Why The Best New Ventures Take Off

First look at the founder and the CRRC factor

Wholesale Investor has asked me to write about the characteristics of high-growth ventures. It is a worthy idea but, alas, no checklist can ever adequately explain high-growth ventures and their founders. Like all creative pursuits, entrepreneurship is not easily captured in simple models and theories.

I should know. Over the past 20 years I have interviewed hundreds of entrepreneurs of fast-growing private and public companies, or edited stories about them. I started publications such as the BRW Young Rich List and BRW Upstarts, and expanded others such as the BRW Fast 100. Along the way, I studied and lectured in entrepreneurship, to put some theory behind the practice. And I started two ventures, one successful and the other less so.

There is no easy answer when it comes to rapid growth. The rare companies have beautiful linear growth; others have incremental growth which spikes higher, flatlines, then spikes again; some have episodic growth with several small peaks and then one or maybe two huge growth spurts; and some have growth that resembles a tombstone, where growth climbs rapidly and falls just as quickly. Many, many more ventures simply cannot get from the steady growth to take-off phase.

Rapid growth sometimes causes more problems than it solves. Growing too quickly can damage product or service quality; create internal turmoil as staff struggle to keep up or adapt to a rapidly changing business; makes the entrepreneur think they are infallible; and starves the company of cash. That is why sustained high growth is so hard to achieve, and a worthy area of study.

I’m convinced that researchers trying to understand what makes high-growth ventures tick, focus too much on the company and not enough on its people and culture. My hunch is that the answer lies in the ability of entrepreneurs to create an organisational culture that learns through trial and error, embraces changes, accepts honest failure, and whose real value is the ability to adapt constantly to uncertain, unpredictable, volatile markets.

Here are some characteristics I believe stand out in high-growth ventures and their founders.

1. CRRC

There are dozens of lists on supposed characteristics of successful entrepreneurs. For mine, they boil down to three key attributes: creativity, resilience and risk control (or CRRC as I call it). High creativity helps entrepreneurs see opportunities; resilience helps them recover from setbacks and stay in the game longer; and risk control helps them take more bets and sustain growth. The three go hand-in-hand. Without creativity and the ability to see new ways around problems, resilience falters. Without resilience, it becomes harder to control risk in unpredictable markets.

2. The founder is three people in one

I’m convinced that start-up entrepreneurs comfortably jump between three roles: the technician who understands the product and service, and its market; the entrepreneur who identifies, sells and exploits opportunities; and the manager who can leverage scarce resources and consistently execute the opportunity, and create sustainable growth. It’s a hell of a package, and a reason why real entrepreneurs stand out and build high-growth ventures.

3. It starts with the spine

Rugby league fans will know what I mean when I refer to the importance of a team’s spine (its hooker, half-back, five-eighth and fullback). Great teams build their player roster around a small group of stars, and recruit and ditch players as needed for less-important positions. I have interviewed high-growth ventures that still have their same small group of founders or managers a decade later. It is an interesting lesson: they pick the right A-team, provide good incentives, and keep them together for years. As big companies waste time on less talented staff, high-growth ventures focus on stars who can lift cheaper players. And they keep equity in the company for the A-team, rather than toss it around like confetti.

4. Understand the incentives

I love the book Freaknomics, where two nerdy economists explain some amazing causal relationships by understanding incentives. I reckon high-growth entrepreneurs understand incentives, or why people do things, better than most. For some staff, the true incentive may be coming to a vibrant, fun workplace each day. For others, it may be the challenge of growing their skills rapidly and taking on more responsibility every day. A handful of employees may be driven by the sheer challenge of doing something new and solving a big problem for customers. Others might be driven by money or the opportunity to have equity in a start-up venture. By understanding the true incentives, high-growth entrepreneurs motivate staff and often save money at the same time. It’s a lesson too many big companies forget.

5. The culture drives the bus

I love the line from US management guru Jim Collins, author of the classic Good to Great, about getting the right people on the bus and the wrong ones off it. I couldn’t agree more, but often overlooked is the role of an organisation’s culture in attracting great staff and forcing out complacent people. The best high-growth ventures seem to have an organisational culture where leadership is shared, and a culture of trust and accountability encourages all staff to “make it happen”. The culture becomes self-enforcing and self-selecting: good staff are attracted to it and bad staff cannot fight it for long, so leave.

6. Adapt or die

High-growth ventures have a knack of adapting quickly to changing market conditions, simply because they are much closer to their customers than larger companies. One I interviewed recently for the BRW Fast Starters changed their business model in a heartbeat, from inbound tourism to outbound tourism, as the high Australian dollar, weak domestic tourism industry and lack of repeat business from inbound business dampened the venture. The best high-growth ventures embrace constant change, and challenge staff to grow with the business or leave. Their adaptive skills help them learn through a trial-and-error approach, which is how biology intended humans to learn.

7. Find the tipping point

High-growth firms typically work in high-growth industries, although that is not always the case. Market share is so often determined during hyper-growth phases. Successful entrepreneurs capture a chunk of the market at the “tipping point” when demand explodes. Online retailing over the next five years will be a good example. I interviewed an emerging online furniture retailer recently for the BRW Faster Starters who said the firm’s goal was to build a brand and a much larger customer base as quickly as possible. Sales and profits would follow. For now, the goal was customer volume: attract paying customers by being remarkable (or innovative) and give them a great value proposition, while the opportunity is ripe. People first, then profits.

8. Become your own strongest competition

At the risk of over-using sport analogies, I love how high-performance teams talk more about “getting their own game right” than the competition. They know if they consistently execute at their best, results will follow. I see the same trait in high-growth ventures that focus on constant internal improvement rather than the competition. Yes, they watch competitors, but the main game is constantly improving the value of their products and services, and surpassing customer expectations. Like all great sporting teams, they measure performance and are experts at communicating simple performance metrics throughout the organisation. Everybody knows how everybody is performing, not every six months or every year, but often on a daily, weekly or monthly basis.

9. Rinse, repeat, and rinse again

I am always amazed at how so many entrepreneurs on the BRW Rich 200 list made their fortune by repeating one good idea. That is, they developed a product or service, refined it, and scaled the opportunity quickly. They were not distracted by ventures in unrelated industries. Their ability to grow quickly created barriers to entries for smaller competitors, and became their hardest-to-replicate asset. I have seen many high-growth enterprises over the years do one thing really well. Yes, they may expand into other markets, or overseas, but they rarely stray far from their core opportunity, simply because they believe nothing else can offer a similar return on equity for the risk involved.

10. Execution

US technology giant Apple rightly gets showered with kudos for its ability to create and innovate. Less considered is Apple’s status as an iFactory of great execution. Think about it. Apple organises the manufacture and distribution of millions of gadgets each years. Then it updates them and does it all again, faster and better than before, with what appears to be mostly seamless execution. Perhaps that is the greatest hallmark of high-growth ventures: they rapidly scale a good idea consistently well, and build an organisational culture that allows the company to grow rapidly, and change or reinvent quickly if a brick wall emerges.

– Tony Featherstone is a former managing editor or BRW and Shares magazines.