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

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.

Two Concepts that Expanding Companies Should Remember

Jerry Cahn 

I teach a course in Business Strategy for CUNY; among the topics I focus on is growth through global expansion. A key implication of understanding the “flat world” philosophy, is to realize that companies need to adopt a transactional approach –one in which offices anywhere in the world, and not just the traditional HQ in the US or Europe, can provide key corporate services, such as R&D, marketing and sales.

We also spend time understanding why so many top companies have stumbled when trying to serve emerging growth countries they don’t really understand the needs of local residents to whom they will market and sell their products. For instance, just recently Walmart, the leading US retailer, announced earlier this year a retreat from their initial approach in India, and the need to alter it. They’ve had similar experiences in other countries.

Ram Charan, the world-renown business advisor to several Fortune 500 firms, addresses these issues in “Global Tilt; Leading Your Business Through the Great Economic Power Shift”.  He focuses on 2 concepts which we all should remember regardless of where we’re expanding our companies. Here are 2 concepts that expanding companies should remember: Outside-In and Future-Back.

Outside-In refers to the need NOT to focus on the expansion solely based on your competencies (strengths), but to also recognize the need to see it from the point of view of the countries’ customers for whom buying values are different than those of our domestic customers.

For instance, when Nabisco tried to figure out why their Oreo cookies were leading their market in China as they have for years in the US, they realized that they needed to understand customers better. It turns out these new customers didn’t like round cookies nor did they associate “milk and cookies”. 

A sweeter, smaller and wafer-like cookie was introduced to this market and became #1. Procter & Gamble has done the same in trying to understand how customers in other cultures look at several products, including Tide and Head & Shoulders.

Future-Back refers to focusing on the end result, and then working backward to see what really would lead to getting there, Steven Covey address the same concept in the last of his The 7 Habits of Highly Effective People: start with the end in mind. Ram takes it to the truly strategic level: extend your time horizon as you assess the world and imagine what the competitive landscape will be as much as 20 years in the future.

The key is to work backward by thinking of the implications for the present. For instance, if 20 years from now there will be more cars being used and sold in China than the US, thinking through the segmentations that are likely to be there at that time guide you on current decisions.

In India, Tata Motors introduced a car several years ago give families of 3-4 people who travel in the morning to school and work a safer yet affordable option than their motorcycle.  So instead of buying a $1500 motorcycle, Tata offered a $2500 car, which was very basic; no air-conditioning, no dashboard storage compartment, etc. The Nano received lots of publicity as a major breakthrough.

This year, Tata revealed that sales for the car are so few that they are losing money on it. Why? They concluded that if people are going to spend more money on a car, they want one with some creature comforts. So, they are upgrading it and will price it now at $3500.  A few weeks later, Ford announced that it was introducing a new car for the emerging markets – priced at $10,000.

Ford’s decision suggests that car buyers want more than basic performance plus few comforts and that the new Nano will still not be sufficiently attractive for the Indian target.

As you think of expanding your company to new markets – domestically or internationally doesn’t matter. You need to take these two concepts into account when planning.  Are you?  Share your stories and experiences with us.

Why entrepreneurs need to get smarter, stronger and more global — fast

Photo by Ken LennoxTurkish born Hamdi Ulukaya, founder and CEO of U.S.-based Chobani Inc., was named the Ernst & Young World Entrepreneur of the Year 2013 at an awards ceremony in Monte Carlo on June 8. 

 

After the hardship of covering the World Entrepreneur of the Year competition in Monaco last week, I took a few days to recharge on the Italian Riviera. Occasionally, I thought back to some of the entrepreneurs I’d met and the stories I’d heard. And then, sitting on the breakwater of a sleepy little Italian port, watching the fishing boats bob up and down, I had an epiphany.

 

Canadian entrepreneurs have to get a lot smarter, stronger, and more global. Fast.

We’ve enjoyed privileged access to the U.S. market for years. But other parts of the world are now growing faster, and it’s no longer enough to be big in Buffalo or Boise. New, fast-growing entrepreneurial companies in Europe, Asia and South America are putting global markets into their business plans, and some of them are gunning for you.

