No Man’s Land: A National Treasure

In our previous blog in the No Man’s Land series, we talked about the decision to grow your business. Although a hard decision to make, there is often great reward in making this decision.

So, after thinking it through, you may have decided that growth is indeed the right path for your business to follow. You are ready to step out into this new adventure and see where your company is headed. So, what can you expect for your business with this new growth plan?

Doug Tatum, author of No Man’s Land gives some examples of what the “growth business” industry looks like:

Growth companies have an average revenue growth of at least 20% over a four year period

  • Of the 20 million companies in America, there are roughly 350,000 growth companies.
  • Most growth companies are small to mid-sized, and only 5% employ over 100 people after their growth spurt.
  • Growth companies exist in all sectors of the economy.
  • Growth companies are not all young; up to half have been in business for at least 15 years.
  • Growth companies are all over the country.
  • Growth companies are innovative. In fact, one estimation showed that these companies are responsible for two-thirds of the economy’s innovations.

Another important aspect of growth companies is that they provide and create jobs. Why are these companies hiring so many people? Well, they’re in the process of renewing and growing their business, and these efforts require all hands on deck. As these companies grow, they also need to grow their employee base to scale to keep up with the changes going on in the business.

Now, we come to the closing of our No Man’s Land blog series. We hope you have gained knowledge on how to navigate through No Man’s Land. We leave you with two closing pointers to keep in mind when you find yourself on the journey through No Man’s Land.

  • Think strategically when making decisions about the business. Also, be sure to consider factors in both the long and short term.

 

  • Always be conscious of the four Ms and the rules and implications that come with each.
    • Market alignment – make sure business is still meeting the needs of the market while keeping up with the entrepreneur’s visions
    • Management expertise – hire at the top, and have management that truly knows the ins and outs of the business
    • Model that is scalable – make sure the value proposition is still attainable at a higher level
    • Money – make sure money is managed and invested strategically, and is ultimately reducing the risk of the company

“Growth companies are America’s National Treasure” – Doug Tatum

No Man’s Land: Beyond Growth

If you’ve been following our No Man’s Land blog series up to this point, you’ve learned what causes you to enter No Man’s Land, the troubles you will face there and how to propel your company forward and out of this phase. By this time, you’ve thought through the four Ms (market, management, model & money) and believe you can lead your company through No Man’s Land while maintaining enough momentum to carry on, even when times get tough.

However, there is one question that needs to be answered: should your company grow? Along with that question come other things to consider:

  • Are the benefits of working through No Man’s Land always worth the large costs?
  • What does the future look like after No Man’s Land?

Some entrepreneurs are determined to grow, no matter what obstacles and costs they may stumble across. Others may want to stay at the size they have established, while innovating and working on improving their current assets. There are also those who are ready to look at their endgame and sell the business.

So, should your company get big? Well, there really is no correct answer. The journey through No Man’s Land and the climb out of it reflects not only the financial wellbeing of the business and its ability to apply the four Ms, but it also looks into the determination and ambition of the entrepreneur. Leading a company after it passes through No Man’s Land requires taking a step back, and looking at the company from an investor’s perspective. Is the business making money and providing return on investment, or is the business not going to survive the journey it went through? To be successful, the entrepreneur must decide whether running the business in a way that keeps investors happy is also consistent with their own values and dreams.

The decision of whether or not to grow your company can be terribly difficult when you don’t know what exactly will happen in the future. It is hard to decide if growth is really what is best for the business. Each path, growing or not growing, carries risks and benefits that are often hard to weigh.

Finding answers to these types of questions will help you determine a course of action that will be satisfying in the long run.

There are many reasons why entrepreneurs make these decisions, and they don’t all focus on financials, market share or the product, to name a few. In the end, the decision of whether to grow big or not becomes a personal case. You need to sit back and focus on the task of making this tough decision and ask yourself a couple questions:

  • Why did you get into business in the first place?
  • Is the business still delivering what it was set out to provide?
  • What do you hope to gain from the business?

 

 

 

 

 

No Man’s Land: Momentum

In our previous blog posts, we have touched on market misalignment, outgrowing your management, and outgrowing your money, to name a few. Going through all these trials may have resulted in your business losing something you didn’t realize was missing: momentum.

