The number one reason small businesses fail to scale

The number one reason small businesses fail to scale

Published 5th December 2017 by Rob Davidson, Founder of Davidson and Executive Coach

scale and grow business“I’m the only person in this company who has the time to learn on the job.”

Every founder or CEO should have this sentence tattooed on their forehead. It comes from the CEO and founder of a tech start-up company.

Earlier this week, I was chatting with a leading venture capitalist in the tech sector. We were pondering just why it is that so many good small businesses fail to scale. What stops them reaching their potential?

After much discussion, we agreed that it’s the unknown unknowns that get them every time.

And the main one is, they just don’t know what they don’t know, about the quality of the executives they need to help them grow to the next level.

That’s when she gave me that great quote from the CEO of one of her companies, about him being the only person who has the time to learn on the job.

No company can ever exceed the combined capability of its leadership team, but when you’ve never managed a larger business before, how can you be expected to know the leadership capability you need?

Having been a founder and CEO myself, I speak both from personal experience and now from my observations as a coach to CEOs and businesses – this is the number one reason small businesses do not grow.

I recall Jack Welch saying when he was CEO of GE, one of his key learnings was, if they had a $15 million business unit and they wanted to grow it to $300 million, the trick was, they had to invest in some $300 million leaders, when it was still a $15 million business unit, or it never got there.

That’s fine for Jack Welch, he ran a huge business. He knew exactly what a $300 million executive looked like and no doubt, he had a whole leadership pipeline full of them.

For us mere mortals, how do we acquire the knowledge about what level of executives we need and how do we find them?

As a founder and CEO, if you can’t surround yourself with people who know more about how to grow a business to the next level than you do, it can be dangerous.

It’s hard, I know. Let me start with an embarrassing admission, I was the founder and CEO of a recruitment and HR consulting business and I didn’t know, so this blog is very much about, ’do what I say, not do what I did’.

If I had my time again, what would I have done differently? Well, the first thing I’d have done would have been to find someone who could help me identify the problem – convert the unknown unknowns, into known unknowns.

How would I have done that? Find a good mentor, a good coach or a good consultant is the first answer I’d give.

I did have some good mentors and good coaches along the way, but, on reflection, I never had one who’d personally grown a business like mine to the size it would ultimately reach. There’s no substitute for having been there and done that.

But, and there’s always a but, these people are hard to find and they’re in high demand. You’ve got to have something special to attract their attention. By definition, money’s no longer their main motivator, so why should they share their precious time and experience with you?

For me, the answer lies in the excitement of the start-up phase and I suspect it’s the same for many mentors and coaches in this domain. Ask any of them what chapter of their business life they enjoyed the most and nine out of ten will tell you it was the early days.

It’s like the first few months after you’ve fallen in love, nothing will ever quite match the passion and intensity of those heady days of a new love; it’s a drug and you’d pay anything to be able to bottle that feeling.

It’s the same for founders, they spend the rest of their business lives trying to recapture the rush of their early days in business. If you can offer them access, even vicariously, to that environment, you’ve got them hooked. But they are smart people, they’re rare and they can afford to be choosy.

So again, on reflection, what could I have done better to source such a mentor or coach?

Two things come to mind.

First, I’d have networked extensively within my industry with the express purpose of discovering who I needed to know.

Second, if I couldn’t find that person in Australia, I’d have travelled more. I’d have gone to more conferences overseas; that’s where I’d have found a larger pool of bigger businesses. It’s the founders and CEOs of those businesses I needed to meet.

These are the people who have the experience to know what I didn’t know, about what and who it takes to grow a business to the next level. As we’re not in direct competition, they’re likely to be more candid. Hopefully, they’d also be willing to grant me access to their senior people so I could meet and better understand what ‘good’ looks like at this level of executive.

Ultimately, this is exactly what I did and it worked to great effect, but I sure went up a lot of dry gullies along the way.

So, the greatest learning I share with my clients is that as a founder and CEO you’ve got to make it your mission to understand the leadership capability you need to surround yourself with.

You are the only person in your business who has the time to learn on the job. The rest of your executive team need to know more than you about how to grow this business to the next level. If not, it’ll be the blind leading the blind.

Trust me, there is a better way.


Rob Davidson is the Founder of Davidson and an Executive Coach

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