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To Overcome Organizational Complexity, First Simplify, Then Scale

Simplify Your Business To Scale

When I first read about the Hedgehog Concept, it seemed like an easy idea to grasp. But the truth, as I’ve learned after years of working with small businesses, is when a company begins to grow—at times exponentially in its early stages—even the simplest of concepts can be difficult to implement.

Complexity isn’t always a bad thing, because it usually indicates that an organization is evolving into its next phase. Still, situational awareness is usually the prime issue most executives struggle with in dealing with the complexities of growth.

It’s not the complicated nature of progress that stalls a business or creates setbacks, it’s the lack of recognizing what processes aren’t adding value, and how to channel the minutiae of making a business successful effectively.

Speaking with serial entrepreneur and 20-year member of the Entrepreneurs’ Organization, Rich Manders, we examined this further on our radio show The Second Stage. In the episode, Mr. Manders outlines several ways of identifying when a business is at this critical stage. A few of these are:

Growth is stalled.
[You have] shrinking margins.
The leadership team is overtaxed.
You’re losing your top talent … and you’re losing your clients.

In addition to sharing more insights on recognizing the signs of a business in decline, Mr. Manders offered some tips on how to overcome the stifling complexity and prepare a business for further scaling. But before we look at these solutions, let’s dive a bit deeper into pinpointing the problem areas.

Growth is Stalled

Stalling is one of the first and most obvious signs of a business in trouble. If despite your best efforts the business is at a standstill in terms of bringing in new clients, hiring new people or maintaining its upward and outward trajectory, each one of these (or in a worst case scenario, all of them together) are something to watch out for.

Margins are Shrinking

Something that typically follows along with the stalling of a company is a decrease in its profitability. This could be where you see your business slowing down in its overall growth—the stalling effect—but it’s usually something far scarier: your financials. Capital is the fuel by which any business is allowed to thrive, so if your gross and net margins are beginning to dwindle, take a more concentrated look at this canary in the coal mine.

Leadership is Overburdened

Another sign your business is falling into its own complexity snare is when management feels spread so thinly that they find themselves unable to take on new challenges, build visionary ideas or even put out the day-to-day fires. If you have executives who are missing meetings, feeling stressed or spending all of their time working in the business instead of on the business, it’s time to dial down the complexity at work.

Talent and Clients Are Moving On

Every great business owes its success to a handful of stellar employees who make the company what it is. This is also true of your clients, who are the ultimate providers of your capital, and therefore your organization’s ability to stay competitive and grow. As the barometers of business, if either your clients or your staff begins leaving for greener pastures, you’ll know that change needs to happen immediately. No company can survive a disappearing pool of sharp talent or valuable clientele.

The Solution

While there are a number of solutions to overcoming complexity in small business, Mr. Manders draws on his own experience to simplify how upward mobility can be attained once again.

It’s really finding a new thing to go after—clarity about why you’re in business and where you’re headed is the first step—and making sure that hasn’t gotten lost. [It really comes down to a] loss of vision, or just being so overwhelmed day-to-day that you’ve really lost that edge that you were building something great.

Understanding your personal “why”, your business “why”—knowing truly what you have for a team, and are they the right people, in the right seats, with the right tools and training to do the job…[is the beginning of change].

While it appears simple on paper, putting this into action is challenging for entrepreneurs who have become comfortable in the way their business operates. This is why we’ve put so much effort into The Five Pillars of Business Freedom, knowing that capital alone doesn’t solve problems.

With the right people in the business, strong processes that support growth without overcomplicating things, and capital to keep things moving forward, your company is pretty much guaranteed to thrive.

Posted by: Brendan Anderson A co-founder and managing partner at Evolution, Brendan has spent the past 20 years as an investor and manager of businesses ranging from manufacturing to financial services. @Brendan_Andersn

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