In the beginning, rapid growth companies possess an incredible momentum. However, going through No Man’s Land causes this momentum to disappear, leaving the business at a standstill. To get out of No Man’s Land, the company must find ways to generate momentum again. Keep in mind the other navigational rules we have discussed in prior blogs, as implementing these rules will give a sense that your company is heading in the right direction and regaining momentum.

It’s important to remember that momentum is not the product of following these rules only. To survive No Man’s Land, leaders must manage the company’s culture and decision making process to assure the feeling of forward motion exists at all times, even when survival seems impossible.

While wading through the challenges that come from this rapid growth, it is important not to neglect the company’s morale and emotional wellbeing. Money, experienced managers, and a good business model are critical if a company wants to transition through No Man’s Land; however, these assets alone are not enough.

Entrepreneurs must be sure to maintain a sense of forward momentum, even when the outlook for the company doesn’t look bright. Although momentum isn’t measureable or tangible, the feeling of moving forward brings about actual change. Because of this, the presence or absence of momentum makes all the difference for a company in the stages of transition.

So what exactly is this momentum thing we’ve been talking about? The dictionary defines it as “the force of motion”, while in physics it is described as “the mass of a body multiplied by its speed.” According to Doug Tatum, author of No Man’s Land, “Momentum in business can be viewed as institutional self-esteem.” When entrepreneurs speak about momentum, they are referring to positive energy grounded in the optimistic expectation that a company’s future will become brighter than it currently is. For a company to experience this momentum, they must have a good business model, competent management, sufficient finances and alignment with customers. Without these traits, it will never make its momentum profitable.

So, how do you go about cultivating this momentum? Unfortunately, there is no single rule or set of rules. Rather, the manner in which momentum is cultivated is influenced by qualities of an individual’s leadership style. There are some general guidelines leaders of emerging growth companies in No Man’s Land can follow to create momentum:

  1. Optimism – it is very difficult for a leader to get a company off the ground, much less through No Man’s Land, if the leader is not optimistic. No Man’s Land pushes the entrepreneurs’ emotions to the limits. Entrepreneurs must have an attitude to do whatever it takes without losing determination or hopefulness. They also need to have a can-do attitude that employees can depend on and mirror. It is important to have someone positive to look to when times get tough.
  2. Clarity in Decision Making – How are decisions being made and who is even making them? Are company values being withheld in these decisions? Are goals and ambitions being reached? As discussed in the market misalignment blog, the company needs to have a clear, defined and successful pattern for decision making that also defines the company’s culture. Do your employees have confidence in the way decisions are being made? Without this confidence in the decision making process, you will not be able to generate momentum.
  3. Give the Company a Boost – If your company is deteriorating, don’t wait around for someone to come and declare it dead. Instead, put the heartbeat back into the business using the following three methods:
  • Change up the circle of decision makers and make sure it can be managed.
  • Implement something radical and fun, even unpredictable. This can help inject some life into the company.
  • Make new promises to customers (not too many that you stop fulfilling them) from time to time and have staff members create, develop and implement new processes required to meet the customer’s needs.

So there you have it, a general discussion on what momentum is, why your business needs it, and how to get it back if it’s gone missing. Getting through No Man’s Land is a huge commitment, and having the guidelines to get through it will make the journey a little easier.

 

 

No Man’s Land: Outgrowing Your Money

Now that we have discussed outgrowing your business model, it’s time to get down to business and talk about what really causes a business to flourish or flop: capital.

Most companies enter into No Man’s Land without having the capital to leave it. If, and when, they fail, “undercapitalization” is seen as the cause. However, it’s important to note that undercapitalization is only a symptom, rather than the root cause. The true cause is the company’s inability to raise capital because it is perceived as too risky.

In order to raise money, companies must focus on reducing their risk, both perceived and real, by addressing the issues that accompany market misalignment, outgrowing your management and outgrowing your business model. Even with the appropriate measures in place, transition through No Man’s Land is difficult because of institutional barriers that exist in the capital markets, such as a lack of experience among investors regarding sustainability, inefficient communication, and limited human capacity. Although it may be a bumpy journey – hold tight, because you can make it through!

