Monday, August 08, 2016

Why Businesses Remain Small

There is a danger in being persuaded before one understands........... Bishop Thomas Wilson


As a leader, if you mature with the discipline to build an organization that can grow and scale, then you can go the distance.

An organization is essentially the sum total of its physical, financial, human, intellectual, and relationship capital. Different industries and different business models have always maintained different percentages of these asset types.

Manufacturers invest most of their capital into physical assets, while high-tech firms invest in R&D to create new intellectual capital.

So why would a $100 million organization be trapped in the body of a $30 million company.

Why?

- They confuse growth for scaling. Growth means adding revenue at the same pace you are adding resources; scaling means adding revenue at a much greater rate than cost.

- They let their identity be formed by the biggest customers rather than in-depth strategy work;
For example, Research in Motion, the maker of BlackBerry, lost its market leadership position because it didn’t move beyond its traditional corporate customers; it failed to understand the mobile app market.

- They think to quickly multiply successes is the same as building for sustainable growth;
Taking the time to design an organization that can sustain growth is what distinguishes great executives from those that eventually get swept away by the wave. In today’s market, tech platforms enable relationships to scale rapidly, and at near-zero cost.

This is the phenomenon that has led to exciting platform businesses like Facebook, LinkedIn, Uber, and Airbnb. Even when these firms rely on physical assets, like cars for Uber, they own the technology, not the physical asset.

- They fear that standardizing approaches to work will neutralize entrepreneurial freedom and stunt creativity;
But this is rarely the case. Standardized processes liberate creativity because they free up distracted energy that’s consumed by reinventing approaches every time something is done.

Organizational transformation must begin with a leadership transformation

See You at the Top

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