This course focuses on challenges faced by existing private businesses when they attempt to grow substantially.
Growth Research
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En provenance du cours de University of Virginia
Grow to Greatness: Smart Growth for Private Businesses, Part I
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The Truth About Growth
This module presents an overview of growth in business with common myths and truths. There is a required reading: Edward D. Hess, "Growth is the
Dynamic Confluence of Strategy, Entrepreneurship, and Values." An option case study reading on Eyebobs Eyeware, Inc is also available. Please visit the Eyebobs website at https://www.eyebobs.com and think about whether Julie's vision and customer value proposition connects with you. What do you like about the site? What do you dislike? Why is her website so important to her
business? What should Julie do to keep her website "fresh"?
Rencontrer les enseignants
Edward D. HessProfessor of Business Administration
Darden School of Business
Welcome back. Welcome back.
Alright, I want to go to a new segment, alright?
I want to basically share with you what we know about growth, the growth
research, and I'm circling this word research.
Yeah. Okay.
It's reality. [SOUND] Growth reality, alright?
Now, we're going to go through some different disciplines, different areas.
What is business tell us? Consistent above average growth is the
exception. It is rare.
There are six research studies, including one of mine,
all of these are with public companies, okay?
But the same thing really applies to private companies, alright, I believe.
The reason we use public companies, we've got numbers.
A lot of private business don't like to share numbers, okay?
Those six studies basically state the likelihood that a public company will
grow above industry averages, be above average, or above GDP averages for four
years or longer is less than 10%,, 10%, okay?
Now, think about that. Four years, less than 10%..
It gets worse. The likelihood that a public company will
grow seven years or more above industry averages or above GDP is less than 7%.
In fact, it's less than 4%.. Wow.
Yeah, wow. This growth stuff is hard.
Growth is hard. Why is growth hard?
Growth is change. People in organizations can only change
so much so fast, alright?
So fast. It's a little bit like what I call,
you know, how people talk about red lining a car engine?
You want to put it on the accelerator as, and let it go red line,
go past the speedometer. Well, you can only do that with an engine
so long. Well, it's the same thing with people or
organizations. You can only go fast so long and bad
stuff happens. Growth doesn't mean more profits.
You can grow your business and lose money.
So, if you think about what Julie said, what does a business need to focus on?
Cash. [SOUND] Cash.
[SOUND] Cash. And I'm going to run out of space.
Cash. You want profitable growth.
A lot of companies grow the top line and don't realize they're losing money.
Every sale they make they're losing money.
They can't pay their expenses. Now,
one key point. To grow a business, that means you've got
to have time to grow it. Time to hire people.
Time to train people. Time to put in place processes.
Week 3 we're going to talk about processes,
okay? Processes,
the recipes, the checklists to keep your quality,
to keep everything going and operating in your business.
But in order to do that, it, growth requires excess, you got to have excess
time. You got to have time to grow.
You have to have time to do that or you have to hire a manager to manage what's
going on now so you can grow the business.
Growth is more likely to occur in spurts, okay?
Isn't this cute? Up, down, up, down but it's just as
likely to go like this [SOUND] or it's just as likely to [SOUND] go like that.
Growth doesn't happen in a linear fashion.
Now, what do we know about companies that are able to be high performance growth
companies? They have certain characteristics, ladies
and gentlemen, and number one is strategic focus,
okay? See that?
The bullseye, the bullseye, the arrow in the bullseye.
Strategic focus, what does that mean? One CEO basically said it this way, two
inches wide, two miles deep.
What did he mean? Take a second.
I asked you to think about this stuff. Think on.
What does it mean? Two inches wide, two miles deep.
What does it mean? I got a narrow strategic focus.
I know a specific set of customers that I'm going to focus on like a laser, like
a laser. Now, in order for me to grow my business
and to make a living, that number, that customer segment needs
to have a lot of customers. Because people are not going to buy from
me in most businesses every day. So, what I want is a, a specific product
for a specific customer segment that happens to have a lot of customers.
