5 Crippling Consequences of Exponential Growth and How to Avoid Them

“Growth is painful. Change is painful. But, nothing is as painful as staying stuck where you do not belong.” -- N. R. Narayana Murthy

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“The yucca plant was dying,” my client Liz said. “Pressure from the root ball caused the pot to burst because it literally didn’t have any more room to grow. Now that I’ve moved the plant into a bigger pot, it’s thriving!”

“This is the situation I’m in right now with my staff,” she concluded, cementing her insight.

Liz’s situation is common in growing firms: For all sorts of seemingly justifiable reasons, the leadership team fails to anticipate and preempt the complexity and adverse consequences of growth, causing the organization to plateau or even stagnate as a result.

The bigger problem is that we don’t see it coming until it’s too late, yet the stakes are too high to wait for “the plant to look like its dying” before we intervene.

It turns out, the challenge is our very human struggle to conceive of exponential curves as they relate to complexity in organizations.  In a July, 2020 article entitled “We’re Dumb about Exponential Growth. That’s Proving Lethal,” author Andrew Nikiforuk notes: “Gradually, and then suddenly. That’s how exponential growth can ruin your day, undo your family, evaporate your economy, destroy your climate, crush an empire and destabilize a planet.”

It can also cripple your business.

"To stay ahead of the growth curve, leaders need to think bigger and farther into the future."

As illustrated in the graphic below, we tend to think about growth in a linear fashion that corresponds to our own individual perspective. For example, we add one client at a time, we hire one employee at a time, we close one sale at a time, we open one new office at a time, and we launch one new product or service at a time. Even if these common business activities occur rapidly, we mentally process them linearly as “one at a time." Meanwhile, these individually innocuous-seeming events spawn an unseen exponential curve of complexity!

For example, let’s imagine a firm that grows from twelve to forty employees over the span of eighteen-months. At the beginning, it’s relatively easy to communicate effectively, align and manage the team, provide a consistent client experience, leverage technology to work efficiently together, and build the culture you want. Each of these elements will undergo an exponential increase in complexity as headcount moves in relatively linear fashion to forty employees.

To stay ahead of the growth curve, leaders need to think bigger and farther into the future. Here are five issues every leader will inevitably face—and how to prevent them from slowing you down.

1. You’ll outgrow some of the people on your team.

Not everyone has the capacity to continue successfully in their role as it grows and evolves with your organization. Although this idea is particularly challenging for entrepreneurs who have emotional connections to the people who helped them launch their firm, the reality is that you cannot reasonably expect the person who managed HR and Accounting for your start-up to be the same person capable of providing leadership to either of those functions when you have three-, five-, or ten-times the staff. Rather, over time, this “A” player from your start-up should more likely wind up working for your Director of HR or your CFO.

"The wrong people in the wrong seats can’t help you grow and probably aren’t very happy in their roles anyway."

And yet, I’ve seen leaders continue to double down their bets on legacy “A” players who are clearly over their heads relative to the changing demands of the business and the role. As leadership coach and author Marshall Goldsmith eloquently stated in the title of his acclaimed book: What Got You Here Won’t Get You There!

This can be difficult to recognize and acknowledge. In fact, there is no end to the rationale you might offer as to why each member of your leadership team is one hundred percent right for their role. Over my eighteen+ years coaching small- and mid-market firms, I’ve heard it all. 

Now consider these two realities:

1. Your emotional attachment to longstanding members of your team interferes with your ability to objectively evaluate their performance and fit; and
2. A whopping 85 percent of the leadership teams I’ve coached had at least one person turnover within the first twelve months of my engagement, because they weren’t the right fit for their role.

If you have a growth-induced people problem—and the odds are that you do—you must be honest with yourself and make the switch. The wrong people in the wrong seats can’t help you grow and probably aren’t very happy in their roles anyway.

Find the right people to lead, then honor legacy “A” players by placing them in the right roles or offering them a hero’s sendoff to the next chapter of their careers.

Action Item for Leaders:

Critically evaluate your team every six-to-twelve months (quarterly for very high growth firms) to ensure you have the Right People in the Right Seats (RPRS). Adjust as needed, thinking one-to-three years ahead and considering what the future of each role will require.

2. The structure of your organization won’t be scalable.

My client Liz, whose constrained yucca plant helped her understand the risks of falling behind the growth curve, had an organizational issue that was burning her out.  With growth and reactive adjustments to accommodate both staff and clients, the complexity of her organization became overwhelming as she found herself managing twenty-two direct reports!

Not only was her span of control unmanageable due to sheer numbers, but her team wasn’t getting anywhere near the attention they individually and collectively deserved. Even worse, Liz wasn’t free to think strategically and lead. In essence, like her yucca plant, everyone involved was stuck and not able to grow. 

Research suggests that seven (plus or minus two) direct reports are the ideal maximum for leaders to create full engagement with their team (here’s a solid overview of this thinking from Inc. Magazine).

With a proper span of control, leaders can improve accountability, delegation, and coaching for their teams. These elements underpin a truly scalable organization, as they build depth and capacity over time, creating succession pathways for the highest performers, all of which I call “The Upward Spiral of Momentum and Growth” (see figure below) in Creating a Culture of Accountability. 

Note well it’s a failure of leadership to resort to external hires for more than half of newly created supervisory / management / leadership roles as your organization scales. Most should be grown and promoted from within!

Action Item for Leaders:

Regularly monitor span of control ratios in your business and aim, on average and over time, to achieve seven-to-one (plus or minus two, as research suggests). In addition, build the habit of delegating and coaching more to enhance depth and capacity—progress up the spiral—in your organization.

