What CEOs Of The Fastest-Growing Midsized Companies Worry About (Hint: It’s Not Their Markets)

Posted on January 27, 2014

Kiss growth goodbye without processes.  Truth be told, I get emotionally upset every time I see a firm with promising growth blow it due to poor processes.

Originally posted on Forbes online: http://onforb.es/1ixy7uc

The midsized companies I know that grow solidly year after year share a number of traits. But one is more important than all the others: Their CEOs don’t believe they’re at the mercy of their markets. Though market issues are not entirely irrelevant to them, they don’t fixate night and day on their sector’s bad economics, downturns in demand or tough new competition. Instead, these CEOs spend their time ensuring they have practices and processes that befit the size of the organization. These practices may be about hiring, identifying customer needs, auditing financial reports or other key activities. (Such practices are a part of what I call leadership infrastructure.) But whatever the activity, CEOs know that if they’re still operating as they did when they were smaller firms, their practices are more than likely to stunt than to encourage growth.

A great case in point is NetApp, the Silicon Valley based maker of network storage founded in 1992, which grew to $2 billion in revenues by 2006, a 46% compounded annual growth rate.

Midsized businesses with the practices of a startup cannot thrive.  Some firms with solid products and services often feel they can continue growing without much change in process because of past successes. But my experience and research show they will hit a plateau at some point—operations will melt down, quality will suffer or the sales activities needed to drive growth will fail—and then it will be difficult to regain momentum. As a fellow CEO, it is upsetting for me to witness.

Consider the case of San Antonio, Texas based Caring Senior Service, which encountered the challenge of weak practices, but ultimately triumphed. This firm was a pioneer in the senior home health care business.  Founder and CEO Jeff Salter saw the massive need for supporting elders in their homes and was passionate about quality.  He founded his firm in 1991, and after opening his 5th location in 1998 decided that franchising was the right avenue for further growth—so that in every community where he opened up there would be business owners who cared as much as he did.  They cared; they delivered quality care; but their businesses didn’t thrive.  He gave them advice about best practices, but many didn’t follow them, instead trying to figure out their own systems.  Yet in most cases, their approaches were not resulting in thriving businesses.  He put the brakes on expansion in 2009, knowing that something wasn’t quite right.

Often, when businesses start to grow and leaders feel pressured to perform, they scramble faster and hire more workers.  They try to control everything, issuing orders and making quick decisions eighteen hours a day.  Everything runs through them, as though they are the hub at the center of a wheel.  The more they try to control, the less they are exposed to the front lines, and don’t have time to observe what is really happening.  They either become wild gunslingers, shooting at anything that moves, or they create top down bureaucratic processes that make little sense in practice.

True midsized businesses require less centralized decision making. Instead, more processes must be developed and built by the team.  Don’t think, even for a minute, that I’m saying that processes should be created before growth requires them.  Escalating processes should lag growth slightly (but not too much), creating order out of the chaos caused by growth.  These processes should be maintained with the involvement of those on the front line, guided by those who manage them. They must be thoroughly tested and then mandated by the C suite.

I use the term process in its simplest of forms: a pre-planned, written series of activities.  For example, a client with a growing international distribution business saw its customers abroad sourcing a higher percentage of product in local markets. The overworked international team and the overworked products team came together and wrote up a practice of information sharing and product request/review processes on Smartsheets, and a meeting cadence such that more high volume international products would come to market.

Jeff Salter was working with limited capital, trying different approaches to find the path to sustainable growth.  He got an option to take over management of 15 offices providing home senior care in 2007, and he grabbed it.  But there was plenty at stake.  He had full authority over these offices, but also full responsibility for their profits, losses, and reputations.  With the quick step up in scale, he could afford to invest heavily in process development and a training regimen.  It worked.

Consider following these four steps to create growth-enabling practices & processes in a midsized business:

1. Don’t build it before you start to need it.  Process-building should be a reaction to growth.  Young businesses are stifled by too much process.  Proactive process is usually a barrier to growth   Add only enough processes for current and near term growth.
2. Build the processes by observing and experiencing reality on the front lines.  Fight the urge to dream it up in the C suite.  Many entrepreneurs are great problem solvers but don’t realize how wrong they can be when they are removed from the front lines.
3. Test carefully. Processes (which are repeated over and over again) can be horribly destructive when they are scaled up with flaws.  Think about the Obamacare website debacle, and how much damage that flawed process caused!  Prove the process works and adds value before going live.
4. Implement. Flip the new process on company-wide and use it to grow to the next level—where your processes will again start to lag behind growth, and you’ll have to repeat the process.

By 2010, Jeff Salter felt ready to grow to the next level, and to return to franchising.  He repeated the process, studying exactly how his teams were succeeding, and what had been learned.  For example, each successful location had pre-defined staffing levels and role definitions. That became a required best-practice at every location. Another key secret was the way they inquired about each senior’s unique needs, listened carefully to the senior and their family, only then creating a customized care regimen. They codified it into a program called GreatCare, based on the intimate knowledge of each customer’s needs.  They began to think of this customization as a product, with clear and strict specifications.  Over time, they developed innovative peer franchisee auditing processes, and quarterly all-expense paid trips to their San Antonio headquarters for training and ongoing education for each franchisee.

In order to deliver GreatCare, they had to be incredibly inquisitive about each client.  One unexpected result was that prospects really liked the diligent inquiry and listening-first approach, which increased their conversion rates—converting a prospect into a customer—dramatically.  Second was that the level of service was even higher, and more consistent, resulting in more referrals (their primary source of business).  They don’t “pitch” GreatCare: it is the process of setting up GreatCare with each client that has become the selling process.

Between 2009 and 2013, Caring Senior Service’s conversion percentage (from a qualified lead to a customer) rose from 39% to 49%.  Referrals now generate 45% of new business, up from 31%.  Those franchisees who took advantage of the free training sessions at least 70% of the time saw their revenues grow 36% (year over year) on average, versus a 6% increase for those who didn’t attend.  The icing on the cake: Franchise owners who take the greatest advantage of the training and processes are now successful at owning multiple units.  Today Caring Senior Service has 49 locations in 16 states, with their growth engine running full steam.  Creating and following processes continues to produce growth.

But it’s not easy.  Developing and implementing new processes is not a sprint, it’s a marathon.  If the effort seems daunting, pick the one area of the business most in need and focus on building it for three months.  Then rotate to the next hot spot. Company leaders must also realize that most humans hate change.  Many people would rather run harder and work the way they did yesterday.  But that will stunt the growth of your business.

A growing business IS change.  Expect organizational resistance and have the resolve to push through it.  The CEO has the ultimate power to lead the team through that resistance.  There is no substitute for the resolve of the CEO.

Don’t wait until you’re stuck on the plateau with no growth.  As soon as the growth rate dips, or if you sense that your growth has outrun the way your team manages its activities, improve your processes in those areas of your business you feel are struggling.