Strategic focus. You'll learn in one of the cases coming
up, okay? One of the most successful entrepreneurs, okay? Grown his business
to over $400 million in revenue. Let me make sure that nobody is
misunderstanding what I'm saying. $400 million revenue.
That is a big business, okay? And he says, I learned that every time I
say no, it's better for me.
Every time I turn away business which doesn't hit my sweet spot,
every time I keep strategic focus. Strategic focus is critical.
Consistent high performance growth business have operation excellence.
What does that mean? It means three things, three things.
99% defect free on-time delivery. Now,
I hope you're saying wait a minute, Ed said it meant three things, he only told
me two. If you said that to yourself, you are
thinking with me. Good job.
If I blew that past you, how about turn up the heat a little bit, folks,
okay? Think about this stuff as I'm saying it.
Internalize it. Take your time.
I want you to learn it because it's important.
It's about you, your dreams, your life, your finances, your family, your family
to be. Growing a business is all about life.
What's the third thing? Well, every business is going to make
mistakes. Why?
Because most businesses have people. People make mistakes.
Sorry. Nobody's perfect.
The third thing is is when you make a mistake.
Lovingly, caringly embrace your customer and make it right.
I learned this. A man named Horst Schulze who built a
private company called the Ritz-Carlton Company, which was the number one luxury
hotel chain in the world. It won the Malcolm Baldridge Award two
years and was the only company at that time ever to do that.
Horst was an interesting man and he also did lots of research for other big
companies. His was a private company, it was that,
it was owned by an Atlanta family, Atlanta, Georgia.
And Horst basically taught me. He said, Ed, he says, what do customers
want? And he said 99% defect free on-time.
But most of all, when you make a mistake, they want you to embrace them.
Embrace them with loving, caring, and correct it.
Now, small entrepreneurial businesses can do a
poor job of this, okay? I'll give you a perfect example.
Recently, I'm in a local coffee shop. My wife likes lattes.
Soy lattes. So, being a good husband, I'll say, I'll
go in, get you a soy latte. Go in, order, grande, soy, four equal
latte. They bring me my latte and I look, it's
half full. It's half full.
The person says, I'm sorry, we ran out of soy.
I says, well, I've already paid for it all.
She says, enjoy. Excuse me?
I paid for a full latte and I got a half one?
What would you have done if you owned that coffee shop?
It was not Starbucks, okay? It was not Starbucks.
Local. What would you have done if you owned
that coffee shop? You would have said, I am so sorry,
you know what, the next one is free.
Here is a coupon. Your next latte is free.
In fact, since we only gave you half one, your next latte is free and your next one
is free. Here's two coupons.
Operational excellence. We also know that high performance
requires constant improvement. What does that mean?
You're constantly practicing. You're constantly learning.
You're constantly trying to get better, faster, or cheaper,
okay? Better, faster, or cheaper,
okay? Improvement.
Better, faster,
[SOUND] cheaper. You're practicing.
You're learning. You're watering.
You're irrigating. You're making your crops grow.
That's why, you see this symbol? How many of you thought about it?
I wonder what Ed meant by the symbol. I've got something very delicate in my
hand. It's a plant, but it's really your
business. Your business takes the right amount of
protection, the right amount of soil, it takes the right amount of water.
It has to basically grow at its own pace. That is what growth is all about.
Consistent high performance companies also are customer centric.
What does that mean? Well, what it means is, your customer is
more important than your product. Most entrepreneurs love their product,
okay? I had a woman entrepreneur who built very
big four successful companies. She was in my research study.
And she said to me, Ed, tell these entrepreneurs, they need to
listen until it hurts. Listen until it hurts.
[SOUND] Listen until, let's do this over again, folks, [SOUND] it hurts, alright?
Listen to who? To your customers.
Love your customer more than you love your product.
As you grow a business, as Julie found, you can't be a high performance business
unless you have high employee engagement. What does that mean?
