December 19, 2022

Lessons Learned from Mighty Midsized Companies

We attended a business breakfast meeting sponsored by one of the large audit firms about seven or eight years ago. I did not expect to be wowed, but was attending out of a commitment to networking and because a good professional friend had issued the free invite. With those low expectations, I was not prepared for the benefit derived from listening to Robert Sher present the key insights from his must-read business book, Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers. Sitting in the audience, I viewed the insights both from the perspective of my post-Fortune 100 experiences with smaller companies, as well as my time in IBM. Candidly, I believe every business leader benefits from Mr. Sher’s research. The following is my digested version of the book, based on a management training seminar I ran for a client. Underlying the operational scenario for want-to-be Mighty Midsized Companies (hereafter MMCs) is that they are all growing and desire to make the breakout to exceed $100 million in sales. They may be at any point along the revenue continuum from $1 million and above, but their leaders all are seeking sustained growth. So, what are the five common characteristics of a MMC :
  • Growing
  • Strong and Resilient
  • Predicable Results
  • Serve its Owners
  • A Pleasure to Own or Lead.
Each of these characteristics will be discussed in more detail throughout the article. Business growth has been deeply researched, and certain elements are usually present in successful high growth organizations:
  • Winning business model, possibly disruptive
  • Intimacy with customers
  • Metronome steady execution
  • Innovation creating unique value.
Sher provided examples of each. All of us who have worked, led, and bled through different startups and transformations of existing companies have developed our own “must do” and “must avoid” lessons. Sher puts up and explores what he defines as 7 Silent Growth Killers:
  1. Letting Time Slip-Slide Away
  2. Strategy Tinkering At the Top
  3. Reckless Attempts at Growth
  4. Fumbled Strategic Acquisitions
  5. Operational Meltdown
  6. The Liquidity Crash
  7. Tolerating Dysfunctional Leaders.
We sometimes fail to understand the perishable commodity of time. Once gone, it can’t be recovered. Truly successful leaders understand today matters, tomorrow isn’t here yet but we need to plan to make the most of time in the future. He proposes that leaders take back time, and use time pressure to positively assign responsibilities to:
  • Set Expectations: what is the definition of success?
  • Prioritize: not everything needs to be done today.
  • Time Boxing: a simple time management technique that involves allotting a fixed, maximum unit of time for an activity in advance, and then complete the activity within that time frame. And,
  • Set intermediate deadlines: to track progress and provide early warning of off-track projects.
He is a firm believer that nothing is real if it’s not written down! Have you ever brought one of your employees into the office to discuss a new project, and they don’t take notes? How did that make you feel? The second silent growth killer is strategy tinkering from the top, or said differently when midsized companies suffer when they are diverted from their core businesses. I’ve personally seen this too many times in my career. I was interviewed for a C-level position in a MMC by a board member who explained what I needed to do if hired. The CEO/founder came to work every day with 10 new ideas, and was driving the company to distraction as it tried to implement every idea. There was no filter, and my job was to be the filter. Good news was he had good ideas, the bad news – who wants to say no all the time? At another stop on my career, the owner/founder was steadfast in his obsessive drive for growth and he pursued new lines of business and acquisitions without really understanding how different they were from what he knew how to manage successfully. Sher’s cure for tinkering is systematic planning. Planning starts with Strategic Planning, sometimes referred to as establishing your North Star (see our article on Harmonizing: 7 Fundamental Management System Elements for a deeper discussion). Once you and the team have established your strategic Goals and Objectives, turn then into Operational Plans. And, avoid tinkering. Instead, experiment without making the time and resource commitment of tinkering. His graphic for the cure for tinkering is below: With this approach, an idea is fully vetted and if approved, has the full integrated support of the organization. Our next silent killer is reckless attempts at growth. Essentially, he posits that for midsized companies, losing money is unacceptable under any circumstances. We learned through research on bankruptcy that most companies go bankrupt while growing. The balance sheets, cash reserves, safe borrowing capacity, and timely customer payments are much more at risk in midsized companies which are also vulnerable to economic cycle downturns. Understand the consequences of the next step, and be risk averse when considering:
  • Market Predictability
  • Execution Confidence, and
  • Forecasting Acumen.
These three points create your sound decision-making model, and should be developed with your core team, not just by the owner/founder. Create an advisory board with skills in legal, marketing and sales, accounting, and transaction execution. Interwoven in several of the silent killers previously mentioned, including strategy tinkering and reckless attempts at growth, is our favorite: fumbled strategic acquisitions. For every successful strategic acquisition in my experience, I’ve witnessed two that failed. Sher advocates that to keep the ship afloat, serious due diligence and a sound integration plan are essential. An acquisition should meet the following tests:
  • Support the Core Strategy,
  • Right Size, Good Cultural Fit
  • Have a Mergers and Acquisition expert(s) on the team
  • Have a disciplined, focused integration plan with a dedicated integration manager.
