PE Portco Maturity, Greiner Curves, and the Red Tape Crisis

Paul Graham recently caused a stir by writing an article about what he called? “Founder Mode”. The short of it seems to be that people who are experienced at running companies will ruin them, and if you just try hard enough as a founder, you will be good enough at the myriad things it takes that it will all work out ok. Something about Steve Jobs too.

Of course, Graham isn’t the only person to write about maturing a company. This year I learned about the Greiner Curve described by Larry Greiner in a 1972 Harvard Business Review (Vol 50(4)) article entitled “Evolution and Revolution as Organizations Grow”.

Greiner had studied many companies and described five phases an organization traversed as they matured both in age and size. The speed at which this maturation happened was determined by market forces, management decisions, etc.

He described different levels of maturity as stages and how an organization would be stuck at an evolutionary stage until they went through a revolutionary stage, in order to reach the next level of maturity.

“The critical task for management in each revolutionary period is to find a new set of organization practices that will become the basis for managing the next period of evolutionary growth.”

I recommend reading the original article, but it’s safe to say that the phases where Graham lives, and where my clients work, are pretty far apart.?

Startup Phase

Griener describes the first phase as that of Creativity. The company is small and nimble, built around a small core of people who have been there from the start.? They are all heavily invested and communication flows easily. There are no efficiencies, but there don’t need to be.

Then the organization starts to grow. This brings more people and the need for more capital.? The new employees are not as invested as the original ones and are not as willing to sacrifice their existence for the good of the company. As the company grows, communication begins to strain as the effects of Dunbar’s Number (the biologically derived theoretical number of social connections a human can maintain because of our brain structure) come into focus. New capital brings with it the need for financial controls. The communication, organization, and financial demands lead many companies to a Crisis of Leadership.?

This is when many companies will bring in professional managers (Graham’s bogeymen).

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Private Equity Phase?

The company may continue to grow through a number of phases. One of the things that stuck out to me most was how accurately an article written in 1972 still holds for modern organizations.

Greiner wrote: “Those that survive a crisis (revolution) usually enjoy four to eight years of continuous growth”.?It’s notable that my larger PE clients have a holding period of three to five (and now seven) years. They understand that after the revolution, there is a time period before they are ripe for an exit. It lines up well with Greiner’s observations.

But how does the revolution happen?

An investor once told me that I get a call when a company’s growth has outpaced its maturity. That sounds an awful lot like the need for a revolution phase.?

A company that is in the Coordination phase (Four) has formal coordination systems as well as centralized planning and procedures established. CapEx is studied and they make focused investments. There is a centralization of core functions (e.g. finance, marketing, etc). They achieve growth through the efficient allocation of resources.?

The Crisis

However, this leads to a “red-tape crisis”.?

• HQ doesn’t understand local conditions.
• Line managers don’t understand staff.
• Procedures are given priority over problem solving.

As a result, innovation is dampened.??This is a situation I see with portfolio companies. When a manager tells me that they need me to rubber-stamp that they “just need a few more people” to get to the other side of the problem, I know a red-tape crisis is in full swing.

Some things you'll almost certainly see during a red tape crisis:

• The team is constantly trying to complete more tickets.?
• They may hire a NOC in a low-cost geography.
• They may break a few people off an existing team to handle the interrupt driven work.
• They may try to put more process around their tickets (this is hard evidence of “Procedures are given priority over problem solving”, above).?

- This can take the form of more up front ticket requirements

- This can even include regularly scheduled intake meetings (yes, this happens) where people can approach the holy altar of Operations and petition for their work to be done because all the paperwork is in order.

"paperwork gets in the way of talking and listening to people"?-Sidney Dekker

?The Solution

The solution to this crisis is easy to describe, yet still hard to do: Create the conditions for people to self service.

• If people need to satisfy certain requirements for their self-service request to work, they will satisfy those requirements themselves rather than wait for someone to do it manually (and waiting is waste in Lean).
• If the self-service way is easy, people will choose to do that over something difficult.? Make the right way, the easy way.
• Turn those intake meetings into Architecture Meetings (see my piece on the Agile SRE Meeting Plan) where people can come together and talk about their needs and the different ways those can be satisfied going forward,
• Lean heavily on the concepts in Platform Engineering.

Outcomes

The final stage in Greiner’s paper is Collaboration.

• There is? strong interpersonal communication (e.g. Architecture Meetings)
• Management adapts to conditions (they are agile)
• Culture guides actions more than rules (e.g. Architecture Meetings)
• There is focus on problem solving by teams and teams work together (e.g. Platform Engineering above)
• There are centralized support structures not directives (self-service)
• There are leadership meetings and conferences, training, real time feedback systems, and team rewards instead of individual rewards.
• Experimentation is encouraged. (the 3rd Way of DevOps)

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The Next Phase

Both Greiner and Graham leave open the possibility that there are structures possible that are currently not described, but that may be well understood in the future. I am both fascinated and encouraged that so many of the things that we’ve embraced in the DevOps movement are foundational in getting a company to take a step up to the next level, a common goal of successful private equity ownership.

It’s no wonder that Gene Kim (author of The Phoenix Project) runs his Enterprise Technology Leadership Summits. Those are exactly the kinds of companies that need help to fight through the red-tape revolution.