3. You’ll lack critical skills & capabilities as the business grows.

My client and his leadership team had tried everything to grow their technology-based business more profitably. Progress was incremental, slow, and not good enough to achieve their goals. Earlier this year, the CEO decided—at no small expense—to engage an outside industry expert to evaluate the firm and help them identify specific areas to improve. Now, just a few months into the project, answers are emerging that are laying the foundation for a path forward to become a much more efficient and profitable organization.

This CEO’s move to engage an outside expert was preceded by a shift in his mindset. For years, he and his team believed that, as the seasoned leaders of the firm, they should have the answers. The shift was to a belief that, as leaders, they needed to find the answers, which opened the door to explore and engage an outside industry expert.

"Are your problems truly unique, or have they been solved—somewhere, somehow—by others?"

Think about the most significant issues or obstacles your organization faces over the next six-to-eighteen months. How do you plan to find the answers? Are your problems truly unique, or have they been solved—somewhere, somehow—by others?

Your role as a leader is to point to what matters most in the form of strategy and priorities, and to supply the organization with the resources it requires to execute successfully. How often do you consider the resource and potential return of engaging outside, seasoned expertise to accelerate your progress?

Action Item for Leaders:

Periodically review the most dauting problems you and your team can’t seem to solve and look externally to explore who in the world may have already solved them.  Find and engage them and/or learn from them as mentors (more on mentors in issue #5 below).

4. You’ll be surrounded by the wrong peers and professionals.

I was four years into my career when, in 1993, my Grandpa Ben pulled me aside and said, “Mark, I need to give you some advice before you buy a home.” He continued: “Don’t ever buy the most expensive house in the neighborhood. This is because there’s only one way the other houses around you can affect your property value over time.”

It didn’t occur to me until about a decade later that Grandpa Ben’s advice applied far beyond real estate. By then I had established my coaching practice and was affiliated with an organization of coaches in the leadership development business. At one of our quarterly meetings, as we sat discussing a topic that had become very familiar to me, I experienced a life-changing insight: I had become one of the most expensive houses in my professional neighborhood!

I had more experience and more clients than most members of the organization, and sure enough, my continued participation was decreasing my professional value over time. From that moment and continuing today, I deliberately surround myself with people who are better than me, who make me a little uncomfortable, who challenge me, and who will help me grow. You should too.

"You’ll know you’re in the right professional neighborhood when you feel a little uncomfortable as those around you challenge your beliefs, your actions, and your outcomes to help you grow."

One day, you may realize you’re contributing to others but reaping very little or know as much or more than some of the outside professionals you engage to help you grow. If that’s the case, any advice you get will likely embody their limitations, potentially dragging down your value over time.

You’ll know you’re in the right professional neighborhood when you feel a little uncomfortable as those around you challenge your beliefs, your actions, and your outcomes to help you grow.

Action Item for Leaders:

Adopt an annual planning exercise to formally evaluate whether you may have outgrown any of your professional neighborhoods. Be sure to consider mastermind / peer groups, forums, associations, and external professionals like coaches, accountants, attorneys, consultants, and various other outsourced functions.

5. You won’t learn the right things fast enough as a leader.

You and your leadership team must grow for your business to grow.

"Learning takes many forms, the most effective of which lie beyond a classroom, conference center, virtual event, or book."

Failing to acknowledge and act on this condemns you to insular thinking, less innovation, an inability to preempt competitive and environmental threats, and a team that spends most of its time stuck in the past at the expense of future growth. Yet, because of some combination of the preceding four issues, it’s virtually impossible to allocate enough time to think about and focus on the future.

It’s a trap of sorts: Your growth as a leader slows or stagnates as you fight fires which, in turn, slows or stagnates the growth of your firm.

What’s a well-intentioned leader to do?

Prioritize learning and put a rhythm in place to ensure you and your team honor this critical commitment. Learning takes many forms, the most effective of which lie beyond a classroom, conference center, virtual event, or book (for the record, I’m a fan of each of these on their individual merits, but not as primary drivers of learning).

Find a mentor or two.  Related to my Grandpa Ben’s advice, a regular meeting rhythm (think once every three-to-four weeks) with a couple of mentors is a fantastic mechanism for learning and growth. Don’t just look “up” for mentors by considering those with more experience (or perhaps, grey hair!). Look “down” for mentorship as well—to younger leaders who can help you relate to and embrace new technologies and the hopes and expectations of your up-and-coming talent pool.

Hire a coach. The best coaches function as “Chief Bar Raisers” for their clients, who expect to be challenged and to grow as a result of the relationship. Although many coaches work 1-on-1 with their clients, I’ve found a team approach to be highly effective to accelerate both individual leader and overall team performance (and results) over time. But buyer beware! Here’s an article that outlines six critical factors to consider as you evaluate a coach’s fit relative to your individual needs. 

Action Item for Leaders:

Prioritize your team’s leadership learning and growth by committing to learning rhythms with mentors and/or a qualified leadership growth coach.

Conclusion

Like my client Liz’s yucca plant, you and your growing firm will require continual repotting to anticipate and accommodate continued growth. It’s not a matter of whether you’ll experience some or all of the five issues we’ve explored here, but rather when.

“Exponential growth gives people two basic choices: act early or be overwhelmed,” Andrew Nikiforuk explained in his insightful Inc. Magazine article, “But the good news is this: small interventions…can often have a much larger effect than we can imagine. When we take action…we put the brakes on exponential growth.” 

Small, disciplined actions today—the items I’ve recommended (they’re all simple habits and rhythms, really)—will keep you ahead of the growth curve as your firm continues to scale. And if you do that, there’s one thing I can absolutely guarantee: You and your team will have a lot more fun along the way!

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