When companies are founded, there is normally a single vision that identifies the purpose of the company. A powerful market need. A set of target customers. A compelling value proposition. Things look beautiful on paper.
However, as founders quickly discover, no plan survives contact with reality. Once they start interacting with the market by selling to a few customers here and there, they begin adding requested features, making changes to their value proposition, and adjusting their business model to fit circumstances they encounter.
Sometimes, these changes are part of the normal process to find product-market fit: I have never seen a first version of a product and value proposition that remain completely unchanged as the company becomes a massive success, so iterating and adjusting it not only make sense – but are a necessity.
Some other times, these changes are simply a consequence of the company chasing revenue. Startups come in contact with customers that have needs that are not directly what the company is focused on: “Say, now that you’re here, it sounds like you could really help me with ____, of course, I’d pay you… would that be possible?” As a startup, this is hard to turn down and normally they end up selling what they can.
The consequence of this process, however, is that as companies grow from “Startups” to “Growups” their strategy and business model get muddy. By the time they have 20 employees and hit $3M in annual revenue or so, most companies are already selling multiple products and services to customers in multiple market segments, in many cases by using multiple go-to-market models (such as direct sales, online sales and through partners).
At this point, CEOs are working around the clock: pushing product teams who never seem to catch up, pushing sales teams who can’t seem to get enough traction, struggling to pay their bills as cash in the company becomes tight, and frustrated with their marketing teams who for some reason “don’t get it” and cannot succinctly and specifically explain what the company does.
This is because they have lost strategic focus.
When the business model of a company is out of focus, these symptoms appear quickly and do not go away, no matter how hard the CEO and his team work. The reason is that this lack of focus dramatically reduces overall effectiveness as the company splits its capabilities trying to do many things at the same time – instead of doing one thing well.
The company becomes mediocre. Maybe the sales reps or partners are not trained enough. Or, the sales presentations, marketing materials and website are outdated. Or, the product is lacking compared to its competitors. Or, partners don’t really care about selling it. Or, customer service is not responsive enough.
The worst part is that in many cases these companies don’t die quickly – they just struggle in crisis mode for years, unable to grow and unable to snap out of this mode as they continue chasing revenue, defocusing themselves even further.
In my next blog post I will describe how to break out of this vicious cycle by a process we call “Strategic Refocusing”.