Strive within your means

It is always better for a customer to wonder why the hell you won’t take on their project than for you to wonder why the hell you did. LOUIS COUTTS

By Louis Coutts

I had a sad call this week. Years ago I was retained to turn around an ailing company. It was in pretty bad shape at the time but had some great people, including a young guy who seemed to know what the problems were, what needed to be done to fix the problems, but didn’t have any authority.

He was the youngest of six directors who owned the company, and I appointed him general manager over the heads of the senior directors and owners.

We had a great 12 months turning the company into the leading provider in the state. It became pre eminent in its industry.

That was almost 20 years ago. I have stayed in touch with the guys ever since, particularly the young (now nearly 20 years older) general manager.

I kept hearing stories of how the business was growing. I then heard how it had expanded into another state by way of merger and they were heading for the stock exchange. It worried me that growth had become such a dominant driver of the business to the extent that it would put at risk the wonderful culture that had been built over the years for the sake of growing with a firm that had a completely different culture.

Stories kept coming back to me about how they were growing like there was no tomorrow. Revenue had increased tenfold since my involvement. My friend had surrendered his managerial responsibilities to a CEO who had been recruited by the firm.

Now, don’t get me wrong. I have worked as a consultant CEO for quite a few organisations in turnarounds, but bringing in a new CEO to an organisation that had been quite successful in running itself struck me as rather speculative.

Then the stories started to come back to me about how they had to add to their administrative, financial and managerial support with the emergence of a completely new division that had nothing to do with the delivery of the services that generated the income for the firm. It seemed that there were more managerial and admin people than operational people.

I had to bite my tongue for fear that if I expressed my concerns, it might sound like sour grapes.

The crash came. My friend phoned me this week and said that he was now back in the chair as general manager because the costs of running this multimillion dollar growth train far exceeded the revenue, and this was only brought to his attention by the guru CEO who was worried about how the business could pay the week’s salaries. (That was precisely the problem that caused the firm to get me in nearly 20 years ago.)

A preliminary step that the directors took was to capitalise the company from their own pockets, resulting in the erosion of all the benefits they believed they had achieved through growth. They were literally back where they started nearly 20 years ago.

Regrettably, this story will not be unfamiliar to many people who have experienced growth when growth has been the driving force of the business. Even more regrettably, despite the fact that we know that preoccupation with growth frequently plays out in this way, the story will be repeated over and over again. It happens to big companies (Enron); smaller companies (One-Tel) and tiny companies that we never hear about.

Is there some symptom that we can identify early in the piece to ensure that we don’t go down that track? There is a tipping point where people in an organisation realise that it has outgrown the structure that has been in place throughout its early growth – the premises aren’t big enough, the IT is outdated, and competitors have stolen a march in relation to this aspect of management.

People are so busy trying to keep customers happy that they don’t have time to do important things like spending time on recruitment; investigating IT options; listening to concerns of the people lower down in the organisation and wondering why staff turnover is high.

Tips from customers that things aren’t getting done on time and a host of other factors conspire to persuade management to take new managerial initiatives. The one that is often chosen is “we are now too busy to manage the business, we need a professional manager; we will have to hire a CE0”.

What people often fail to understand is that they have done pretty well up to date, and while all the worries of the world might be on their shoulders, it might be better to shift managerial responsibility to one of the younger guys in the firm who understand its culture, are close to many of the people working in the organisation and will be careful about taking risks that put the past achievements in jeopardy.

Another option that is often pursued once again by big, little and tiny companies in this situation is to merge. For heaven’s sake, how will the managerial, cultural and logistic clashes of merger solve the problem? The problem will be aggravated a thousand times.

Sometimes, it is better to take a pause and ask yourself where you are going. It might involve telling a customer that you are sorry but you can’t take on any more work until you have the capacity to do so. It is always better for a customer to wonder why the hell you won’t take on their project than for you to wonder why the hell you did.

It doesn’t matter if the graph pulls back a bit occasionally. That is healthy so long as you are taking the opportunity of pulling back, taking stock and making sure that as far as possible, you are gradually building the blocks for the next upward movement in the graph.

I remember my old physics master lecturing me when I was rushing with an experiment. He would say with his broad and engaging Irish accent: “Hurry slowly, master Coutts”. I think that they tell a story about a tortoise that won a race that way.

Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.

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