The Futurist magazine had an article several months ago titled, “Innovating the Future: From Ideas to Adoption” by Peter Denning. In it, Mr. Denning described “the work of innovators,” which included 8 types of activities that need to take place for innovation to happen.
The article is interesting to consider when thinking about how small business innovation happens – especially for Second Stage companies.
Remember, growth companies are often led by very inventive and creative people – which is a huge asset in the start-up phase. But in Stage 2, that needs to be supplemented with structure and discipline. Denning’s 8 innovation practices offer a good model to show what’s going on in growth-company innovation.
Second Stage companies are good at these 4 of Denning’s innovation practices:
- Sensing new possibilities
- Envisioning a compelling story about the possibilities
- Leading and mobilizing people to adopt innovations
- Embodying the innovations in their own actions
On the other hand, Second Stage companies are typically weak at the other 4 of Denning’s innovation practices:
- Gaining preliminary customer buy-in to start innovating
- Overcoming resistance to change and creating customer commitment to try the innovation
- Helping customers integrate the innovation into the environment and stick with it
- Managing all commitments to completion
What’s the difference between those 2 lists? The first one – the things Stage 2 leaders do well – leverage inventors’ strengths of vision and passion. The second one – the things Stage 2 leaders struggle with – involve dealing with the complexity of customers, teams, cultures, markets, and projects.
As I say again and again, the only way to deal with all that complexity is to create some structure, process, and systems to handle it. Not a lot…but some.
All 8 of Denning’s innovation practices are important to commercializing new ideas. So, it’s no surprise that many Second Stage companies have a lot of great developments going, but struggle with making money from them.
As your company grows in Stage 2, you should use your sales process to drive more value – yes, for your company…but also for your customers. The only sustainable growth comes from win-win sales, so your sales process will benefit you and your customers.
One of the most important ways that your sales process can increase the value you bring to and get from your customers is by uncovering what the real need is. Oftentimes, customers don’t know what they don’t know, and by managing the sales process well, you can help them realize what they really need. In doing that, you also make sure that you’re paid for any premium value that you give them.
Price is a function of value, and the surprising fact that you need to know is that value is established when the need is defined, not when the solution is defined. If a customer comes to you and tells you what they need, then they have already set the price in their mind. On the other hand, if a customer comes to you and asks you to help define what they need, then you create the value together.
If you’re like most Second Stage companies, it’s hit or miss whether you’re talking to customers about the answer or the problem. It takes a clearly-defined market strategy, and a disciplined sales process, to ensure your conversations consistently focus on the need. That takes some work, but it’s also the best way to grow your small business in Stage 2.
As a small business emerges from the start-up phase, and becomes a Second Stage company, the sales process can and should be formalized.
It can be formalized because you now have enough experience with sales to know some standard steps that you usually follow.
It should be formalized because you need to start building consistent expectations with your customers, you need more consistent information for your team, and you need to start to build up systems around your sales that will need some standardization.
I’m not suggesting you go overboard on this – just some general guidelines or steps that you’ve learned help you.
How do you create a (somewhat) standard sales process?
As a first step, think about the customers or orders that your team handles smoothly. What usually happens when those orders come in?
Then, think about the customers or orders that are a hassle. What usually happens with those orders – and what do you notice doesn’t happen with those.
When I asked these questions of a 20-person manufacturer last year, they realized that most of their sales followed 4 basic steps – but also that complex, unclear orders (which happened to be their highest-value work) needed a different process. They outlined the two different processes, and when I met with them 3 months later, they said, “We’re handling all of our orders much, much better. And the customers are a lot happier.”
If your small business has grown into a Second Stage company, your team and your customers will appreciate you starting to understand and standardize your sales process.
Once you have segmented your customer base, the question is, “What can I do for my best customers that will drive value for them and us?”
The answer to that question should be captured in an Account Plan, which outlines the relationship and opportunities you have with a key customer.
Here’s what I recommend you include in the Account Plans you write for your Second Stage company:
– History and highlights of the relationship
– Background on relevant people you know at the company
– Description of why they work with your company and why they think you’re valuable
– Immediate and next-year opportunities that you’ve identified, as well as the 3-5 year potential for the relationship
– Likely relationship and engagement for the coming year
– Plan for additional activities to expand or enhance the relationship and engagement in the coming year
You’ll be surprised at how much you learn about your customer and yourself when you write an account plan.
I’m working with a $2MM firm right now to build in a performance-based aspect to their compensation program.
Usually, I would follow a process of compensation strategy (guiding principles for how we make comp decisions) > compensation framework (the components that go into comp decisions) > performance framework (the specific definitions of performance). (If you want a full description of the process, you can get it from my book, The Stage 2 Owner’s Manual.)
But with a small firm, we’ll be able to skip the comp framework step. That’s the step where “What does it take for you to stay in the game?” changes to “What is the right amount to pay you?” It looks at things like market pay rates, and what the role of the person is.
If you’re a small Second Stage Company, the most important things to address when you upgrade your compensation program is why you pay people what you do – the overarching principles that are at play, and the specific performance drivers you look at. When you get bigger, or when compensation starts causing you problems, you can fine-tune your pay program based on some more sophisticated thinking about what makes up employee compensation. But that’s a short-cut that, in most cases, is fine to take when you’re smaller.
Stage 2 management focuses on getting approximate answers, not precise ones – and then using judgment to realize when an answer can be more approximate, and when it needs to be more precise.
