What Mike Ashley Has Taught us About High Growth Businesses

Introduction

Successfully managing high growth is hard. We got an insight of just how hard, with recent revelations about Sports Direct from its owner Mike Ashley. Although the sceptical amongst us might consider some of his statements as a bit of window dressing. There is no doubt that recent events have brought into sharp focus just what can happen in a business when High Growth becomes “too much growth”.

Successful High Growth is not merely about growing your customers, but rather being able to deliver the sales that you have won. For many tech companies, it's relatively easy, it simply requires more hardware to support scale. For a more traditional business, things are a bit more complicated. In Sports Directs case it’s about mobilising the supply chain so that when someone buys online, the product can be delivered, which assumes it’s in stock, which means it’s been ordered from the manufacturer, typically in the far east, in time to meet demand. It also assumes that there are sufficient people in the right place to make this happen.

Culture

You’ll recall a number of statements by Ashley to the MP’s select committee about his shock over some of the working practices and the “Culture of Fear”. This rather indicates that the Culture in Sports Direct had gone bad. This is probably because the business had grown so fast that new employees did not buy into the existing company culture and allowing an aberrant form of the Culture to grow. 

This happens because the people who perpetuate and enforce cultural norms are the lowest level of management. It is they who come face to face with new employees and will have to explain why things are done the way they are. It also requires support from the company leadership to underline the importance of the company’s cultural norms.  When these “custodians of the culture” become overwhelmed with new employees the existing culture breaks down. What rises in its place is a culture driven not by company values, but rather by the force of individual personality. 

How easily this happened depends on the strength of the company’s culture in the first place. If it’s not very strong, then you’re pushing at an open door. 

Process

Processes like culture can also break down under the strains of growth. In fact, successful businesses are constantly reviewing processes to maximise performance.

It seems that this idea has been lost on Sports Direct and their processes were not fit for purpose. To be fair some of this is simply a result of just how successful Sports Direct can be. You might recall Ashley saying that on some sunny days, demand can increase by 25%. That puts tremendous pressure on the business to perform. The problem for the company is that it has not separated human processes from fulfilment processes, it has simply failed to recognise that people perform better in a positive environment, bullying and intimidation only work up to a point, but in the longer term people just do enough to get by; meaning that productivity remains stubbornly low. You’ve got to ask yourself how productive some can be when they reach full term of their pregnancy.

What seems clear is that insufficient time has been spent on making these processes perform. 

Leadership

Mike Ashley talked about the business outgrowing him. The more sceptical amongst you might see this as a way of mitigating his failure to lead. The leadership of Sports Direct have been simply unable to get back control of the business. The failures highlighted in their distribution warehouse demonstrate that the Leadership team we unaware of what was going. Now, whilst I accept that in a big organisation, problems like this can arise, what is clear is that this has been a long-term issue and signals a clear failure in leadership. So Mike Ashley might be speaking the truth when he says the business has outgrown him. 

Conclusions

What are the key lessons we can draw from this sorry state of affairs? For a start, never underestimate the negative effect that bad culture has on your business performance. The stronger your Culture, then the faster you can grow without an unacceptable dilution of your cultural values.  Culture starts from the top everyone takes their cue from those more senior to them. If you as a Leadership team don’t overtly support and maintain your cultural values then don’t expect your staff to act any differently.

If you are building your business; growth will start to undermine your processes. Making time to keep them as efficient as possible will put less stress on your people and enable you to continue to growth efficiently and profitably.

Understand how susceptible your business is to the pressures of growth. The more you are people dependent in delivering increased sales the more challenging the high growth environment becomes.

Managing a growing business is hard. The entrepreneurial skills you need to create a high growth start-up, are completely different to the management skills you need to run a large corporation. You can see this by looking at just how few individuals manage to achieve this transition. 

It’s no failure to recognise that you need to bring in business management expertise to take you forward. Sadly, it has needed some public humiliation for Mike Ashley to recognise this fact, and it’s not something you want to have to go through to reach the same conclusion. 

How a Strong Culture Improves Your ROI with New Recruits

How Strong Is Your Business Culture?

Over the last couple of weeks I've had a number of discussions about how to integrate new people into a business, or "onboarding" as the Americans term it.  Where discussions got interesting was how a business’s culture or lack of it, influenced the speed with which new staff became integrated.

So how does culture influence post recruitment integration and what else if anything will have an impact? My experience with high performing businesses has confirmed the importance of culture in the process. The reason for this is that taking on new staff can be seen as the key battleground between the existing culture of the business and the culture of the new hire. The stronger the business culture then the more influence it will have and either the new hire will integrate quickly or leave.  Those with a strong culture will quickly show new starters that they will not be able to change or modify the culture. This can be seen most obviously in the military where new recruits have no input at all and must submit completely to the prevailing culture.

Those, however, with a weaker cultural tradition will have greater difficulties in getting new hires to conform, resulting in increased costs of integration and greater disruption to the business as new hires continue to argue their corner.  This is because those businesses with a weaker cultural tradition will have greater difficulty in persuading a new hire to conform to the way they do things, mainly because they don’t have clear processes or a strong philosophical underpinning as to why things are done in a particular way. Faced with inconsistencies and often contradictory assertions of the recruiting business a new hire with a strong personality may be able to readily persuade existing staff members that they have a better way. This state of affairs can easily upset existing settled staff who were happily doing things the “old way”.

Nevertheless, culture on its own will not do the job, although it helps by clarifying your approach. Just as important, however, is having a good description of not only "why we do the things this way" but also "how we do things here". I describe it as the big colouring book for your business. You might call it an operations manual or a knowledge bank. Whatever you call it having a written process is infinitely better than a verbal explanation.

There are two key reasons for this, first people tend to argue less if something is written down. It gives the words a level of gravitas that is seldom achieved with the spoken word. Second, is it allows the new staff member to try things out without the same high level of reliance on, interaction with, and consequent disruption of existing staff when you are reliant on verbal communication.

  

If, therefore, you are embarking on, or are indeed in, a period of high growth the strength of your cultural values and your ability to create a written operational manual will be significant factors in integration of new people and therefore your ability to maintain your growth.

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Exigent Consulting provides specialist services for Managing High Growth, Business Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

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