Discipline, More Than Creativity, Fuels Growth

Most entrepreneurs shun formality, but structure at the right time enables faster growth.

Zappos is known for its creative workplace

Inside most start-ups, free-wheeling innovation and agility abound. The fewer the rules, the better. And why not? Unencumbered by bureaucracy, entrepreneurs can let their imaginations run wild, create breakthrough products, and make tons of money.  Most entrepreneurs scoff at rigorous planning, analysis, or financial modeling found at larger companies—it just slows them down.

Thought leader, entrepreneur, and consulting associate professor at Stanford University Steve Blank agrees, saying today’s “lean start-ups” require less formality. (1) Rather than spending months on research and business planning, entrepreneurs list their educated guesses about the business opportunity and then validate them with prospective customers. Instead of old-fashioned project management that delivers a finished end product, engineers in start-ups practice “agile” development, constructing products incrementally through frequent iterations and customer feedback. Lean start-up approaches favor less structure, smaller teams, and highly creative environments.

But early traction does not guarantee long-term success. Once a new product shows potential, it must be property marketed, delivered, and supported at scale. The company must generate positive cash flow to be sustainable, and eventually pay a return to investors. These activities are very different than those taking place during the early creative process.

Stanford’s Start-Up Genome Project offered entrepreneurs a roadmap for successful company development. (2) After studying thousands of new ventures, researchers identified four distinct “Marmer Stages,” each with its own challenges and milestones:

The Discovery and Validation stages match the creative process described by Steve Blank: quick development and refinement of ideas, leading to early sales. But things change during the Efficiency and Scale stages. After verifying market acceptance of their initial product, founders must hone their business models, customer acquisition processes, and delivery processes. They must get funding, hire staff, and build infrastructure to support fast growth. Instead of spending “right brain” time imagining and creating, entrepreneurs must now spend “left brain” time analyzing and structuring.

Eventually all companies must evolve their management systems if they want to continue growing. (3) Informal management styles that worked well in the beginning break down as the company expands out of the entrepreneurs’ personal span of control. (4) Founders soon realize they can no longer do everything themselves; they must delegate tasks and coordinate the work of multiple groups. At this point, disciplines they implement serve to make organizational goals explicit and stable. Effective management systems facilitate goal alignment, resource allocation, accountability, learning, and control.

Surprisingly, it's not creativity that rockets a start-up to success. Instead, research shows that greater discipline accelerates early-stage growth. Studies at Stanford and the University of California Berkeley concluded that deploying management systems associated positively with successful, high-growth start-ups. (5) Studying seventy-eight firms over a five-year period, they showed new ventures that implemented management systems grew at three times the rate of those that didn’t:

“Think about a car: the faster it goes, the more sophisticated the technology required to keep it under control. At the very elite racing levels, Formula 1 teams have highly complex and extensive systems infrastructure both on and off the tack. The same logic applies to growth with start-ups. The faster they need to go, the more management systems infrastructure they need.”

But timing is crucial. The Start-Up Genome Project found one of the most frequent causes of early business collapse was “premature scaling,” that is, ramping up before sales traction supported it. (2) Examples included hiring too many specialists, managers, and salespeople too quickly, and spending too much on marketing before validating the product-market fit. Just as entrepreneurs must adopt new disciplines to scale the business, they must also be disciplined about when to do it.

It seems counter-intuitive, but discipline, not creativity, is what ultimately drives growth. Creating and validating ideas is essential in the beginning, but a shift to effective and efficient execution at the right time becomes paramount. Entrepreneurs must understand this critical transition and adjust accordingly if they want the wild success that compelled them in the first place.


Excel-lens is a publication of Service Excellence Partners. Our unique approach helps founders at early stage companies better scale operations and manage growth. Contact us today.

Sources:

1. Blank, Steve. Why the Lean Start-Up Changes Everything. Harvard Business Review. May 2013, pp. 65-72.

2. Max Marmer, Bjoern Lasse Herrmann, Ertan Dogrultan, Ron Berman. Start-Up Genome Report Extra. s.l. : Stanford University, 2012.

3. The Five Stages of Small Business Growth. Neil C. Churchill, Virginia L. Lewis. May-June, 1983, Harvard Business Review, pp. 1-11.

4. Edward Lowe Foundation. The Significance of Second Stage. Cassopolis, Michigan : Edward Lowe Foundation, 2012.

5. Antonio Davila, George Foster, and Ning Jia. Building Sustainable High-Growth Startup Companies: Management Systems as an Accelerator. California Management Review. May 2010, pp. 79-105.

Reduce the Finger-Pointing... Naturally

Where do organizational “white space” problems come from? Our DNA. But we can also use our genetic predisposition to solve them. 

Chances are you’ve experienced it. When you call a company for help, you get the proverbial runaround. After explaining the problem and hearing “That’s not my department” several times, you’re transferred endlessly, leaving voice mails that go unanswered. It’s totally frustrating. Nobody takes responsibility because your issue falls between the cracks--into the "white space."  