Have you ever thought about the impact of over-paying, or under-paying, the staff in your Second Stage company?
If you are over-paying, then you are taking resources away from other parts of the business that would give you a higher ROI. Over time, you’ll under-invest in the areas of the business that make your company stronger, and the result is a company that is paying its employees relatively well while weakening the business.
If you are under-paying, the opposite is true. You are “mining” your employees for the value they create, and if they don’t feel rewarded, you will be faced with a triple-whammy – you’ll lose someone who was providing more value to the company than you realized, you’ll have turn-over costs, and you’ll have to spend more than you expected to replace that person.
Compensation is about aligning the rewards that employees get with the value that they create for the business. As your business gets more complex in Stage 2, that alignment gets harder, and more important.
You’ll never pay someone exactly the right amount, but making sure you’re close is important for you, your business, and your employees.
I was reading the blog post Top Compensation Planning Mistakes (And How to Avoid Them) and there were a couple that stood out as particularly important for Second Stage Companies:
Saying one thing and doing another, which the blog says can be avoided by “avoiding secrets…and reducing exceptions.” The particular challenge for Stage 2 is that most leaders who are emerging out of the start-up phase don’t have expertise in compensation, and don’t realize how complicated it gets in Stage 2, and so they hide how they make compensation decisions in a “black box.” This usually works fine for some period and then starts to break down as they add people. In Stage 2, it’s especially important to think through a comp strategy so that you can avoid secrets and reduce exceptions.
Not preparing managers to talk about compensation, which the blog says can be avoided through training and scripting answers to key questions like “How does the organization set salaries?” and “Why did I only get this much money?” The particular challenge is that most Stage 2 managers don’t have expertise or experience dealing with compensation – and in fact what experience they have is with the start-up phase’s “What do you need to stay in the game?” approach. One of the most important aspects of a compensation program for a Stage 2 company is the messages that it communicates about how the company creates value and how performance is measured. If those messages don’t make it to employees – or, worse, if the wrong messages are communicated – much of the power of the compensation program is lost.
Conflict in a team can be so frustrating for a Second Stage company. You want to focus on the work at hand, but you and your team can’t get started – or keep getting sidetracked – because you’re not working together.
There can be several reasons for team conflict. Often people look at the personalities involved, or the level of emotional intelligence, or “teamwork” – and it makes sense to look at all of those. An area many people don’t explore, though, is strategy.
Often times conflict arises from a poor or unclear strategy.
Conflict happens “when you don’t live up to my expectations.” And that happens much more often when (1) the strategy isn’t clear, because then there are no common expectations and everyone just uses their own, or (2) the strategy isn’t good, because that puts more pressure on everyone, and pressure makes it hard for everyone to work outside of their comfort zone.
Team-building exercises have their place. But if there is conflict in your team, you may have deeper work to do than just team-building. If you think that’s the case, schedule a strategic planning session, hire a strategy consultant, or lead your team through the strategic assessment workshop we offer in our Stage 2 Insight program.
I hear it all the time: “When we were a start-up, everyone on the team went beyond their job and made sure we were successful as a business. It’s why we made it to where we are. But now that we’ve become a Second Stage company, most of our new hires aren’t that way – they’re just doing their job. It is so frustrating.”
There can be several reasons why this happens – you may not be managing your hiring process effectively, or you may need to manage your staff’s performance better. And your compensation program is probably broken.
But it’s your strategic planning that provides an important foundation for all of those other operational issues to be solved, and to have employees act like owners in your small business.
In Stage 1, the CEO has the unique responsibility and ability to provide the vision for the business, and is able to quickly make the strategic “judgment calls” that make a business successful during start-up.
In Stage 2, though, it’s the team – the company as a whole – that needs to create the vision for where the business is going, and it’s the Second Stage CEO’s job to lead the team in creating that vision. The CEO should ask great questions, and let the team come to the answers.
I worked last year with a company that had been struggling for several years to get employees to take ownership. They had created a vision for the future, and told the rest of the team, and the team had never “made it their own.”
I worked with the team to create a vision. The CEO played a strong leadership role in that process, providing perspective but not answers. The vision was 95% what the CEO had in his mind, but it was now the team’s vision, not his own, and the company was able to use that foundation to grow the business and reduce operational and inter-personal headaches.
So, if you want to have employees act like owners, ask strategic questions, and guide them in answering them. That’s why we’ve set up our Stage 2 Insight management training program and free Stage 2 Secrets teleseminars for the whole team to participate – for them to take ownership, they need to understand the issues.
In a recent post, Jay Goltz wrote on his New York Times small business blog, “If you are quick to say ‘everyone makes mistakes’ without analyzing whether a particular mistake could have been avoided, you are sure to have plenty of them. “
I talked about the form of strategic planning for your small business in my last post. Let’s take a look at one part of the content of that planning here.
When I get my clients into a planning rhythm, then most of those strategy meetings can start to have the same general agenda. And I like that agenda to start with a look back.
The look back accomplishes several things that are useful to setting the stage for looking ahead. It celebrates successes in areas that should get continued attention (the good parts of the business). It identifies areas that are getting attention because of problems (the bad parts of the business). And it captures learning so the whole leadership team can benefit from converting mistakes into wisdom.
As Goltz says, analyzing mistakes is important to future success, and your Stage 2 business should be including look back in your strategic planning meetings.
We look at the agenda for strategic planning meetings in more detail in our free Stage 2 Secrets educational teleseminar on planning.