Leaders of growing companies know it well: that phase where your business is too big to be small but too small to be big.
It’s called “No Man’s Land,” says Doug Tatum, chairman of Newport Board Group, a national business advisory firm that opened a Carolinas practice in Charlotte last September. Earlier this month, Tatum talked to a room full of Charlotte-area CEOs about navigating the transitional phase.
Companies in No Man’s Land usually have $10 million to $50 million in annual revenue and 20 to 30 employees.
“That’s when they start getting stuck,” says Bill Reading, managing director of Newport Board Group’s Carolinas practice. “They’re so immersed in the business, dealing with the tyranny of the urgent, that they have no time to … think strategically.”
In the Charlotte market, about 387 privately owned companies fit that description, according to Newport Board Group research.
Tatum says the economy needs companies to grow out of the small-business category. Large corporations need them, too, as they depend on a constant supply of new companies to acquire to refresh their product lines and stay competitive globally.
In his book, “No Man’s Land: A Survival Manual for Growing Midsize Companies,” Tatum’s tips for tackling the middle ground are the four M’s: realign with your market, hire senior management, test your economic model, and ultimately secure money.
Realigning with your market
Pitfall: In the early stages of business, the customer and the entrepreneur have a strong, unfiltered relationship. The entrepreneur makes promises to customers and changes the firm’s operations to meet those promises. This innovation and experimentation drives the business forward. But as business growth intensifies the demands, the entrepreneur has less time to monitor and adapt to customers’ needs. Thus, the company loses competitive edge and sales stagnate.
What to do: First, identify your business’s “core value proposition,” or what it’s best at. What made the company so exciting to initial customers? Who are your best customers? They are whom you should extend promises to going forward. Then create processes that help the whole business excel at what you, the entrepreneur, did well.
Hiring senior management
Pitfall: Most businesses in No Man’s Land have an inner circle of loyal employees who were there from the start, but not enough leaders who have the experience scaling up a business.
What to do: “To grow, you need a team with answers, not merely questions,” Tatum says in the book. To do that, you need new, experienced-based expertise in your management team. These people have worked with larger organizations, have seen what your end goal looks like, and won’t act instinctively to solve problems. This also helps you have more time to focus on what you do best, and send a message to employees that leadership roles aren’t just for your inner circle.
Testing your economic model
Pitfall: Most entrepreneurs start out running their businesses on high performance and cheap labor, Tatum says, “providing superior products and services at below-market cost.” Many also look at their finances intuitively, without constructing formal business models. But as a business, it has to pay market wages and develop a normal cost structure.
What to do: Look at money spent, revenue, and capital under different scenarios. Consider the expense of identifying and acquiring new customers. Do an economic analysis to see how your company’s model will likely change as it approaches the size you’re aiming for.
Pitfall: Most companies, Tatum says, enter No Man’s Land without enough money to leave it. So if your business is having trouble raising capital, it’s probably perceived as too risky.
What to do: Prove you can escape No Man’s Land by addressing the first three M’s, Tatum says. “Once a firm is realigned with its market, once management issues are dealt with, and once the firm develops a model for scaling profitably, the real and perceived risk goes way down.”
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