Best-selling author Doug Tatum was part of an expert panel sharing "Lessons Learned from the Trenches" at a recent Womble Carlyle event that highlighted some of the key points of his book No Man's Land: Where Growing Companies Fail. The September 12th program in Tyson's Corner, VA was hosted by my partner Dean Rutley.
Tatum, Rutley and their fellow panelists shared their insights about what it takes to create a "capital markets-ready" business and successfully make the transition from start-up to established company. Tatum has interesting things to say about the difficulties of taking an emerging company to the next level and the factors that are key to success in emerging from what he calls the "No Man's Land" between big and small.
In an interview in Inc., Tatum described "No Man's Land" in this way: "A company enters no man's land when it begins to experience a disruptive change in its relationship with its customers. Something happens to the value proposition, which is the thing that makes a customer applaud you by paying you a profit over and above your costs. . . My partners and I saw that, at a certain point, the value proposition had to be transferred from the entrepreneur to the rest of the company. . . The breaking point came when the company got so large that the entrepreneur could no longer be out there in front of the customers and still managing the operations."
I'll highlight just a few of the factors mentioned by Tatum that seem especially crucial based on my experience in helping guide management through the "small to big" transition.
One of the first issues that must be examined is the make-up of the management team itself. Do you have the right level of skill and expertise in key positions to grow the company? Unfortunately, some of the managers who were with you at the start-up phase may not have the right combination of experience and knowledge to take you to the next level. You may have to make some hard decisions for the sake of growth. As you go out looking for financing from the private equity market, you will find the PE professionals looking closely at your team and evaluating whether they have experience in successfully navigating the transition from small to big.
Creating a scalable business model is another key factor. As a start-up on a growth curve, you've been successful so far in satisfying your customers, but how do you expand your client base and adapt your "customer promise" to meet changing needs and increased demands? In consultation with your financial and business advisors, a start-up's executives need to do a careful analysis of how the company can operate profitably in the future and evaluate whether their model is a scalable one.
It's hard for me to do justice to Tatum's ideas in such a short piece, but I'll mention one final factor that I think is particularly important: whatever you do, you want to find a way to preserve and cultivate the entrepreneurial spirit that launched your start-up on the way in the first place. Scaling up and creating sustainable systems is necessary for growth, but getting big doesn't mean getting slow and stupid.
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