Everything looked good: the team was solid, the patents were sound, the pipeline of customers robust and the financials were reviewed and approved. The CTO & COO had overwhelmingly given their approval and the transaction was completed.
You know how the next step in this real-life example plays out. The go-to market, operations, human resources and quality teams are brought in to do the on-boarding work and all Hades breaks loose. Lists are made and soon the investment needed to get things right exceeds the ability to generate earnings…sending the sponsors running for cover.
Here’s a second example, taken from real life: your go-to market team starts to lose a couple of projects to a regional competitor with an adjacent product. You hear good things about this firm’s ongoing support and begin thinking about a “tuck under” acquisition. The outreach is made, the go-to market and customer work is on track, and the P&L is built and looks good…then the deal gets done.
You may know this one, as well. Once the product teams begin to “work together,” you will be presented with a business case to do a complete “third product” based on an “internal” platform and using the insights gained from the “new team members.” It does not go well, it’s late, you lose momentum in the market and the value of your acquired “assets” slips away as the uniqueness of the offering fades into history.
Both of these scenarios are adapted from actual projects, and it turns out, have at their source a similar solution. The red flag in each is the intensity of sponsorship from a subset of the management team. Once the internal story is established, narrative quickly gains speed and overwhelms process. So how do we avoid finding debts that need to be paid on the front end of growth projects?
Some of you are saying to yourselves that the due diligence teams just need to be improved. In a perfect world that is true, but experience and the number of times this plays out argues for a deeper and more repeatable solution.
Getting the balance right
Every firm I have worked with has one of two dominant mindsets regarding their growth and innovation work:
- The first mindset if what I call “creative dominant,” and emphasizes the New, Unique and Different. Executive teams who have this as a dominant mindset are on the prowl for interesting new ideas, products and services on a continuous basis. Those with a creative mindset get locked onto projects based on their expected value, which is largely intangible and conceptual. This results in a “big picture view” which tends to smooth over any gaps in the offering or its implementation. Rewards in the firm are oriented around being early, providing insight and getting the firm in a position to win. A good current example of this in real life is Google (Alphabet).
- The second mindset is what I call the “execution mindset,” and is dominated by a view of what can be seamlessly appended to the firm based on customer need or operations capability. They value left brain, linear value additions and minimal disruption. This “runway” level view keeps the integration doable, but can leave big cross-cutting value gaps. Rewards in this firm are for those who build the top and bottom line simultaneously, keep risk on a tight leash, and find “new engines to pull the train.” There are many firms that have used this path to grow over the arc of the last decade, for example Danaher.
The operationally-oriented firm typically misses opportunities that may provide higher growth by not accessing areas of growth that are outside the current operational arc. Secondly, this type of firm can miss product and service substitution disruption. The firm that is creatively dominant frequently gets well into deal mode without having a clear and detailed understanding of the true integration and market gaps. The internal “story” gets a life of its own, and “details” get relegated to “integration teams.” In one case I worked with, the purchase price escalated to the point where the sponsoring business unit convinced corporate to have the other business units participate in an “advanced inventing session” to show how the new acquisition would add value to the “whole firm” (yes, they overpaid and the value was never realized).
Building talent that removes the blind spots
The secret sauce of removing these blind spots lies in having talent with the right skill set at the right altitude to build projects that have the balance to perform. In the complete growth leader work I do, this corresponds with either emphasizing the Architect work if the firm is operationally oriented, or the Champion work if the firm is creatively oriented.
This skill set is important because these leaders need to travel seamlessly between the firm’s creative talent and the firm’s operational leaders. (For specifics in finding and deploying these leaders, see my previous posts here and here.) This involves learning to communicate, appreciating the challenges of both teams, and keeping a keen eye on shareholder and customer value. The altitude is key, as a top-level orientation without good cross-team interaction can lead to gaps in valuation and unplanned expenditure as outlined above.
The truth is that the vast majority of firms are out of balance in these viewpoints and suffer the impact to sponsors careers and the enterprises shareholders. I have developed diagnostic tools to show which viewpoint is active, and then which coaching emphasis will assist in unlocking the best results. If you’d like to talk more about the nuts and bolts of Complete Growth Leader assessment and coaching, please drop me a note or give me a call at 847-651-1014.
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