The Meaning of Lifecycle
The debate about whether strategy or structure should come first is not a new one. And yet, I would say that the discussion is not material. The majority of companies I’ve observed experience a disconnect between their key strategy and structure… and completely miss the magnitude of how company and industry lifecycles factor into their potential for survival and long-term success.
Eons ago when I was an MBA student, our strategy professor knew Dr. Adizes. Our prof either gave us:
- A sneak peak of the Adizes model during its development phase, or
- A simplified version of the model describing how strategy and structure must fit in order for an organization to achieve peak performance
As you look at how a company evolves over time, structure shifts through stages, from entrepreneurial through functional, divisional, strategic business unit (SBU), and finally to a matrixed reporting structure should it reach late maturity and decline. Or does it?
The Tug of War between Strategy and Structure
Typically when I look at underlying causes for poor performance, I find a mismatch between strategy and structure. For example, many early stage companies start building functional units as soon as they get the first influx of major cash through their doors. Role confusion, playing solely within one’s functional silo, and poor communications across disciplines spell disaster for young companies.
Time and time again, I see a founder who has not adequately defined relationships and responsibilities as new people onboard, nor delegated decision-making authority. As importantly, few leaders spend enough time creating cohesion within the developing ‘team.’ While startups are chaotic by nature, this lack of discipline causes far more chaos and confusion than necessary.*
Surprisingly, it is not uncommon for organizations to try to operate with up to three of the structural elements in place. Multi-structured layers occur organically in environments that lack sufficient planning and discipline as they mature. As a result, these companies barely function at all. The people within do not understand why getting something accomplished seems so challenging. The Adizes model makes diagnosing this kind of situation quite easy.
Ignoring Lifecycle Strategy Signals Flaw in Thinking
Here’s where the simplified Adizes model our strategy prof taught us falls short. The model focuses on the company’s lifecycle in isolation of industry lifecycle. And yet, another fundamental flaw in startup strategy occurs when you ignore the state of the industry as a whole. Develop and execute the wrong business strategy within this context and you’ve predetermined failure… unless you catch on early and adjust quickly.
According to The Business Dynamics Statistics issued by the US Census Bureau, more than 50% of new companies fail within five years. Of those that survive the tenuous early years, only 7% generate more than $250K in annual revenue. Hmmm. It doesn’t take long to figure out that $250K (less expenses and taxes) might provide a modest living for 1-2 people. The founders I know have much larger dreams than that.
While a wide variety of factors contribute to the excessively high failure rate noted above, developing and adhering to the wrong strategy is a significant contributing factor. What they forget to tell you in business school (at least if you went in the last century like I did), is that startups and established businesses function on completely different planes. A large number of new entrepreneurs—with and without credentials—adhere to some Business 101 principles that simply do not work in the startup environment.
And that’s a mistake, at least when it comes to defining a strategy that fits with industry lifecycle. At inception, a startup’s goal is to prove there’s enough demand for its product or service to establish a going concern. If you’re resegmenting a market or creating a wholly new market, there will be no industry stats to back up your financial model.
“What’s Your Market Size?” Can Be A Trick Question
When investors ask for market share and financial projections based on expected demand when you’re resegementing an existing market or forging a new market, they’re asking the unknowable. Under these circumstances there are no mechanisms for measuring demand or forecasting adoption cycle using the old methodologies. (Think Amazon, Google, TiVo, or Pets.com and you get the picture.) You’re in uncharted territory trying to figure out a business model that will generate sustainable, long-term growth. And your strategy had better account for that.
So, how do you find the right go-to-market strategy for your startup? You can start by reading The Four Steps to the Epiphany: Successful Strategies for Products that Win. You’ll begin to learn how to architect performance from the ground up. And, of course, we are always available to help.
A version of this article first appeared on 66 Entrepreneurs on August 2, 2012.
*Managing by title will very likely work against you at this point, but that’s another post.
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