm.