Start Early, Start Small, and Demand Early Success

Discussion Point 3: Chapter 9: There Is Good Money and There Is Bad Money

Key passage: “We suggest three particular policies for keeping the growth engine running. Taken together the policies force the organization to start early, start small, and demand early success. (Page 246)

Key Takeaway: The time to work on growth is while the firm is still growing.

Start Early.  Christensen’s point here is that a firm should not wait until the signs of a crisis emerge to think of how it will remain competitive.  Though Christensen does not mention him by name, a few of his critiques of management literature are undoubtedly addressed to Jim Collins, famed author of Built to Last, Good to Great and most recently How the Mighty Fall and Great by Choice.  Though Christensen’s caveats of Collins’ conclusions and recommendations are noteworthy, there are still a lot of valuable insights in Collins’ work.   In his book, How The Might Fall, Collins writes: “Every institution is vulnerable, no matter how great. No matter how much you’ve achieved, no matter how far you’ve gone, no matter how much power you’ve garnered, you are vulnerable to decline… Anyone can fall, and most eventually do.”⁹ Despite extensive literature warning managers of the hubris of success, too many firms still fail to pro-actively, and in a disciplined fashion, seek new opportunities.  Collins and Christensen agree that firms can never rest on their latest achievements, and both theories do complement each other well.  When a firm does not become blinded by the hubris of its success, does not enter an undisciplined pursuit for more and acknowledges the risk and peril it faces⁹, it is more likely to “launch new –growth businesses regularly, [while] the core is still healthy.”¹⁰ I really like what Collins writes on this subject, as he encourages firms to ask the following three questions as they pursue disciplined continuous (Christensen would say “rhythmic”) leaps.  These questions are: “1. Do [the moves] ignite passion and fit the company’s core values? 2. Can the organization be the best in the world at these activities or in these arenas? 3. Will these activities help drive the organization’s economic or resource engine?”¹¹ For all their differences, both authors agree that firms should start early.

Start Small.  The idea of “start small” really relates to firms remaining decentralized, more entrepreneurial, as “more managers [seek] disruptive growth opportunities.”¹² Though Christensen only discusses the idea in a very narrow sense, and only over the course of one page, Jason Jennings, in his book “Think Big, Act Small,” expands on the idea and offers a compelling case as to why this is indeed a really good idea.  Using a research and writing style similar to that of Jim Collins, Jennings was able to identify several behaviors successful companies demonstrate, and he generalizes these into a theory where a long-term future is achieved through meeting short-term objectives.   In the chapter most closely related to Christensen’s context of new business creation, Jennings describes how “acting small” translates into the arena of new business invention.  Companies that “act small” mind their resources, maintain utilitarian facilities, put the people with the most to gain or lose on the front lines (this one sounds like what we read in the M-Tronics case, doesn’t it?), let volume drive the need for expansion, never forget their roots, control their growth and stay true to their principles and values.¹³ Jennings’ concrete steps help elaborate on Christensen more general point.  Additionally, there is well-documented research, British anthropologist Robin Dunbar’s in particular, that indicates that groups or organization should be careful when surpassing 150 members.   Malcolm Gladwell recounts Dunbar’s work and, in reference to the 150 member tipping point, writes: “above that point, there begin to be structural impediments to the ability of the group to agree and act as one voice.”¹⁴ This is certainly another good reason to keep new ventures initially small in order to leverage flexibility and adaptability.

Demand Early Success.  What Christensen really means by “early success” is early financial returns.  Indeed, Christensen writes that “being impatient for profit is a virtuous characteristic of corporate capital.”¹⁵ Christensen expands on this idea in his latest book, How Will You Measure Your Life?, and gives another reason why this rule is fundamental.  He writes:  “Good money from investors needs to be patient for growth but impatient for profit.  It demands that a new company figures out a viable strategy as fast as and with as little investment as possible—so that the entrepreneur don’t spend a lot of money in pursuit of the wrong strategy… Once a profitable and viable way forward has been discovered—success now depends on scaling out this model.”¹⁶ This line of thought aligns very well with the self-reinforcing spirals from adequate and inadequate growth Christensen describes in figure 9-2. McGrath and McMillan echo Christensen’s exhortation to built profitability into the venture early. They also provide concrete advice on how to achieve this goal using “discovery-driven planning.”  The initial step is the generation of a reverse income statement.  McGrath and MacMillan explain: “Instead of starting with estimates of revenues and working down the income statement to derive profits, we start with required profits…  The underlying philosophy is to impose revenue and cost disciplines by baking profitability into the plan at the outset.”¹⁷ Discovery driven planning is a thought-provoking process that should help companies identify flags early in the venturing process.

Notes

9.     J. Collins, How the Mighty Fall, HaperCollins, New York, 2009, p. 8, 20-22

10.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 246

11.  J. Collins, How the Mighty Fall, HaperCollins, New York, 2009, p. 8, 63

12.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 250

13.  J. Jennings, Think Big, Act Small, Portfolio, New York, 2005, p. 103-105

14.  M. Gladwell, The Tipping Point, First Back Bay, New York, 2002, p. 182

15.  C. Christensen, The Innovator’s Solution, Harvard Business Review Press, Boston, 2003, p. 254

16.  C. Christensen, How Will You Measure Your Life?, Harper Business, New York, 2012, p. 87-88

17.  R. McGrath and I. MacMillan, Discovery-Driven Planning, Harvard Business Review, Boston, 1995, p. 5