Hammering a screw …
Baking a cake in your dishwasher…
Pedaling your car…
One of the most common ways that small business owners get stuck is to have the wrong mindset for a problem. This happens a lot when companies emerge from start-up and move into Stage 2 of their development.
What does it take to be successful as a start-up? A high-quality product or service, quick reflexes, responsiveness, experimentation, frugality.
But those same qualities work against you when your business moves to Stage 2. With the right mindset, you stay in control of new opportunities and problems; without the right mindset, you struggle and waste time with solutions that don’t work.
There are many ways that business is different in Stage 2. Let’s look at a few…
Focus on ROI, not cost. In Stage 1, it’s important to manage your costs so that you can get to a point of profitability. In Stage 2, it’s important to focus on your investment returnsand the best and fastest way that you can get results. Often times in Stage 2, the best answer – the one that will get you the best results – is not the cheapest. But many Stage 2 leaders can’t break the frugal mindset, and are stuck in a cycle of underinvestment that never gets them where they need to go.
Focus on markets, not customers. Success in Stage 1 is a built on one-to-one sales, and that intimate contact is important to win early adopters. In Stage 2, though, making sales customer-by-customer is not scalable. What’s needed is the ability to sell to a market. The change from sales-driven to marketing-driven is a big one, and if a Stage 2 leader thinks she can just do “more of the same,” she’ll never be able to scale the business beyond her ability to add good sales people. (And we all know how hard that is.)
Spend more time on strategy and communication. Stage 1 businesses are not simple – but Stage 2 businesses are much more complicated. In fact, as a business grows, the complexity grows exponentially – but many Stage 2 leaders are thinking that it’s only growing linearly. Because the business is more complicated, it needs more time invested in strategy (which is how you coordinate and direct all the different parts) and communication (which is how you align all the different parts). Many Stage 2 leaders think that the decisions they have to make are simpler than they actually are, and are stuck in a reactive mode because they don’t spend enough time thinking about their situation to develop (more complicated) action plans.
What can you do if you’re stuck because of your mindset?
- Honestly assess whether you’ve been as successful in Stage 2 as you were in Stage 1
- Find someone with experience in your situation, who can help you understand the right mindset
- Ask your team what frustrates them – they usually have a good sense of how well you are managing, communicating, and planning
- Get trained on management and strategy, which are going to be key to your success in Stage 2
Seeing this humorous office video on YouTube made me think about innovation. Being innovative isn’t just about being creative, though there is a lot of important overlap.
I’ve been working with 2 clients over the last 6 months to develop their innovation capabilities. Neither of them have trouble coming up with creative ideas – it’s the rest of the “innovation ecosystem” that they are working on.
Here are some key ideas that we’ve focused on in our work.
Improve market intelligence, earlier in the process. Stage 2 companies often struggle with diversifying into new markets, which is a common form of innovation at that stage. The struggle comes from 2 factors – a Stage 1 focus on sales as opposed to marketing, and a typically-unconscious Stage 1 reliance on deep experience with an initial market. In Stage 2, the shift to marketing, and to new markets in which the company does not have experience, is a significant challenge. The answer? Build up market analysis capabilities, and apply them early and often in the development process.
Foster open communication. My 2 clients both have issues around communication, but they are different. For one company, they need their communication to be more open – to have people know that they can say what’s on their mind without it being criticized or used against them. We’ve worked on this by having dedicated discussions about the need for open discussion – and simply modeling that in our meetings has started to build a more open environment. For the other company, they simply need more communication – within and among their departments. We’ve worked on that by having new daily “stand-ups” and monthly management-team meetings.
Upgrade portfolio management. One of the consistently weak areas that I see in Second Stage companies is their “portfolio management” process for discretionary investments, and especially for innovation projects. Portfolio management is complex – it involves matching up resource allocation, business strategy, market opportunity, and development progress. On an on-going basis. That’s hard! But in Stage 2 companies, as the investment sizes grow, companies realize huge ROI gains when they have a way to cut off their losers and double-down on their winners.
These ideas may even get your staff rowing their way through the office…
I wrote more about Stage 2 innovation in this previous post.