Research Proves Formal Management Systems Help Start-Ups Succeed

According to an Accenture Award winning article highlighted in the Stanford Graduate School of Business Knowledgebase, recently-founded companies that adopt structured management systems to run their operations in their early years grow three times faster than their competitors and have a lower rate of CEO turnover…

According to Stanford Knowledgebase the authors found that “Some entrepreneurs mistakenly view management systems as significant inhibitors to creativity and growth" and delay adopting systems such as information-based routines that can maintain or alter patterns of organizational activities. "Failure by managers to recognize the value of systems when they achieve rapid growth in their early years will increase the likelihood that part of that growth and scaling will not be sustainable." 

The research - which studied 78 companies, many of them venture backed - concluded that although many young companies initially appear to be run successfully by a founder/CEO who wears multiple hats, as the company grows this management style can prevent the organisation from realising its potential. As one of the companies in the study acknowledged to the researchers “we had management by personality, and it became evident that it wouldn't scale.”

Systems Extend CEO Tenure

I found a full copy of the report on the web here. The conclusions make interesting reading for the CEOs of young companies. In a key finding, the study found that the percentage of founders replaced from the CEO position had an inverse relationship to the degree of systems adoption. In other words, significantly fewer companies with strong systems cultures ended up replacing their CEOs than did companies with a weak systems culture. That statistic alone ought to attract the attention of any Founder/CEOs.

Systematically Managing the Sales and Marketing Process

The study examined the contribution made by management systems across a number of disciplines, including Finance, Human Resources, Strategic Planning, Product Development, Partnership Management and (my particular area of interest) Sales and Marketing Management.

Key aspects of the latter included sales target-setting, compensation and recruitment policies, market research and customer feedback systems, the creation of standardised sales processes and formal pipeline management systems, and the implementation of CRM solutions. The conclusion is simple: companies that have robust systems in place grow faster than organisations that do not.

But many CEOs face an entrepreneurial dilemma - won’t imposing formal systems smother the creativity, flexibility and agility that differentiate us from our larger competitors? In our experience, sensible systems implementation can dramatically improve the quality of sales and marketing execution without impacting these important qualities.

The Systems CEOs Should Focus On

We’ve identified a handful of systems that can help to improve the quality of sales and marketing execution. Here’s what we recommend CEOs focus on:

Implementing a culture of active listening and continuous market research and testing through techniques like voice of the customer studies and win-loss analysis.

Establishing ideal prospect profiles that capture the common demographic, structural, environmental and behavioural characteristics of your most valuable potential customers.

Focusing your marketing messages on the issues, trends and trigger events that are most likely to cause your prospects to start searching for solutions.

Creating a standardised sales process that reflects the winning habits of your top performers and industry best practice, as well as your prospect’s typical buying decision process.

Consistently qualifying sales opportunities against clearly defined criteria that are continuously refined in the light of experience.

Implementing an evidence-based sales pipeline management system that pays particular attention to the velocity and stage-by-stage conversion rate of sales opportunities.

Put Simple Systems in Place, and Continuously Refine Them

There’s no point (and little value) in implementing complex, cumbersome systems to address these important areas. Our advice is to make smart choices about what to monitor and manage, implement simple lightweight systems, review them regularly, and continuously refine them. Reinforce the ones that are helping you drive the business forwards, and adjust or eliminate those that don’t.

What’s your experience of implemented structured management systems in relatively early stage companies? Did they prove to be a help or a hindrance? And - over and above the list above - are there are other sales and marketing related systems you would recommend as being effective for companies in the growth phase?