Managing a growing business
Welcome to our Autumn 2014 newsletter. Many of our clients are entrepreneurial general partners who have built their businesses from the foundations. At Langham Hall we have also built our business organically, and continue to do so even as we have over 100 staff in more than 5 offices worldwide. In this article I wanted to share some of our observations on growing a professional business and the challenges that may occur at different stages.
First a remark on the overall risk profile: it's well known that the riskiest period for a business is at the very beginning. Although challenging at the time, that risk profile can be a blessing. Entrepreneurs who don't succeed with a first idea will get the chance to try again with something different before too much time has been lost. Later on the risk profile changes. The worst case scenario might then be the risk of getting "stuck in the middle", with a business that is surviving, but not flourishing sufficiently to be on track to reach full potential.
Many people would argue that all healthy businesses need to keep growing, even if relatively modestly. Growth avoids the "stuck in the middle" trap, it allows a business to keep ahead of competitors, and creates opportunities to grow and retain talent. However a phase of business expansion can create issues too. For professional businesses, the most critical issue is how to retain the standards of quality and the personal involvement that have enabled the business to succeed in the first place.
In many cases (and also in our experience) there need not be a trade-off between growing a business and keeping the same level of focus. There is certainly no single right approach. From our experience we might suggest that the following broad ingredients are important, albeit the details will differ by situation:
Proactive management. Leading a business through in an expansion phase requires active input by senior management. Many tasks that work fine without too much planning when a business is small need to be upgraded later. This likely includes formalizing the way planning and supervision is done, scheduling internal communication meetings more explicitly, and implementing additional internal reviews and controls.
Keeping the business model intact. Essentially this is about how to keep the distinctive factors that are responsible for putting a business in a leadership position. We define our business model by a partner-led professional services approach and a specialization in private equity and private equity real estate. We don't plan to copy our competitors who have switched to a "sales vs. operations" blueprint, or who delegate their "back office" work to far off locations.
Formalizing professional development. In a small team led by experienced partners, an apprenticeship model will naturally take shape. As the team expands, implementing a more structured professional development plan is critical to maintaining the model and ensuring that no critical skills get missed. This can be done in a variety of ways, including specific topic coaching by management team members, organized experience sharing in peer groups, and presentations by external trainers.
Smoothing the expansion of resources. Markets often proceed in a stop-start manner and this seems to be especially true of the private equity markets and fund-raising cycles. The challenge for businesses is that growth tends to comes in spurts (for example closing Fund II!), rather than on a smooth trajectory. The tested tactic for mitigating this challenge, to the extent possible, is to adopt a level of anticipation and confidence in expanding team and resources smoothly and gradually over time.
By way of a personal remark, Langham Hall’s Asia business is now in its seventh year and during that time we have seen both highs and lows in market conditions. One learning that has been reinforced many times is that it is our steady adherence to our professional services model which has armed our staff to absorb and apprentice new talent to our team, and which in turn has allowed a smooth transition through the various business phases.
So to summarize: I would argue that in an entrepreneurial space such as the private equity industry, expansion phases are helpful for healthy professional businesses. The main success factor is that the business founders stay focused on the their model and take steps to reinforce what supports it.
I'd be happy to hear from you with your thoughts and comments - whether you agree or differ!
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