When businesses consider how they'd like their growth to look on a graph, they picture a nice smooth curve or, better yet, an arrow-straight line. It starts at Day One with zero, and heads skyward.
But that's not how high-performing businesses work, says Paul Nunes, executive director of research for the Institute for High Performance at the management consulting firm Accenture. Instead, their growth looks like a series of S-shaped curves, marching ever upward. That shape rings true for every kind of successful business, from Megacorp Inc. to Joe's Garage, Mr. Nunes says.
Each S-curve represents a product or innovation. The business develops a product, and then sales rise - the curve turns upward. Sales peak, then taper off. Hence the S-shape.
Many businesses go through this cycle only once, then fail. The trick, Mr. Nunes says, is in successfully making a leap from the top of one curve to the bottom of the next.
Take the cellphone business. Over time, competition has shifted from price to network coverage, then later to design, branding and applications. High performing companies are able to forecast the next arena of competition and move toward it, even as they exploit an existing business that has not yet peaked.
Mr. Nunes and his colleagues have spent the past decade researching how companies keep making these leaps.
"It's not just about 'built to last,'" he says. "It's extraordinarily hard to simply sustain a business. Growth is critical to acquire and maintain talent, and maintain minimum innovation to survive in a fast-paced world. Not going for growth is not a good strategy."
This is true for businesses both large and small, says Frank Cespedes, professor of entrepreneurial management at Harvard Business School. The only difference is that big companies can afford to make mistakes and be fast followers. Smaller, entrepreneurial businesses have to be better at preparing for the next curve.
In addition, "the greater success it has on the current cycle, the harder it is to get to the next curve," says Mr. Nunes,
In his book, Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top and Stay There, co-written by Accenture Interactive CEO Tim Breene, Mr. Nunes describes three essential elements for growth.
The first is what he calls a Big Enough Market Insight, or BEMI. High performers recognize trends and plan to take advantage of them, as Netflix CEO Reed Hastings did in managing both the switch to DVDs and then to streaming films online. A BEMI rarely leads to a growth surge in the short term, Mr. Nunes says, because it focuses on major trends that will upset the status quo.
High performers must make sure that the processes they have in place can be scaled up before they expand.
"We see it again and again," says Dr. Cespedes. "Companies are not usually short on good ideas. What they're not as good at is understanding what it means to reach threshold competence."
And if the business wants to grow, it has to realize that the people and processes that got it to where it is may not be right to get it to the next level. "Changing ahead of the curve is especially important for small businesses," he explains.
"The founder/entrepreneur has been the 'doer' for some time. He may not be able to change," he says. "Very, very few executives agree to obsolete themselves.
It's a balancing act, though. Mr. Nunes says that a growing business needs to retain enough entrepreneurial talent to propel it upward, as well as employing the competent business runners necessary to keep the ship afloat. "When they reach the peak of the curve, business runners don't have the entrepreneurial skills," he notes.
The third element is what Mr. Nunes has dubbed "worthy of serious talent." High performers have to recruit and retain the right people.
"I can't help but notice that it is not difficult at all to get senior executives of a small business to put processes in place for sales," notes Dr. Cespedes. "Among the last activities to get professionalized is human resources - to get serious about serious talent."
Along with the three key elements for growth, he says, companies need to have strategies for leaping from curve to curve. Low and middle performers focus on their revenue curves, while high performers recognize three hidden S-curves of business performance - one for each key element mentioned above - that peak earlier than the revenue curves, and work toward jumping to the next levels even while the existing business is apparently doing well. He recommends that businesses go beyond the traditional sources of information to find those all-important BEMI-generating trends.
"Pay attention to insights that arise from the periphery of the organization," he advises. "Make strategic planning a continuous exercise, but not a permanent process. High performers use all kinds of means and methods to create strategy, using all of them at once in an apparently chaotic way."
High performers also plan their top team's evolution. They create the right candidate for the right moment, balancing the top team with one foot in today, and one foot in tomorrow.
"It's companies, not individuals, who jump S-curves," says Dr. Cespedes. "If you define leadership as the smartest person in the room, then you lose a lot of leverage. The leader may even be the smartest person in the room, but the point is, if they're not in the room, what does the organization do? It's not a moral issue, it's a business issue."