You have employees who care about your business and care about your customers
like you do. They're engaged, they're loyal, they work
hard, because somehow, you have made work meaningful for them.
You are achieving your dreams while somehow, you're helping them achieve
their dreams. In that a nice picture,
that's what it's all about. All for one, one for all and for the
customer. Now, let's go outside business.
Let's go to Biology, alright?
And some of you are saying, my goodness, now he is getting weird.
He's taking us into Biology. Yeah.
And you know why I'm taking you into Biology?
Because after ten years of researching and studying growth,
I believe Biology models business growth, it describes business growth, it's a
better discipline to understand business growth than Finance or Economics or
Accounting or even strategy. Now, what do we know from Biology?
In Biology, many species, types of animals, limit, limit their growth to
increase their chance of survival because growth beyond an optimal size can
basically increase the risk that in the animal world, you're going to get eaten
by a predator. Now, what does this mean?
Let's take a minute. Think about it.
What does this mean? Wow.
If I limit my growth, it could increase my chance of survival.
If I grow too big, it increases the chance of being eaten by a predator.
But does it mean if I grow too big, I become slow and lethargic and therefore,
the predator can catch me? Does it mean that if I limit my growth,
maybe I won't face in the business world bigger, better,
more cap, well-capitalized competition? I think so.
Now, I'm not telling you not to grow. What I'm telling you is is to understand
and deal with the realities of growth. At a certain stage, depending on what
industry you're in or what location you're in,
at a certain stage as you grow, the competition is going to be bigger and
better. But also, at some stage, you're going to
become more bureaucratic and slower and you're going to bog down.
And then, there may be someone like you used to be who comes forth with a better
idea, a better proposition. One entrepreneur in my research study in
San Diego, California stated it perfectly to me.
I asked him, I said, Mike, how big do you want to grow?
He said, Ed, I don't want to go above a hundred
million dollars in revenue. And everybody said, whoa, why, why?
He says, because at a $100 million, that's the number in my industry that the
big players start taking notice, the big public companies, and my
competition will change. He said, I'm okay at 90.
I'm okay at 95. But at 100, the whole game changes.
Pretty interesting story. Biology also tells us that organisms and
if you think about it, a business, a company is really an, like an organism,
alright? Has a finite amount of energy at any time to allocate to reproduction,
growth, maintenance, keeping up everything and survival.
Well, how does this apply to a business? You only have so much time.
You have only so much money. You only have so many people.
And you have to divide that time every day to growth, operations, maintenance,
keep everything running, keep the train, so to speak, running on
time, you have to worry about competition,
okay? New competition, something changing
outside your control. So, how you allocate, you only have so
much time. That's why you can't continuously just
grow without taking care of operations and if you will, survival.
In some species, growth requires so much energy it cannot occur, occur
continuously but must alternate with periods of no growth.
And right over here, you recognize what that is?
What's this folks? Right there.
Anybody got a guess? It's a gas pedal for a car or truck.
At least that's what it's supposed to be. We put on little feet and a little hand
to confuse you, okay?
Speedometer. Now, what is the gas pedal approach to
growth? Well, I've sort of mentioned it before.
I learned this from entrepreneurs. You've go to let up on the gas pedal.
Let up on the gas pedal to let your people processes and controls catch up
with you. If you're continually growing, you will
outrun your people capabilities, your processes, and controls, and then what
happens? Quality issues, unhappy customers,
financial issues, downward trend. And I learned this as I stated previously
from entrepreneurs who imploded, blew up, self-destructed their own first company
business because they didn't let up on the gas pedal.
And they taught me this, okay? They taught me.
What's fun about what I do, I get to learn from people.
They taught me, let up on the gas pedal. If, besides the miss of growth,
you learn one thing this week. The gas pedal approach to growth.
Okay, time for Quiz 3. Take 3 to 4 minutes, take the quiz, check
the answers, go back, redo the quiz, play this over in your mind,
visualize it, make sense of it, verbalize it,
incorporate it into something you can relate to,
alright? See you back in a few minutes.
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