When doing things right may be the wrong thing to do

Many years ago, I got to know an organization that had grown rapidly in the first few years of its life. When I met them, their leadership had decided that — before pursuing further growth — they would try to get their house in order. They reoriented their top team to trim costs, design more efficient processes, and document protocols for everything from recruiting to operations.

The pivot was sudden and changed the culture and dynamics of the company. Top talent left. New market opportunities were left on the table. Almost a decade later, that company — the same size as it was back then — is still struggling to find a path to growth.

Looking back, what they hoped to achieve all those years ago wasn’t wrong. Companies do need to become efficient before scaling or pursuing new growth. However, when the search for efficiency becomes a single-minded pursuit of the organization’s top minds, companies lose their winning edge making it all that much harder to ever return to growth.

Dual Brains

Imagine a company having two equally paranoid brains: a growth brain and a cost brain. The growth brain is paranoid that if we don’t grow today, we won’t be around tomorrow. It is obsessed with delivering what customers need, always looking over its shoulder at competitors to ensure that they don’t gain ground.

The cost brain is paranoid that if we don’t become more efficient, we will run out of money. It is obsessed with process efficiency and scalability, looking to protect the business by extending the runway if top-line growth slows.

Coming of age

In this metaphor, successful enterprises are born with an oversized growth brain. Their leaders spend time deeply understanding customer pain points so they can grow today and tomorrow. They try new opportunities with gusto, constantly looking at leading indicators; consequently, they are quick to pivot when something isn’t working. The growth brain is fighting for mere survival; the company doesn’t have the luxury to worry about efficiency or scalability.

But, as the company matures, the cost brain develops. The fight for survival turns into a desire to show results in the next quarter or the next year. As the company conducts long-term planning, it starts thinking about maturing product lines and plateauing growth. They look for efficiency in their processes, they outsource more pieces of their operations to others, and start tracking longer-term company health metrics. They’re doing all the right things.

At this point, companies face a fork in the road.

They realize that seeking new horizons of growth is hard and it takes time. You need to build new products, enter new markets, and recruit new skills. It means you are going to fail over and over until you succeed.

The cost brain beckons. Searching for efficiencies is, well, easier. You can stay in your existing market with your existing products. We just need to add a little more process here and outsource that function over there. The “quick wins” mount. The bottom line gets fatter. The addiction starts.

Over time, an unintended consequence appears.

All those little decisions to change processes, outsource functions, or reduce teams involve tradeoffs. Individually, they all make sense…but collectively, they wear down the people who brought the organization to the point it is at now. Those people start to leave. Customers start to notice the product is aging. The company’s reputation changes.

It can take months or even years, but the growth brain eventually atrophies. Left unchecked, the cost brain expands to fill the space the growth brain once occupied. And the more time that goes by, the exponentially harder it gets to change.

An alternative

Companies that retain their winning edge, year after year, know how to use their cost brain in the right way. They don’t strive for balance, but for harmony. The cost brain exists in service of the company’s growth. Said another way, the cost savings and efficiencies aren’t an end unto themselves; they are the fuel for the growth brain.

Savings, both in time and money, need to be re-invested to drive future growth, to enter new markets, and to hire more talent. If new product launches fail, the company’s cost brain should kick in to minimize damage, so the company can live to fight another day.

And the cycle repeats — for years or even decades.

In my career, I have worked for more than a dozen organizations — either as an employee, board member, or advisor — and I have seen the cost brain work both for and against the growth of organizations. I can definitively say that when the cost brain is harnessed for the right purpose, it is a sight to see. Companies crest wave upon wave of new growth and when they fail, they get back up and have the resources to try again. Their customers feel cared for and speak to others about their experience. They can afford to attract top talent and foster great innovation. Their culture strengthens.

The organization that I mentioned at the beginning was full of competent and well-intentioned leaders making what seemed like the right decision for the business. Yet, they let their focus on efficiency stifle their innate drive to innovate. Ten years later, they are still paying the price.

Note: Jeff Bezos’ Day 1 memo from 1997 has long influenced my thinking on what it takes to operate with a ‘growth brain’ and worth reading for yourself if you haven’t already.