Going with the flow: Understanding corporate life cycles

Going with the flow: Understanding corporate life cycles

Maturi, Richard J

In order to run efficiently and profitably, companies must recognize and adapt to the stages of the corporate life cycle.

CORPORATIONS, LIKE individuals, experience life cycles. Just as individuals need to adjust to life’s changes, corporations must recognize life cycle changes and react appropriately in order to survive and prosper.

Larraine D. Segil, co-founder of the Los Angeles-based Lared Group, a consulting firm specializing in domestic and international business development, identifies six corporate life-cycle stages in her book, Intelligent Business Alliances. “It’s important to recognize that corporations go through life-cycle stages and that the corporate culture changes as companies move from one stage to another,” says Segil. “Likewise, different divisions within the same company can be in different lifecycle stages and management must manage accordingly and create the right environment for each division. If management understands the life-cycle process, it can plan and manage the organization versus operating in a constantly reactive fashion.” Segil’s six corporate life-cycle stages can generally be distinguished in the followin manner:

1. Start-Up Stage: This is represented by a new and small company or new joint venture between two large organizations. Start-up companies typically attract “adventurer” managers with an unshakable belief in their vision and the ability to accept risk to achieve their goals. These managers are decisive and proactive but often have trouble delegating responsibility to others. The work environment is challenging – and also insecure.

2. Hockey Stick Stage: Indicated by a period of accelerated growth and sharply rising revenues, this stage is illustrated by the shape of a hockey stick on a graph. The cash shortages and uncertainties of the start-up phase have been overcome. The hockey-stick “warrior” manager is aggressive, charismatic, and inspiring. Companies in this stage prefer clear command-and-control management structures to team-based approaches. As growth flattens out, the warrior manager’s aggressive techniques appear abrasive and can backfire. Many of these managers do not sustain their initial success and leave the company as growth wanes.

3. Professional Stage: The company matures while revenue growth continues, but not at the pace of earlier stages. The professional company represents a safe and secure place to work. At this stage, the “hunter” manager emerges, establishing systems, control processes, and a team approach.

Professional companies seek strategic acquisitions and diversification into other industry segments. Marketing skills are considered key and brought into the management talent mix. Top management perfects delegating responsibility and resolving conflict. Decision-making takes on a consensus rather than a confrontation form.

4. Mature/Consolidating Stage: The company experiences a leveling off of revenues as market penetration nears completion. Mature companies develop heavily administrative structures, slowing down decision-making and implementation. Middle management, in the form of the “farmer” manager, proliferates. Farmer managers possess the patience to sow seeds and wait for them to mature, but can also become complacent and risk-averse.

5. Declining Stage: “Politician” managers, who are totally risk-averse, run the company. Political game-playing protects turf, delaying important decisions and wasting good business opportunities.

6. Sustaining Stage: Companies need not enter the declining stage. “Visionary” managers can rejuvenate the organization by inspiring hope and creating empowerment through results-oriented action. Visionary managers differ greatly from the adventurer and warrior in the ability to build and empower teams while still taking risks and bringing about needed systematic change. This manager is backed up by a team of leaders who may have helped the visionary in former turnarounds or past successful activities.

“Life-cycle changes complicate the communications process with jointventure partners, suppliers, and customers,” Segil notes. “In addition, the changing internal relationships are often the trickiest to understand and deal with.

“We developed our Mindshift System from the observation of more than 600 companies and thousands of executives. Two hundred thirty-five companies applied the system to their own organizations and participated in a follow-up survey. The system helps management understand and diagnose the life-cycle stages and personality characteristics of its organizations.”

Aligning Life Cycles and Personnel

Dr. Nancy L. Yohanda, president of Yohanda Inc., a Boston, Mass., executive coaching and consultation firm, cautions against hiring the right person at the wrong time. She points to an average top-management turnover rate of five years in support of the lifecycle theory. As the business changes, different skills are required to keep the company on course.

“The popular management literature assumes one ‘right’ model of successful leadership,” Yohanda explains. “Many top managements are not fully aware of corporate life-cycle stages and their demands for specific leadership skills. Corporations need different types of leaders with different skill sets for the unique corporate life cycles. Boards of directors and executive search teams need to select leaders more carefully; go beyond experience and match the executive’s experience with the corporate life cycle and the challenges each stage presents. Without an alignment of operations to the corporate life cycle, management strategies will not be fully implemented.”

Dr. James A. Belasco, a San Diego-based consultant, entrepreneur, and best-selling business author, challenges corporate executives to take charge of their future in his new book, Soaring With the Phoenix: Renewing the Vision, Reviving the Spirit and Re-Creating the Success of Your Company, coauthored with Jerre Stead. According to Belasco, “Three emerging trends are reshaping the corporate playing field: Corporate life cycles are moving much faster than ever before, and .com companies are moving at breakneck speed. Secondly, many changes are occurring outside traditional industry boundaries, creating new competition from competitors outside the industry. And managers possess the ability to seize the moment and create their own futures by taking charge of the corporate life cycle instead of being a slave to it.”

Belasco believes in “revivolution,” which he describes as renewal through revolution (or rapid evolution which looks like revolution). He advises executives to take the following steps:

Determine where the industry is heading by studying outside influences, not looking inward.

Stay in touch with the few leadingedge customers who are thinking and planning for tomorrow, in order to learn from them.

