7 deadly sins of business growth

September 5, 2012: 11:22 AM ET

There are several underlying issues that make growing your company completely different from everything else you do in your business. But there's hope.

By Jeff DeGraff

(TheMIX) -- The sole purpose of a business is to grow. This can take on many dimensions -- profits, revenues, market share, brand or community influence, just to name a few. The road to growth is very simple. Innovation is required to drive growth. You make something better or new (products, services, solutions, etc.) and you sell to someone better or new (markets, segments, channels, etc.). Basically, that's it; the rest is just fine print.

It sounds easy enough, but of course it isn't. This is because there are seven underlying issues -- deadly sins if you will -- that make growth difficult and completely different from everything else you do in your business. But there is hope -- simple things you can do to avoid the anguish and misery that often accompany the wide range of chaotic activities that produce valuable growth.

1. Believing you can see the future

The fresher the innovation, the more likely it will come to fruition sometime in a distant future for which there presently is no data. Unless you possess a crystal ball and remarkable prophetic abilities, believing you can see the future is delusional at best. Borders was a pioneer of the mega bookstore category, but when things began to go digital, it bet big on in-store media downloads. Instead of making midcourse corrections, it rode its strategy all the way to bankruptcy. A sure sign of a company that is stuck in the planning phase of innovation is an incessant collection of data and obsession over the business plan. Current research suggests that planning is important, but learning from real experience is absolutely critical. We all need to know the facts to move forward, but when we focus on data collection at the expense of running meaningful experiments that will yield results, it becomes counterproductive.

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Redemption: Prototyping, test marketing, and post-mortem reviews will tell you more about opportunities, shifting customer preferences, and the potential of a new technology than any spreadsheet or PowerPoint stack. Take your cue from venture capitalists who hedge their bets. They will make small investments in a wide array of therapies for the same disease state to quickly learn what really works. They seldom bet it all on one sure winner. Make smaller and wider bets.

2. Choosing big over fast

An innovation is only innovative for just a brief moment in time. It has a shelf life and goes sour like milk. The smartphone with all the latest technology you bought for your daughter at Christmas will be a historical artifact by the same time next year. To compound matters, it's not just time that makes innovation so elusive but timing. Get there too early and there is no demand, too late and the day belongs to your competitors. Yet, leaders commonly trade magnitude for speed -- big for fast. Those who crow "go big, or go home" can usually be found sitting on the coach.

Redemption: Momentum is everything. When I was a young man, I was an executive at Domino's Pizza (DPZ) when it went from a small regional chain to a multinational multibillion-dollar enterprise. We virtually invented the home delivery concept. While Pizza Hut spent almost a year planning new sit-down parlors, we identified promising locations in strip malls, equipped and supplied them, and opened stores within three weeks. Most importantly, we hired highly energetic managers who could multitask and keep things moving quickly. We would run promotion after promotion and within a month would develop the winning formula for that area. By the time competitors entered the market, we already owned it. Domino's grew over 200% a year for almost a decade. Pick up your pace.

3. Mistaking your managers for innovators

The virtues of a good manager are well known. They make our lives easier by keeping things on track and under control. They squeeze the most out of the least by eliminating variation. The problem is that all forms of growth require deviance to produce something that's both useful and novel.

If what you are offering is not better, faster, or newer, your company will be sentenced to an eternity of cost-cutting. When efficiency-focused leaders are put in charge of projects aimed at disrupting the way the firm operates, you are headed for trouble. No matter their good intentions, they will conform to the acceptable practices that led to their previous successes and inadvertently squelch growth.

Redemption: Deviance requires deviants. Every company has a collection of misfits that show real promise but are difficult to manage. The bad news is that they pretty much do whatever they believe to be right. The good news is that they demonstrate a high degree of ownership for their work -- a key attribute of a natural innovator. In the early 1980s, when I had just completed my doctorate in instructional technology, I had the opportunity to be an advisor at Apple (AAPL). What impressed me most was the way the company identified and embraced its most effective non-conformists. They called them Apple Fellows. These leaders had both the skills and drive to move new ideas through the company. Former fellows include Alan Kay, chief designer of the Macintosh, Donald Norman, author of The Design of Everyday Things and Guy Kawasaki, the founder of Alltop. No one had to motivate them to take on the system. Encourage and support your deviants.

4. Having more ambition than capability

The gifted amateur as heroic innovator is one of the great American myths. Journalists love to tell us how Google (GOOG) co-founders Larry Page and Sergey Brin started it all in their garage in Palo Alto but fail to mention that they were doctoral students at Stanford University working in the Human–Computer Interaction Group where an assortment of geniuses and Nobel Laureates congregate. Similarly, stories about Benjamin Franklin, Thomas Edison, and Steve Jobs conveniently overlook their unique brilliance and years of experience. If everyone could really do it, they would. The point is, if you are creating anything better or of real consequence -- from a miracle drug to a new business model for your delicatessen -- you need experts to help you get it right. Strategy is relatively easy when compared to finding and developing highly competent practitioners.