In Monaco, I paid special attention to attendees from non-traditional business markets. I met with entrepreneurs from China, Estonia and the Czech Republic (in addition to Canada and Britain), because I was eager to learn how capitalism and entrepreneurship have sprung from Communist roots.

What I learned is that innovation is not confined to Canada and the United States, and that new ideas and breakthrough customer service can come to life anywhere in the world. This is important, because many Canadians assume the only thing developing markets have going for them is low costs. That’s no longer true, and there’s a growing cadre of ambitious entrepreneurs who can leverage value-added innovations and service on top of  their low-wage advantage — a one-two punch that will become increasingly lethal as these young firms gain confidence and global clout.

Here’s a quick recap of some of the entrepreneurs I met.

— Dr. Ma Weihua had a promising career as a mandarin at China’s central bank when he decided to take an entrepreneurial flyer. He took over management of China Merchants Bank, which had the advantage of being one step removed from state ownership. Starting with one branch in 1999, he built mainland China’s sixth largest commercial bank, with assets north of $500-billion.

How’d he do it? Unlike most of his state-owned rivals, he asked, what would customers like us to do? As a result, he pioneered in online banking, credit cards, wealth management, and even small-business  lending. He’s just now retiring, because he thinks the bank should be run by younger people who understand today’s mobile consumers.

— Frantisek Piskanin was working on a collective farm in the Czech Republic when its Communist government imploded in 1989. He now runs one of central Europe’s largest transportation and logistics companies, HOPI sro, with 3,300 employees. He carved his own path from the beginning; when he was hired by German retailer Tengelmann to facilitate the company’s imports into the Czech Republic, he confidently told the company that Czechs wanted to buy Czech goods, and began sourcing them on his client’s behalf.  HOPI’s value-add services include taking control of clients’ inventory, from point of production to store shelf, and revolutionizing the meat industry by building new freezer facilities across  Central Europe. He explains his customer-first strategy very succinctly; “We try to understand customers’ needs and bring them new solutions they had no idea could exist.”

— In Estonia, as you read in last week’s column, medical doctor Ruth Oltjer built a successful cleaning supplies and cosmetics firm, Chemi-Pharm. Chemi-Pharm began as a means to import less allergenic cleaning products from the U.K. following Communism’s fall, but is now a manufacturer that exports 50% of its production. Oltjer is eyeing markets in Asia and Western Europe, and is in talks with Mexico, which she hopes will lead to a frontal assault on North America.

— Even the 2013 World Entrepreneur of the Year fits the category of unlikely global entrepreneurs. Hamdi Ulukaya was born in Eastern Turkey and moved to the United States to learn English and study business. He ended up buying an unwanted Kraft cheese plant in upstate New York and revamping it to produce strained Greek yogurt. The Chobani brand has come from nowhere to be the No. 1 yogurt in the U.S.

But Ulukaya is just getting started. He has bought a factory in Australia and plans to enter the U.K. and Western Europe markets when a facility becomes available (finding the right plant is “an opportunistic thing,” he says). You may be interested to know Ulukaya first tried to build a plant in Canada. He found the perfect site and started drawing up plans, he says regulations prevented him from moving forward.

Ironic. While Canada holds on to protectionist rules, the rest of the world is charging forward.

These entrepreneurs may be the best of the best. But I’m betting there will be many more like them, bursting out of every corner of the world, driven by an urge to succeed and a vision of how different markets could be.

Are Canadian entrepreneurs ready for this kind of competition? Do they possess the vision to see things as they could be, not as they are? Do they have the courage to create what Piskanin calls “massive long-term savings” for their customers?  Are they as committed to innovation as Dr. Ma, who stepped down because he thinks in-depth customer understanding is the most important asset a company has?

Entrepreneurs across the globe are thinking bigger and seeing further. To join them, you have to ask:

What could your business be? How could it leverage its key strengths to create massive value? What adjacent markets (products  or geography) could you expand into? To quote Piskanin one more time, “If you don’t grow, you die.”

I’m not sure how many Canadian entrepreneurs really believe that. But they had better start, and soon.

