Every small and emerging business dreams of someday entering The Fortune 500. Fortune magazine's 58th annual ranking of the 500 largest US companies is now on newsstands, and although the top spot is occupied by a familiar name, Wal-Mart, making it to this prestigious list is not a guarantee a business will stay there. Only 57 companies appearing in the inaugural 1955 Fortune 500 have been on it every year. Though there are many factors contributing to the approximately 89% Fortune 500 attrition rate, my applied research and direct experience leads me to conclude the volatility is due to a stale business model.
The prevailing model organizes a business and its critical human capital around functions and industry experience. For instance, a medical devices company looking for a sales VP will look to hire someone who has already sold for a medical device company and previously managed medical device sales people. Though apparently logical, this traditional approach is based on utterly flawed thinking as it assumes a static environment. As evidenced by Fortune 500 churn rates, building and sustaining growth is anything but static as companies that once held dominant positions perished while new entrants disrupted entire industries allowing them to enter the hallowed Fortune 500 halls. My first conclusion, supported by evidence, research and experience is those intimately familiar with an industry are least likely to change an industry as they are most captive to industry convention.
A business is as much a living organism as a person. We equate growth and change as natural, as well as necessary, stages in one's lifecycle. Yet despite great lip service to "nothing is as constant as change" in business, the existing business model not only separates change from growth, it ignores the qualities necessary for positive growth-inspired change. The traditional preference makes a great deal of sense because managers at all levels are more comfortable and experienced working in normal business-as-usual conditions. But just as a human experiences particularly sensitive stages in life, notably adolescence, companies dealing with abnormal conditions tend to lack expertise to successfully master the many ambiguities.
For a business, there are 3 notably abnormal stages in its lifecycle:
1. Launch, a new company, new product, new market, new division,
2. Hypergrowth, a company is growing faster than it has resident expertise and/or systems to keep up with expansion, and
3. Improve, a company whose potential is greater than its performance (classically referred to as a turnaround).
Though these 3 stages may appear to be radically different from one another, they are actually quite similar. By definition, each of these lifecycle stages must be temporary and transformative and all must be successfully completed despite a lack of time and resources. By nature, executives leading companies through launch, hypergrowth or improve must confidently master the stages many ambiguities and work closely at all levels within an organization as well as with key external stakeholders. Clearly, not the business-as-usual conditions most executives are best prepared for!
Priceline not only is one of the few dot.com era companies still in business, in 2013 Priceline pulled off an even rarer feat by joining The Fortune 500. Given the number of long-forgotten dot.com companies and the many billions of dollars invested in these many failures, Priceline helps illustrate the second conclusion in support of Business Lifecycle Management: cultural, circumstantial and experiential fit are all critical success factors.
In the late 1990's, venture capitalists and other investors pouring money into start-up enterprises typically required early stage companies recruit high-profile executives to lead the organizations. Armies of well-credentialed and extremely bright executives left successful careers at large corporations (undoubtedly many from the 57 companies on every Fortune 500) and failed to accomplish much more than burning cash at record rates. These failed leaders didn't suddenly lose all their senses, they presided over failures because they were not conditioned for and did not fit the lifecycle stage. Where established large corporations have creature comforts senior staff relies on, the structure is incompatible with any early stage enterprise. Trying to replicate the structures they were raised in and familiar with, these executives hired large staffs wasting precious cash resources on frivolous matters. But an executive who had never before booked an airline ticket or ordered office supplies because (s)he had only worked for companies that had entire departments for these support services is not a proper fit for a lifecycle stage requiring self-administration.
Lastly, a Business Lifecycle Management model places greater emphasis on results, reducing and in many instances eliminating turf battles and the internal politics that typically conspire to cripple the corporate change required to grow. When viewed and managed as distinct stages of a company's existence the process is less threatening to entrenched staff. Managers best suited for normal business-as-usual conditions most often respond to abnormal stages by (a) ignoring, followed by (b) resisting, followed by (c) arguing against, followed by (d) openly fighting against, culminating in (e) disaster. When abnormalcy is introduced and managed as an occasional yet natural stage in a business lifecycle, managers with normal skill sets and expertise most often become change management's best followers because they recognize rapid and successful transformation will get them back to the comfortable place they excel in: managing the normalcy of a thriving enterprise.
Small and emerging business executives fully recognize how hard it is to get to the top. But the annual Fortune 500 reinforces it's much more difficult to stay there. By adopting the dynamic Business Lifecycle Management model smart businesses will find it much easier to reach and build on great success.