Search out long-term want-to-be customers/industries to see what they are doing.

“Once you identify where the market is going, you need to get your company ready for the future by developing the skills and competencies that will help your firm capitalize on the future. Then get going – the firstmover advantage is critical in the rapidly evolving business environment,” Belasco confirms.

Embracing Change

As Belasco suggests, even young companies can experience life-cycle changes early in their corporate lives. For example, Washington Square Associates, Inc., a Washington, D.C., web-based system developer and engineering management firm, has undergone several changes since incorporating in 1994.

Observes Walter P. Trzaskoma, Washington Square’s chief executive officer, “We are undergoing two cycle changes at once. We’re emerging from the entrepreneurial stage with five people into a small corporation employing 30 people and ranking on the Washington Technology Fast 50 honor role as well as diversifying from complete Department of Defense contracts to commercial applications for our products and services.”

Converting the technology to commercial applications made sense. However, according to Trzaskoma, it takes an entirely different mind-set to operate in the commercial business environment. To make the transition, Washington Square went outside to hire marketing and public relations professionals for the commercial segment of its business. The company also entered the international arena with a strategic alliance to support the global Internet/Intranet efforts of PricewaterhouseCoopers’ Washington consulting practice.

“We’ve also created a different management style in the process,” says Trzaskoma. “In the beginning, I worked on the contracts; now I am more involved with the strategic plan for the firm, trying to forecast where the technology is headed and where we have to be in order to offer our clients the very best in products and services.”

Ten years ago, Robbie Vorhaus financed the start-up of Vorhaus Public Relations using his personal credit cards. At one point he was in debt for $125,000. Today, his public relations firm sports such domestic and international clients as Domino’s Pizza; Bertolli, USA; and H.J. Heinz. This year the firm garnered top ranking for creativity from Inside PR.

“In the beginning, we could not afford to hire the talent/experience to service Class A clients,” Vorhaus explains. “We hired inexperienced people and had to hand-hold them to keep our clients happy. Our training never caught up with the demands we placed with people.

“Now, we pay more and hire the right people to manage our clients. While our core ideology of `telling the story better than anyone else’ has not budged, we place a greater emphasis on formal training and hiring senior talent in order to build our management team.”

Nancy Kramer, founder, president, and CEO of Resource Marketing, Inc., a $75 million Columbus, Ohio, technology marketing and communications firm, admits, “We did not even have a strategic plan until 1993; we were too busy running the company. I now take a more hands-off approach, managing rather than doing.”

Resource Marketing brought corporate people on board in operations, administration, and technological operations. That did not mean that creativity or growth plans went by the wayside: The firm scored a coup with the design and development of the Victoria Secret website, which garnered more than 500 million visitors and generated orders from 90 countries in the week following its inaugural TV spot aired during the Super Bowl. Resource Marketing also walked away with top awards in three of the industry’s most prestigious competitions: the Clio Awards, the Ad: Tech Awards, and the National ADDY Awards.

Easing the Growing Pains

In Stillwater, Okla., software developer Teubner & Associates realized that company growth had slowed and that getting back on track involved moving to the next stage in its development. The company actively began a search for new investors or a partner with similar interests. During the search process, the company was approached by Esker, a French software consulting company that was interested in buying a presence in the North American market.

“We realized that our histories and corporate cultures were similar and the combination made good sense,” says Jerry Rackley, director of public and media relations. “Under the Esker umbrella, the combined companies represent a market capitalization in excess of $100 million and generate annual revenues in excess of $45 million. Esker’s international sales and distribution channels allowed us to expand the market for our products, and we provided them with a ready entry into the U.S. market.”

According to Rackley, one of the most daunting challenges of dealing with the company’s new life-cycle status was adapting from a small entrepreneurial firm to one that was part of an international company with offices across the globe. “We used to be able to stick our heads in the next cubicle to get an answer or discuss something, and now we report to people on the other side of the ocean. We really were not prepared for that culture shock. People were upset that they did not know much about the company anymore,” Rackley admits.

Among the steps Esker took to close the communications gap and recreate a feeling of ownership in the company were instituting executive coffee talks with headquarters managers and location employees, starting an internal newsletter with company and employee news, and initializing plans for a 2000 sales rally at one of its locations.

On the West Coast in Pacific Palisades, the founders of Californiabased GoldMine Software Corp., a developer of sales and marketing software, merged with Colorado Springs customer service and support vendor Bendata Inc. under the GoldMine Software Corp. umbrella. While GoldMine retained its name, founders Jon V. Ferrara and Elan Susser, who started the company in 1989 with $5,000, stepped aside from the top spot in favor of Vance Brown, Bendata president and CEO. The merger resulted in a complete package: a quality product backed by topnotch customer service. In addition, Bendata’s 40 percent overseas sales opened up new market opportunities for GoldMine software.

“While other entrepreneurs may find it hard to let someone else run the company they started, we recognized it as the natural next step in getting the company to the next level,” remarks Jon V. Ferrara, GoldMine executive vice president. “You have to get beyond the ego trip of running the company in order to make the right decisions for the growth of the company.”

Ensuring Success

Don’t let ignorance of corporate life cycles hamper your ability to run your company efficiently and profitability. Understand the life cycle changes and the management talents required to operate effectively and then take action to ensure your success.

Copyright S/H Publications Incorporated Oct 1999

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