Rick Spence

Ten questions to ask before expanding overseas

By: Aliza Dizik

Deciding when to go global is a tough call for entrepreneurs. They may be tempted by opportunities in hot markets like China, India or Brazil, but could risk venturing abroad before they’re fully prepared.

“Many companies expand too quickly,” says Jon Fjeld, executive director of the Center for Entrepreneurship and Innovation at Duke University. While selling overseas extends your company’s reach, he says, you don’t want to move into international markets too soon and use resources you need to continue growing on your home turf.

Here are 10 key questions to ask before going international: 

Have I built a solid foundation at home? Make sure your business is stable on a day-to-day basis before pursuing overseas markets, Fjeld says. For instance, you should determine whether your business could function well in your absence. Companies also “need to have the distribution running smoothly enough so that they don’t have to focus on it constantly,” Fjeld says. 

 

Do I have the bench strength for international expansion? You will need to assign one or two senior employees to your international effort. So, you need to determine whether you can afford to move people from their current responsibilities, as well as whether they bring–or can quickly develop–the necessary skills for overseas sales and marketing. “At minimum, you’ll need someone who is going to be accountable for the export sales part of the business,” says Tom Moore, deputy assistant secretary for international operations at the U.S. Commercial Service, the country’s trade promotion arm, in Washington D.C. 

Will I find the talent I need in another country? If you decide to expand, finding local talent can be a challenge. Some countries simply do not have enough of the skilled labor companies may need. You also will be competing with established companies that know where to find talent and how to recruit local candidates. One potential source: local educational institutions such as engineering programs and business schools. 

 How will I need to adapt to the local culture? Some countries such as France and Japan expect companies to adapt to the local culture, says Carl Theobald, chief executive of Avangate in Redwood City, Calif., which provides e-commerce capabilities to small and medium-size companies. That may mean customizing your product or service to meet local customers’ tastes. At the very least, you will need to put your marketing message in the local language and make sure the meaning translates correctly.

 

Do I understand the cultural implications of the sales process? Closing a deal abroad can be a vastly different experience than you’re probably used to, says James Hunt, adjunct professor of entrepreneurship at Georgetown University’s McDonough School of Business. “Some cultures struggle to say, ’No, we aren’t interested’ in a product or service, which means you can have an extremely long and costly sales process that never leads to a sale.” Such behavior is especially prevalent in China and the Middle East, he says. To avoid this problem, look for customers who have bought similar items or services in the past, Hunt says. And sometimes it’s better to cut off talks if they lag for too long.

Have I sized up the local competition? Understanding your competitors abroad can provide insights into how – and whether – to expand. But many companies don’t take time to figure out whether similar products and services are already available in a new market and what they would need to offer to compete successfully. Spending time abroad and speaking with potential customers can help to avoid costly mistakes.

 

Do I need an international partner? For many companies, it’s critical to find a local partner when expanding overseas, Mr. Moore says. Partners can help facilitate sales, while keeping costs down for the home office. Forming a partnership takes time – often, a year or longer – and requires plenty of due diligence to find the right fit, Mr. Moore says.

Am I financially able to sustain an overseas expansion? Expanding internationally requires a startup-like period that’s longer than many entrepreneurs anticipate. “You have to expect to lose money for a while,” Fjeld says. So, you not only need enough capital to make the initial investment, but you also should have a long-term financial plan in place, he says. You will likely need to update the plan to reflect actual revenue and expenses as you ramp up in the new market. “It’s not something you are going to turn a profit on right away; you have to be there for the long haul,” Mr. Moore says.

Where’s the potential for red tape? Expanding beyond the domestic market can mean lots of extra paperwork, especially for medical and technology companies. With such a variety of regulations surrounding exports, it’s important to understand what’s required for your particular industry before attempting to expand abroad.

 

Should I simply expand my online presence? For some companies with a strong website, it may not be necessary to establish a physical presence abroad. You may be able to offer overseas shipping and expand payment options without the hassle of extensive tax regulations. “Selling online through an e-commerce partner with international capabilities is far easier and much less costly than building a local presence,” Mr. Theobald says. But at least in some markets, you would need to develop websites in another language that accept the local currency. Online shoppers “are more likely to buy when the experience is in their local language [and] local currency,” Mr. Theobald says.