I blame TV for the acquisition disease, as owners seem to believe they have a rare ability to see a winning acquisition before due diligence has started. And, it is oh-so-tempting to get to that $100 million milestone in one step rather than another 5-years of doing what we know. And, the cost of a failed acquisition almost always results in the loss of control by the current owners due to the inevitable cash crisis. Our next silent killer is operational meltdown. I’ve seen this occur in for-profit and nonprofit organizations. We will discuss the must-have operational excellence and execution soul of an organization. Ideas are grand, successful organizations must love execution and strive to improve. Sher poses the following four questions:
  • Who owns, loves operations
  • Is the operations planning horizon longer than the lead time of each business process
  • Do you have a sales or customer-centric culture, and
  • Is operations important enough to get precious resources?
Sher’s proposed solution to avoid the operational meltdown that will occur at some point: Raise the melting point by taking enterprise-wide pride in operational excellence. Celebrate operational milestones. Deploy and track operational metrics and set clear targets for success. As a note of personal emphasis, included in the definition of operations is sales. My Australian friends had the motto, nothing happens until someone sells something. Selling is probably the hardest and least appreciated functional area in many organizations, and I’ve valued everyone who chose to work in sales. They bring in the cash to pay our salaries, provide the additional cash to develop and produce new products and services. Selling requires incredible patience and the willingness to hear a lot of ‘no thank-you’ before getting to Yes Too many times I’ve seen organizations fall in love with their sales forecast, sales plan, or variations on theme by not making sales performance a daily and weekly priority from top to bottom in the organization. I briefly consulted with a firm prior to the widespread adoption of mobile phones. Pagers were omnipresent, and the Internet was still in its early stages. This company sold mattresses from a central warehouse with no showrooms. They used a highly sophisticated advertising program in print, radio, and TV that was directly linked to daily warehouse expectations. Their application of technology was best of breed, and they had AT&T and IBM embedded in their IT assets. They became so proficient in their use of technology for predictive marketing and sales, they could advertise at 7:45AM on Howard Stern’s program and know ahead of time how many call center employees they needed for an acceptable wait time experience for customers. It carried over into the warehouse as well as the number of delivery personnel who needed to be ready that day. What impressed me was the way they managed. Every manager, from the CEO to the warehouse foreman, had pagers that received hourly updates on key metrics. The management team met in the warehouse in the morning at the start of the work day, and ended the day with an update meeting. They were a preeminent example of operational excellence. In the nonprofit sector, an organization should have a strong passion for their mission. That being said, the level of sales (development) success determines the rate and pace of mission execution. I’ve seen organizations they thoroughly planned and executed on their mission each year, even when their current year revenue did not support the level of mission execution. Our sixth silent killer is connected to some of the previous killers, the liquidity crash. Sher describes MMCs as vulnerable, and everything stops when you run out of money. He compares your balance sheet to the airbag in a car. You do not want it deployed, however having it present is a life-or-death difference. Factors creating a liquidity crash may be due to:
  • Reckless growth and fumbled M&A,
  • Financial Erosion due to subpar margins and poor asset management, and
  • Shocks to the system from external events such as recessions.
The second factor, subpar margins and poor asset management deserves a bit more discussion. Benchmarking your key financial metrics to other companies in your industry is essential, however getting the competitive data can be challenging. Shaw Industries understood that their long-term success depended on the success of their network of dealer-owned partners. Profit margins are thin for those dealers, as they must sell and install to third-parties on slim gross profit margins. Without excellent execution, it becomes far too easy to grow their way beyond the cash flow available from customer collections and suddenly Shaw had a collection issue. Ken Jackson was the CFO for Shaw, and he implemented a trusted benchmarking process for dealers. If the dealer provided Jackson’s team with proprietary financial data, he would provide a comparison of that dealer’s financial metrics to a portfolio amalgamation of the performance of other dealers participating in the information exchange. Now, individual dealers had objective input as to their margin and asset efficiency, permitting them to take fact-based corrective action. Our final silent killer from Sher is tolerating dysfunctional managers. Anyone with more than 2 years of work experience has probably been the victim of leaders tolerating dysfunctional managers. This results in lower morale, loss of trust and confidence in leaders, and almost certainly subpar financial performance. Part of the problem is the otherwise laudable instinct on the part of leaders to show loyalty for those individuals reporting to them in the organization. Symptoms of dysfunctional managers are:
  • Excuses, Excuses, Excuses,
  • The Loyalty Trap
  • Tolerating High Maintenance Leaders.
At one client site, everyone walked around a particular senior manager because they had previously had several big sales years. It took the concerted effort of several leaders and two years to get the CEO to finally agree to let the individual go. Difficult to do, but morale improved overnight and other individuals were given the opportunity to step up – successfully. Sher’s prescription is to encourage the organization to embrace the fact that they must adopt a proven management model for midsized companies:
  • Leadership must have:
  • Quality Leaders
  • Info Gathering Acumen
  • Communication Rhythm
  • Planning & Governance Processes.
We recommend our articles on Harmony, specifically the chapters on Management and Measurement Systems for additional thoughts on successful leadership of a complex organization. In closing, we found Robert Sher’s book a practical primer for leaders of all organizations, and an excellent catalyst for discussion at your next managers meeting.
In this article:
We review and comment on Robert Sher’s book that explores common growth killers, and we find it applicable to profit and nonprofit organizations. Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers
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