Overcoming the three challenges to middle-market growth

As the leader of a middle-market business, you may wonder, now that your business is established and you’ve achieved success and stability, how do you maintain that progress? What is the secret to sustaining growth over time?

A McKinsey & Co. study showed that high-growth firms sustained that growth by maintaining a pipeline of business-building initiatives that spanned three time horizons, keeping the pipeline full so new growth engines are ready when existing ones begin to wane. Here’s how leaders of middle-market companies can tackle three challenges to growth to ensure progress.

Challenge 1: Managing three pipelines concurrently

Leaders of smaller organizations are often preoccupied with day-to-day business pressures. However, focusing on the present prevents thinking about the future. Leaders often have difficulty focusing on all three pipelines simultaneously.

The first pipeline (Horizon 1) is obvious yet difficult because it requires constant attention, so most management teams are preoccupied with defending and extending the core business.

Horizon 2 asks leaders to balance the competing demands of running a business while building new opportunities in the near future. Opportunities often began years earlier, when entrepreneurs placed measured bets on promising ideas. However, such pipelines have to be nurtured to become as large as their core business. A Horizon 3 pipeline calls for innovative, concrete ideas with real possibilities for growth, ideas with promise and a payoff in three to five years.

Challenge 2: Differentiating talent

Recognize that these pipelines require different talent. Applying the same management systems across the board assumes that all pipelines and business-building efforts have the same needs. They do not. Each revenue stream requires different capabilities.

Mature businesses need strong operating managers who are highly disciplined and derive satisfaction from achieving efficiency and incremental growth and hitting goals. The next horizon requires someone who can commercialize and grow ideas, tending to them until they’re ready to be handed off as part of the core business. These leaders are skilled at building businesses, rather than running existing operations. The third horizon requires visionaries, again, requiring different skills.

Small organizations often rely too heavily on the same talent the founder learned to trust because they did a good job, not the type needed to grow the business.

Challenge 3: Are you ready and resolved to grow?

Conventional wisdom asserts that if you’re not growing, you’re in the process of going out of business. The insinuation is that growth is always desirable and should be the goal of all businesses. However, sometimes a business is not favorably positioned for growth. A company must first earn the right to grow by establishing a sustainable and healthy core business before establishing a second related business with the potential to grow as large as the core. If not, it runs the risk of spreading its human and capital resources too thin.

Finally, a leader must have the resolve to grow. Some leaders are content with the status quo. If leaders have internal tension about growth, they need to honestly examine their motives and ask, “Am I doing this because it’s expected of me? Or is it something I truly desire for the future?”

Harlow Cohen, Ph.D. is faculty director, MPOD Program and professor of organizational behavior at Case Western Reserve University