Growing Out of Growing Pains
Robert Cenek
4 Comments
Small firms have a high failure rate. Why?
Eric Flamholtz, a professor at UCLA has been studying this question for the past 20 years. His intellectual work is first rate, and probably the most complete of all research on the topic. In brief, his research and experience in working with entrepreneurial companies suggests that all small companies experience “growing pains” as a normal part of their development. Growing pains refers to a situation in which a firm has outgrown its current infrastructure and must develop new systems, processes and structures to support its new size. If these issues are left unresolved, significant problems and even failure often result. Remember People’s Express?
Others hold the same view as Flamholtz. Hambrick and Crozier (1985) identified four basic challenges that small, high growth firms must solve – instant size, a sense of infallibility, internal turmoil, and extraordinary resource needs. Rapid, high growth in small firms can “mask” many organizational issues over the short term, but many “stumble.” Bringing large numbers of new employees into the firm taxes a host of organizational systems, and can easily erode its work culture and entrepreneurial spirit. Controlling for industry sector and ranking on the Inc. 500 lists, Markman and Gartner (2002) found that extraordinary high growth—in terms of sales and number of employees—was not related to firm profitability.
This article presents a complete overview of Flamholtz’s model. More information can be found at his website – http://www.mgtsystems.com.
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Reader Comments (4)
Suggested Book Title: "Hire The Dinosaur!"
Regarding the previous comment - almost as bad as hiring the charmer is "promoting" employees to HR and OD because they're "good with people" "organized" or "detail oriented." While nice to have, these skills are hardly enough to qualify an employee today to help manage HR responsibilties or train employees.
It's like putting the effervescent receptionist or fastidious administrative assitant in charge of hiring, retention, and development. While everyone feels good and few paper clips are wasted, productivity and profitability are merely happenstance by-procucts if they occur at all.
I can not agree more. My experience in assisting small entreprenurial firms is that most are strapped for cash, and HR is seen as fluff that can be handled by the receptionist, or worse yet, the entrepreneur him or herself. Many also hire sham consultants who are inexpensive but who peddle concepts that are a step above snake oil at the best.