You may work in an organization that behaves this way. Within your group, people perform tasks smoothly, but there’s friction with other groups. All too often, work doesn’t flow. Stuff gets “thrown over the wall,” there’s finger-pointing when things go wrong, and customers pay the price. The “white space” between the boxes on the organization chart is usually where the ball gets dropped.¹ 

White space issues can paralyze. Legendary for silos, General Motors’ white space issues led to long, costly product development cycles and poor quality. Rather than cooperating, some departments wouldn’t even speak to each other. Flawed management philosophies such as Management by Objectives and pay-for-performance made the situation worse, causing sub-optimization—an insidious game of “I win, we lose” between functions. In a failed attempt to change, GM implemented a complex, matrix-management scheme that confused who was in charge, diluted accountability, and put the company in decline.² And GM isn’t alone. So widespread are white space effects in industry that quality master W. Edwards Deming highlighted them in point nine of his famous Fourteen Points for Management: “Break down barriers between departments.”³ 

Experts cite the lack of a “systems view” as the cause for white space problems. Most managers perceive the organization’s work as vertical and functional rather than horizontal and cross-functional. Consultants Geary Rummler and Alan Brache observed, “(Managers) often don’t understand, at a sufficient level of detail, how their businesses get products developed, made, sold, and distributed.”⁴ Author Peter Senge observed the same, noting, "we tend to focus on snapshots of isolated parts of the system, and wonder why our deepest problems never seem to get solved."⁵ Hence, lacking a broader understanding, managers concentate on activities within rather than between groups, and chasms slowly form. 

But the root causes may go much deeper than a lack of perspective. Psychologist Jonathan Haidt believes moral judgment is based on automatic, not conscious reasoning.⁶ Buried within the human psyche is hardwired social behavior that influences our choices and actions. Haidt identified five behaviors:

• Caring/harm—deep fondness for people with whom we have biological or social attachments, and the violence we can do to those we don’t
• Fairness/reciprocity—our need for mutual exchange and even-handed application of punishment and reward 
• In-group/loyalty—close association with our tribe’s identity and suspicion of other tribes
• Authority/respect—our tendency to obey those in positions of power
• Purity/sanctity—our desire for social order through conformance and control

Where did these innate responses come from? Evolution. Our survival as a species depended on our ability to live in groups and cooperate with one another. Imagine the outcome if we had never learned to hunt, share resources, or protect our kin through collaboration. These five moral threads made possible group cohesion, coordination, and harmony. During a millennia of natural selection, they became our operating system for creating ever larger and more successful organizations—first tribes and clans, and then nations and empires. 

Our evolutionary success, however, has sown the seeds of our modern-day destruction in business. We create white space problems because it’s natural for us to do so. When firms get larger and competition for internal resources becomes intense, the organization splinters. Our survival instincts take over. We subconsciously revert to our evolutionary roots and protect our own tribe at the expense of the larger community. 

It takes many generations to evolve even the smallest biological changes. But if our core behaviors are intrinsic and immutable, how can we solve the white space problems we create? One solution is to introduce new tribes within the organization to counter their effects. 

Process management methods use cross-functional teams to traverse the white space. For example, leading manufacturers create new product introduction teams including representatives from R&D, manufacturing, product marketing, finance, and customer service. Often these groups are project-centric, small (7-9 people), co-located, headed by a strong leader, focused on transcendent goals, and adherent to disciplined processes. A senior executive carefully forms the team and supports their efforts through high-level reviews and behind-the-scenes functional diplomacy. Through deliberate process design, the five underlying social threads are present—bonding with fellow group members, fairness in equal representation, forming an in-group with its own identity, obedience to powerful leaders, and conformance to an orderly process. By following natural tendencies, individuals in the new tribe execute a smoother process across functions, suppressing the effects of white space between their tribes of origin.

We can’t change our DNA, but if we understand it, we can use it to our advantage. Capitalizing on our innate behaviors, we can mitigate white space issues by using new process management techniques. Doing so subverts silos and streamlines workflows for the better. 



Sources:

1. Rummler, G. and Brache, A. (1995) Improving Performance: How to Manage the White Space on the Organization Chart, Jossey-Bass Publishers. ISBN 0-7879-0090-7
2. Whitacre, E. (2013) American Turnaround: Reinventing AT&T and GM and the Way to Do Business, Hachette Book Group. ISBN 978-1-4555-1300-0
3. Deming, W. E. (1982) Out of the Crisis, Massachusetts Institute of Technology Center for Advanced Engineering Study. ISBN 0-911379-01-0
4. Rummler, G. and Brache, A. (1995)
5. Senge, P. M. (1990) The Fifth Discipline: The Art & Practice of the Learning Organization, Doubleday. ISBN 0-385-26094-6 
6. Haidt, J. (2012) The Righteous Mind: Why good People are Divided by Politics and Religion, Pantheon. ISBN 978-0307455772