The Greed Gap

Why do some companies lose their “mojo” when they mature? Why does the passion that every great company is built on, sometimes dissipate once the company reaches commercial maturity?

In this article I am going to show how different memes at various stages of a company’s development, eventually put an appetite for risk and bureaucratic efficiency at odds with each other. I will show that this phenomenon is primarily caused by greed, hence the title of the article.

In his landmark book, The Selfish Gene, Richard Dawkins introduced us to the “meme”. According to Dawkins, a meme is ”an idea, behaviour, or style that spreads from person to person within a culture”. It can be thought of as a unit for carrying cultural ideas. It is sort of like a gene that you inherit from your parents, only it’s basis is not biological, but cultural. Memes are similiar to genes in that they self-replicate, mutate and respond to selective pressures in the environment.

In business, we consider strategy and culture as the two main pillars that shape a business’ fortunes.  We could think of this collective view of the strategy and culture of a business as the business’ meme. This meme changes and evolves during the lifetime of the business.

In business, the prevailing meme is set by the way the leaders of that business execute strategy and lead their employees. If they are able to align the thoughts and emotions of their employees with the company’s strategy, the energy and passion that flows from such an alignment usually leads to out-sized returns for the company, regardless of the odds.

The diagram below charts the alignment of a couple factors in the lifetime of a business. Five stages of life are identified, namely start-up, product development, commercial success, efficiency and bureaucracy.

Start-up

The start-up/dream phase is when the entrepreneur(s) get going with their vision. The focus is on framing the vision, developing the ideas and concepts that will become the business. Usually, during this phase, there is scant consideration of the risk involved, since the founders have little to lose and work on creating their dream, without much regard for immediate compensation.

Product development

The company now starts to engage with the market. It launches products or services, tests new ideas and it gains confidence in its ability to turn ideas into products as the market starts adopting its products.

This is a very exciting phase in a company’s development, as the founders see their ideas turning into reality.

Commercial success

The company scales its products, employs more people, and gets comfortable that it has found a winning formula. It replicates this formula, and with each replication, more commercial success follows.

Efficiency

Once the winning formula is identified and embedded, the focus turns to efficiency. How can we reduce cost and improve profitability. It is usually during this phase of the life-cycle that things start to go wrong. People forget what brought the company to the point where commercial success is seen as inevitable. They disregard the courage it took to build the business. 

The Income Statement spreadsheet does not show columns for trust, loyalty and passion.

During the Efficiency phase, the company’s appetite for risk takes a tumble, employees start losing their motivation, and start playing a role to fit an expectation. A culture of innovation is slowly replaced by a culture of "cover-your-ass".

This is what I call the “Greed Gap”. 

The Greed Gap is an out-sized focus on efficiency in pursuit of financial results that disregards the mindset and building blocks that led to commercial success in the first place.

The goose gets killed for the golden eggs.

Bureaucracy

If the company’s products and services are good enough it will survive and carry on during this phase, but the innovation that brought about the company in the first place will now be contracted in from external consultants.

Neuromemes

If we think of an individual’s alignment with the prevailing company meme, we may call this alignment a “neuromeme”. It is each individual brain’s commitment to the strategy and values of the company.

The figures (out of 10) at the top of the diagram represent the neuromemes of the employees at the various stages of the company’s evolution.

Clients pick up on the prevailing neuromeme in the company. They can sense when an employee feels disconnected from the company meme. This is not good for business.

Conclusion

We can change this pattern in the evolution of companies if we are cognisant of the following:

·       Long term thinking must be the norm.

·       Ensure that the balance of power between the EXCO and the Board is appropriate for innovation to flourish. 

·       Have courageous leaders, who are able to inspire their teams to innovate, and to challenge the prevailing wisdom of the industry and company.

What else can companies do to not get caught up in the Greed Gap?