Capital shortfalls are one of the most frustrating and terrifying issues that companies face in No Man’s Land. These shortfalls frequently emerge just as the company is gearing up to grow through No Man’s Land, leaving entrepreneurs in the position of poker players who hold unbeatable hands, yet no longer have any chips to bet. Having a successful business but not having the capital to keep it going is downright scary and can bring the company down, along with the entrepreneur.

Why do growing companies run into money troubles? One of the biggest problems is the confusion of financing. Leaders of growing companies generally underestimate the capital their companies will require to emerge from No Man’s Land. They often fail to realize that growth itself fuels a need for capital!

So what should an entrepreneur do when they realize they are short on capital? Unfortunately, there is no magic trick to navigate and overcome this capital gap. Most entrepreneurs are left in crisis, trying to dig up capital any way they can.

A rule of thumb for financial navigation is that the key to raising money is reducing the real and perceived risk of a company. This rule is important because leaders and equity investors approach the funding decision for a company from the standpoint of how risky it is. These investors don’t care about the upside of the business; they want to understand and be assured they will get their money back. It is important for a company to prove that it can escape from No Man’s Land.

How does a business do this?

  • Market Realignment
  • Get the right people in the right positions
  • Develop a profitable business model

Most entrepreneurs view money as the problem rather than a symptom of other problems. Yes, money is essential to success; however, it is not the main focus. Entrepreneurs have to deal with the other three Ms—market, management and model to bring the business operations onto solid ground in order to go for the money! By focusing on money and not dealing with the other three Ms, you are actually focusing on the symptoms, not the underlying cause.

We have learned that risk will influence an investor’s decision. Here are some questions to ask yourself about your company’s risk:

  1. Are there any risks in the business that can be eliminated with money?
  2. Knowing all that you know about the business, would you buy it?
  3. What kind of money do you really need to grow the business?
  4. Are you ready for outside equity and to put your business in the hands of others in order to be successful?

The solution is for everyone involved in the business to come together and act as partners, and to assess what is best for the business during this transition period stage of No Man’s Land.

 

 

 

No Man’s Land: Outgrowing Your Model

Thanks for joining us as we continue our discussion on No Man’s Land. Last week, we focused on the struggles of outgrowing your management and how to get your management back to tip top shape (look here for a refresher.)

Along with any growth will come change and challenges, and your business venture is no different. The model adopted by your business is likely to face the consequences of these changes, and your business may outgrow this model altogether.

“Most entrepreneurs attract their first customers by running their businesses according to a ‘high performance, cheap labor’ economic model,” says Doug Tatum, author of No Man’s Land. As the company grows, this economic model crumbles as the company must begin to adjust to a normal cost structure and venture away from cheap labor costs. To make it through No Man’s Land, companies need to develop a new business model that allows them to continue to provide their value proposition (what brought customers in the first place), but modified in order to maintain success and continue growth.

Before entrepreneurs are able to secure their companies’ financial stability, they need to understand what lies within the business model, what changing the model would include and what effect this rapid growth and change can have on the company’s financial performance.

Maybe you’re wondering what exactly we mean by “business model.” To be specific, the business model is a financial analysis of how a business makes its money. Analyzing a business model includes considering revenue produced from selling your company’s product offerings, as well as changes in this element of revenue. It also includes cost and capital under different scenarios, as well as capital employment.

In order to perform this business model analysis, there are two helpful accounting tools to guide you through. The first tool is the balance sheet, which acts as a still photo of the business’ assets and liabilities at the end of each month. Accounting is also able to provide a view of how the balance sheet changes over time. This tool is known as the income statement, which provides a glimpse of the new assets gained by the business (revenue), and the assets that have left the business (expenses).

However, neither of these tools give rise to a company’s economic model. This is because both of these tools are actually backward-looking, meaning the information they provide focuses on how the company performed in the past. An economic model is the opposite, forward-looking. It projects to the future, speculating on what a company’s economic picture will look like based on a possible scenario. However, both tools are extremely helpful in predicting future scenarios by measuring where the company has grown, struggled and succeeded in the past.

There are two reasons why it is important to forecast a company’s business model:

  1. It helps entrepreneurs decide if they actually want to commit to the strategy under consideration.
  2. It gives the company a basis for evaluating how the business is actually performing against the projected model once the journey is underway.

