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Second-Stage Sensei

by Dr. Dino Signore

Manager of Entrepreneurial Education

Slower is faster: Revisiting “The Fifth Discipline”

A question I frequently hear from business owners is “Why isn’t my company growing as fast as I want it to?” Yet perhaps a better starting point for this discussion is “What caused your company to grow in the first place?”

In his influential management book “The Fifth Discipline,” Peter Senge discusses how companies can manage their success by embracing systems thinking and becoming learning organizations where people work together at their best. Systems thinking looks at the complex interactions and interdependencies that exist in an organization; it is a holistic type of problem-solving to understand how things happen over time. With this in mind, Senge points to a number of patterns or “archetypes” that leaders can use to identify what’s really going on in their companies.

Limiting factors

One of these archetypes I often see happening in second-stage businesses is called “limits to growth.” This involves two key components of systems thinking: reinforcing loops and balancing loops. A reinforcing loop is some behavior or action that generates accelerated change (either positive or negative), and a balancing loop is some behavior or action that counters change and shifts it in the opposite direction in an attempt to achieve equilibrium. A business may be scaling rapidly and then encounter some force that causes its rate of growth to slow down, plateau and even decline. And when this happens, the CEO’s usual response is to step on the gas: Let’s get more sales!

Yet ramping up marketing and sales efforts isn’t necessarily going to solve the problem — and it could even make things worse. The balancing loop could be activated by any number of internal or external issues, such as:

  • People — You may have made a bad hire, which not only lowers productivity but also causes erosion of morale among employees.
  • Operations — Production may not have been able to keep up with sales, causing delays in shipping and disgruntled customers, who then leave you and find other suppliers.
  • Policy — For example, in an era of easy returns, your refund policy may be overly restrictive.
  • The CEO/founder — You may have exceeded your ability to manage company growth — or you may be unable to delegate, resulting in a bottleneck.
  • The macroenvironment — This could include fallout from the pandemic, unexpected changes in your industry, or new competitors entering the market, to name a few issues.

The point is, before you can begin to eliminate or reduce the influence of what’s slowing you down, you must first accurately identify the factors limiting your growth.

Relying on Band-Aids

This brings us to another of Singe’s archetypes, known as “shifting the burden.” Entrepreneurs are very action-oriented people, and when they encounter limits to growth, they often look for a quick fix, responding to symptoms rather than the fundamental problem.

For example, you may have outgrown your management team or promoted someone beyond his or her capabilities. You try different interventions, such as coaching or training, but the person still isn’t able to handle the role. And while you delay the inevitable (replacing them), the fallout continues to escalate.

This type of scenario is very common at second-stage companies because of something baked into their early business models: Their staff works at a high level of productivity for low pay. Why? Because there’s a certain degree of excitement working for a startup; in contrast to being a mere cog in a larger organization, employees feel like they’re making a real difference and are passionate. As a result, owners get used to having great performers for low pay. Yet to attract the special kind of talent needed to scale your company beyond second stage, you have to bite the bullet and shift your thinking. You need to hire for expertise and not past successes. Just because someone is a great accountant doesn’t mean he or she is cut out to be the CFO. Similarly, just because someone is good at customer service doesn’t mean they can become your vice president of sales.

To avoid these classic sandtraps, I suggest scheduling a “planned pause” to growth. This could last a week, month or even a quarter. During this period, instead of taking on new business, you focus on current customers, conduct a value-chain analysis and identify where gaps exist. In other words, stop the car, open the hood and really look at your company’s engine to see where you may be misfiring. Often the answer is to stop doing something rather than continue a particular behavior.

The planned pause is wonderful technique, but I have to admit, it’s not easy to do. As mentioned before, limiting factors can come from many places. Correctly identifying them takes self-reflection, experimentation and team conversations in a psychologically safe space (so people know they won’t get blamed for something). A learning organization isn’t about a few smart individuals but rather the collective intelligence of an organization — and being able to challenge the owner’s perspective. (After all, the limiting factor could be you.)

Being a learning organization also requires time.  Senge says, “If there is no time to reflect, it doesn’t matter how skillful you are at reflection.” Thus, although it may seem counterintuitive, going slower will ultimately help you grow faster.

Published on August 4, 2021