In early 2000, Taki Skouras, Joseph Brown, and Jaime Brown started Cellairis to sell wireless phone accessories, mostly cell phone cases. With very little start-up cash, they looked for inexpensive retail sites, and they found them in those carts that sit in the middle of shopping malls.
By 2005, Cellairis had 150 stores (some operating as franchises) in malls, and approximately $50 million in system-wide annual revenue.
From nothing to $50 million in five years is phenomenal growth, and in 2006 the founders hired an experienced president to manage it.
The new president immediately began changing Cellairis’s strategy. He found a wireless provider, Amp’d Mobile, a reseller for the major data service carriers. AMP’d wanted to partner with Cellairis to grow its market share, and Skouras, Cellairis’s CEO, was excited by the possibility of offering customers an extra something, so he approved of the venture. Without testing the concept, Cellairis opened Amp’d stores in the malls.
Nine months later, Amp’d, having underpriced its services and lavishly extended credit to customers to gain market share, couldn’t pay Cellairis or its carriers, so the company filed for bankruptcy. It cost Cellairis millions to unwind the program; Cellairis’s president was dismissed, and by 2007 its sales had dropped 33%.
Cellairis had taken a market strategy that was working and messed with it. Strategy tinkering is a casual, almost cavalier adjustment to a company’s core strategy, and it’s a silent killer of midsized company growth.
There are lots of reasons companies begin to mess with their strategy. Some CEOs become nervous about poor or less-than-forecasted results. Sometimes, as was the case with Cellairis, tinkering comes from exuberance about a promising opportunity that suddenly surfaces.
Other companies never adequately articulate their core strategy. And that means their top team keeps multiple, often conflicting strategies alive that beg for tinkering. But messing with the strategy always leaves a firm vulnerable.
Such tinkering usually doesn’t affect start-ups. Not yet having a core business that absorbs their energies, they can move quickly on hunches, chasing after new market opportunities.
Changing strategies and pivoting quickly and repeatedly is the norm for start-ups. Without that flexibility, even more of them would die. Look how fast a little start-up called Facebook–which began as a dating service for Harvard kids–tinkered until it sewed up online social networking as far-bigger competitors like Microsoft, Yahoo, and Google watched enviously.
Small but long-established businesses are on the other end of the spectrum, especially those that aren’t venture-funded. They typically stick to what they know; they’re risk averse and wary of spending to chase new opportunities. To survive, small businesses need to remain fixated on their vision and on execution.
Large companies, of course, want and need to innovate. They have to find new opportunities for growth; their shareholders demand it. But because of their size, they naturally run pilots and market tests off to the side where they won’t interfere with their core businesses. They can launch new brands and sometimes even new companies without materially affecting their core or depleting their financial resources as a smaller business would. These pilots and launches don’t overtax their leadership teams, as they have multiple levels of leadership.
But midsized companies suffer when they are diverted from their core business. The leadership teams driving execution are not large enough that they can go off to experiment without adversely affecting operations. And midsized businesses tend not to have the resources (or discipline) to test a new strategy in a pilot, or off to the side.
Quite often, a CEO who feels his company has become too dependent on a single customer or is stuck in a shrinking or too-crowded market will decide to mess with the company’s strategy. He will grab a half dozen of his most talented executives and steal their hours and energies to work out some new ideas. Since it’s the CEO asking, the executives can’t say they’re too busy. They drop or give less time to their work in order to brainstorm and tinker along with the CEO.
Think of your core business like a freeway, with never-ending execution happening (hopefully) at high speed. Imagine what would happen if somebody started driving a jalopy that couldn’t keep up–one that in fact kept breaking down. Imagine the nasty traffic jam and hundreds of frustrated drivers. Progress would come to a screeching halt.
Impulsively changing core business strategies without testing or thinking it through can be just as deadly. This isn’t to say that a company’s strategy should never change. That would be as bad as tinkering. But if a strategy needs to change, it has to change in a thoughtful way, and that involves planning.
Planning comes in two flavors: strategic and operational. You should embrace both. Planning will not only help you change your strategy when you need to, it will protect your business from the urge to tinker.
Strategic planning is about figuring out the right thing to do. That could be sticking with what the business is already doing, or moving on to something new. Strategic planning addresses the problem of what you should be doing, not how well you’re doing it.
Operational planning, on the other hand, is about doing things right. Every successful midsized company does something right, and it must continue to do whatever that is well to sustain the business. If a company gets sloppy about running its core business, it will shrink.
Both strategic and operational planning can produce a cornucopia of ideas. Companies must identify the best ideas and create a testing program to prove that these ideas can succeed. These might be small regional market tests, bubblegum-and-tape prototypes to demo in front of key customers, or even outsourcing the manufacture of a short-run of product to get a quick test completed. This reduces the risk of tinkering with your core strategy, because these new ideas are vetted and tested before they are introduced to the company at large.
Thorough planning followed by testing plays a strong role in keeping tinkering at bay, and keeping midsized businesses the healthier for it.
Adapted with permission from MIGHTY MIDSIZED COMPANIES: How Leaders Overcome 7 Silent Growth Killers by Robert Sher (Bibliomotion, September 2014).
—Robert Sher is the founder of CEO to CEO. He has worked with executive teams at more than 80 companies to improve the leadership infrastructure of midsized organizations.