It goes without saying that companies stuck in No Man’s Land struggle when their previous business models break down, thus leaving an unclear understanding of the company’s financial health. To get out of this phase of No Man’s Land, companies have two options:

  1. Return to a size where their model works well
  2. Attempt to grown their way out of No Man’s Land

To proceed down the second path, companies must develop an understanding of how their current business model will change as it moves forward. It is important to keep in mind that the business’ value proposition must be scalable to navigate through No Man’s Land.

You’ve laid out an economic model for growth, and you’ve figured out how large you need to grow in order to stay profitable. So what’s the next step on this path through No Man’s land?

  1. Monitor your company’s financials to be sure your company is performing according to the model. The balance sheet and income statement are helpful here – these allow you to see where your business is relative to the model.
  2. Create and assess weekly operational reports that let you know where you are on your path to growth. These reports let you guess with accuracy what the financial state of the business will be at the end of the month. Ask your financial staff this question: What kind of operational report can you create that will allow you to predict, with accuracy of within +/- 10 percent, the company’s net income, prior to creation of the end of the month financial statements?
  3. Create future scenarios based on your company’s business model. Although you can’t run your company looking backwards, you can look to the past to help predict the future.

Creating a business model that is able to grow along with your company is not only important, but also necessary for the success of your business. Following these guidelines for growing your business model will help you smoothly transition out of No Man’s Land.

 

 

No Man’s Land: Outgrowing Your Management

Welcome back to our discussion on No Man’s Land. In last week’s blog, we discussed the trials and challenges of market misalignment, and how to overcome this tricky situation (a refresher can be found here.)

So, now that your company has been growing and may even be heading toward misalignment, you need to look at making sure your business stays on track. The way to do this, according to Doug Tatum, author of No Man’s Land, is through experienced management and a control system that protects and enhances the firm’s core value proposition.

Why is this important? Well, the value proposition is, after all, what brought your customers to you in the first place.

To make it through No Man’s Land, a growing company needs to complement the entrepreneur’s skills and ideas by introducing experience based expertise. The best way to do this is for the entrepreneur to delegate to senior management or other positions with high influence the responsibility of implementing and managing the control system. Although delegating this power may bring about a fear of losing control of the company, delegating is the only way to gain back control in a growing business. To be successful with delegating this power, you will need people by your side who have experience and can prove they know what they are doing.

To grow, you need a team that can implement change. This type of team provides many important benefits:

  • A smoother route to securing funding which can drive the company’s pre-money valuation higher. Having an experienced team reduces business risk and acts as a powerful endorsement of the company’s potential.
  • Allowing the entrepreneur to concentrate on what he or she does best as they switch to new roles. With professional staff establishing systems that perform operational tasks more accurately and efficiently, the entrepreneur has the freedom to set the course for the company as a whole and get back to why they went into business in the first place.
  • New ideas and fresh perspectives. This new company DNA gives the entrepreneur the ability to look ahead and prepare for changes.

To decide if it is time for delegation of tasks throughout the organization, look for these symptoms in your current team:

  • Weary and tired
  • All decisions come back to you
  • You are being stretched thin
  • Making decisions based on instinct rather than fact
  • Longtime employees in over their heads
  • Questions that can’t be answered
  • Difficulty in finding and retaining new talent
  • Decision making has been hindered

A combination of any of these signs may point to the fact that it is time to face the painful issue of management transition. It is hard to let go of some employees, but it is important to remember that some people just won’t make it to the next level.

So, now that you realize you have a need for a senior management team, how do you go about hiring these people? Let’s dive into some common myths about hiring so you can learn the best practices to follow.

Myth #1: You need to determine where you are weak and hire in those areas.

    • This advice isn’t terrible, but it can be worded differently to give it better meaning. Rather than focusing on where the business is week, its best to figure out the company’s strengths and protect them with delegating authority.
    • “Companies need to delegate those parts where experience, knowledge, and accurate analytical judgement reign supreme-Doug Tatum

Myth #2: For the company to grow, the entrepreneur needs to be replaced with a CEO.

    • It has been said that entrepreneurs aren’t capable of leading a large company, but this isn’t exactly true. In fact, entrepreneurs often have exactly the skills required to bring a company immense success. Just think of Apple and Microsoft, to name a few.

Myth #3: Credentials are the most important attribute of candidates.