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Redemption: Several years ago I built an innovation lab called Innovatrium across the street from the University of Michigan where I am a professor of business. I liken it to the Juilliard School, which only accepts the best performers, because you can't take someone who is mediocre and make them great but you can help someone who is great become exceptional. Base your strategy on your capability.

5. Starting at the center and moving out

Most great innovation happens at the outer edges of the firm, just beyond the reach of the center's power and influence. Skunk works, secret labs, and coffee shops have long been the venues for treasonous talk and radical experiments. The farther away you are from the center of the company, both physically and emotionally, the more likely you are to seek alternative ways of doing things. Companies have standard operating procedures to keep their equilibrium, which is essential to sustaining the business. But these same procedures are designed to destroy variation, no matter the intention.

After years of marketing research, Coca-Cola (KO) launched a mid-calorie cola called C2 that was formulated to taste like Classic Coke but with half the calories. Sales were disappointing. But when Coke did a post-mortem review of what worked and what didn't, they gained real insights that ultimately led to the highly successful Coke Zero.

Redemption: It's easier to change 20% of your organization by 80% than it is to change 80% of your firm by 20%. Work your innovations from the outside-in.

6. Listening to the wrong customers

It's a common story. A company develops a technology and becomes the corporate standard. For the next few years, it plays defense until an upstart emerges and they are rapidly undone. Consider the case of Research In Motion, which has faithfully listened to its loyal customer base -- security-conscious multinationals -- and adjusted its product to better meet their needs. The only problem was that adjacent consumer segments, such as professional service providers, were the ones changing the game with their iPhones and Androids.

The worst of all possible growth strategies is to have an increasing share of a shrinking market. Smith Corona, one of the last typewriter manufacturers, made some of the very best machines right before they went out of business. IBM (IBM) made the same mistake a decade before, and dozens of other great firms have fallen into the same trap at one time or another. The problem is that it's easy to ignore the customers who have a line of sight to the future in favor of the more established and cautious ones who demand more immediate attention.

Redemption: Friedrich Nietzsche argued that civilizations that were placid and predictable were in the last throes of their existence, while highly contentious and dynamic cultures were entering their growth phase. His point was that while most pander to the former, the future belongs to the latter. Think of the time it takes to bring a new innovation to market as the time it takes to escape a burning building. If you benchmark the incumbent customers in your market, typically late movers, you will be the last one out. First adopters are eager to gain an advantage because they often cannot compete on resources, scope, or scale. It also turns out that these influencers mobilize other groups to follow their lead. Follow the customers who move first.

7. Failing to connect the dots

Innovation is one of the few things that can apply to every function and discipline within your company. To compound matters, companies of all sizes are now competing in federations, loose clusters of businesses across traditional boundaries. In the Facebook economy, synchronizing networks of innovation requires moving beyond a hierarchical concept of the company itself. While this has long been a strategy for smaller entrepreneurial firms, the largest and most complex of organizations are adopting it now as well. Boeing (BA) is building tailor-made Dreamliners in dozens of countries with hundreds of companies and thousands of suppliers. The aircraft has had several delays, which has cost Boeing lucrative contracts, but the company's ability to sync up all these parts to create customized complicated products will be a significant competitive advantage for future ventures.

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Redemption: Economist Joseph Schumpeter observed that entrepreneurs create companies to show their value as superior people. The challenge for these movers and shakers is that the drive and ability to innovate is often concentrated around them in small pockets of brilliance. If you are at the center of innovation activities, you are probably the proverbial hub to the spokes of your firm. The problem is that this stretches you beyond your capability and obstructs your company's ability to search and reapply winning ideas quickly.

While many businesses resort to prescriptive processes because they don't know how else to connect the dots, it is much wiser to develop what Harvard professor Dorothy Leonard calls "deep smarts." You focus your attention on teaching your understudies. They focus their attention on teaching their understudies, and so on. By reimagining your company this way, you can create something akin to a great university that is both innovative and sustainable. Teach your leaders to be free and responsible.

While these solutions won't guarantee that your company will attain seventh heaven, they just might help it grow and prosper.

Jeff DeGraff is clinical professor of management and organizations at the University of Michigan's Ross School of Business and author of Innovation You.

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The Management Innovation eXchange is a site dedicated to sparking conversation and progress around the most critical challenges that managers face today: How to create organizations that are fit for the future -- and fit for human beings. The MIX seeks to enlist as many in-the-trenches innovators, progressive leaders, and adventuresome thinkers as possible in pursuit of that goal. Users can submit, rate, and build on each others' ideas -- creating an open platform for management innovation. The MIX is supported by several leading institutions, including McKinsey & Co., Dell, HCL, Red Hat, London Business School, HSM, and the Human Capital Institute.

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