    • Credentials are important, but it’s also important to stay true to company culture when hiring! This culture is the heartbeat of the organization, and envelopes the firm’s common understandings and supports its core values.

Myth #4: Culture is the reason firms fail to embrace outside hires.

    • This idea couldn’t be more false. You want your new hires to be able to push for change while also adhering to company culture. The way to ensure this happens is by establishing trust. This way, newcomers won’t feel the need to overcome culture, but rather can prove they can be trusted to make decisions wisely and according to culture.

Myth #5: Professional Management ensures value and growth by ridding the company of chaos.

    • As nice as it sounds to just get rid of chaos, that is not the case. The key to growing and making money is actually to mess the business up and then clean it up in a balanced manner. A certain amount of chaos is good for a company, as long as it is kept in balance.

Myth #6: A growing company should hire in the middle, not for senior management.

    • This myth also proves false, as hiring in the middle increases the burden on the entrepreneur and can be harmful to the company. Hiring at the top allows a company to bring in someone with experience who can help the company grow.

These myths show that it is indeed important for entrepreneurs to get senior management who can take the company to the next level on board. So, if you find yourself ready to grow, it may be time to consider this step.

Keep in mind that failure to complete the management transition could keep you stuck in “No Man’s Land.”

 

 

 

 

No Man’s Land: Market Misalignment

Do you ever feel like you’re losing touch with your customers? Maybe you feel like you’re not meeting their needs anymore, or you’re not sure what you should offer them to keep them satisfied. Early on, a company will grow on the strength of a simple exchange between the customer and the entrepreneur. However, once the company grows, the demands of the entrepreneur intensify and he or she is physically unable to adapt the company to meet the ever changing needs of the customer. This can result in the company losing its competitive edge, and ultimately, losing sales.

This stage of growing out of touch with customer needs is known as “market misalignment,” and it is the most fundamental peril companies face in “No Man’s Land.”

Market alignment is obtained when a business consistently delivers the value its customers desire. Sounds simple, right? Not exactly. It’s one thing to be aligned, but to stay aligned is a whole new world. According to Doug Tatum in his book No Man’s Land, “The key to market alignment is through innovation.”

But how does innovation happen? It comes when customers ask for a new product or service that requires a substantial change to your business model. Businesses become living laboratories, given over to a process to discover what is the right product, service and target customer. If a company is not innovative and meeting customer needs, they may face market misalignment.

Another reason your company may be facing market misalignment revolves around the fact that the company has made promises it cannot keep, or neglected to make promises that should have been made. The key is for the company to make the right decisions, ones that lead to growth and profits. Deciding which promises to make is part of strategic planning, and these promises can shape the company’s future of market alignment.

Still not sure if your company is aligned? Here are some signs you might not be:

  • Sales growth has stalled
  • Losing competitive edge
  • Tensions have arisen between promises made and delivery
  • Quality problems are arising
  • Increase in customer complaints
  • No direct contact with customers
  • Unable to distinguish customers who will bring growth and those who won’t

Any of these sound familiar? If they do, you’re probably wondering how you can beat market alignment. There is only one sure fire way:

Companies need to surpass the entrepreneur’s physically limitations by institutionally capturing the value proposition that has been developed through the entrepreneur’s unique insights”-Doug Tatum

To put this in simple form, the company must recreate synthesis between marketing and operations, and make use of employees and processes rather than one person’s effort. To get the business to be good at what the entrepreneur did well with customers involves three steps:

  1. Entrepreneurs should identify what exactly they are good at.
  2. Systemize delivery of the value proposition by creating a system where everybody behaves rationally and plays a specific position. Although not always simple, developing processes to capitalize on the entrepreneur’s talents becomes a huge part of the company’s competitive advantage. Concentrating on the value proposition is the most important thing a company can do as it grows.
  3. Develop ways to measure the results of the process.

An entrepreneur can find the skills to lead his or her company through No Man’s Land if a value proposition is institutionalized within the business, as well as identified. Creating a process to ensure that the entrepreneur’s core vision and talents are upheld also helps a business get out of the maze of No Man’s Land by creating competitive advantage that allows for the company to be successful and profitable.

Our next blog on No Man’s Land will focus around management and the dangers to your business of outgrowing it.Missed the first two? Check them out here and here.