The purpose of this article is to talk about the launch and growth of your second business unit, which could be a new product line or a new geographic market that complements the core or original product line or market.
The main point I want you to take away from this article is this: If your company is having trouble launching and growing its second business unit, then you likely need to address a design flaw in the original or core business unit first.
My own experience as a CEO was that I struggled to lead the launch of the second business unit against the incessant demands of the core business because I didn’t understand this concept well enough.
A majority of my coaching clients are looking for help with launching their second unit, whether it’s a new product or new market, while thinking that things are going pretty well in their core unit. They just need some guidance on launching the second. But after diving into the situation, the client CEO quickly realizes that for the second unit to thrive, the core unit must first evolve.
Since this issue is not well understood, I hope to shed some light on it in this article and share my approach to solving it.
The Health of the Mother Determines the Growth of the Child
Fundamentally, what you’re trying to achieve with the launch of a second business unit is to have the “mass” of the core business executing swiftly and profitably against changing external and internal conditions and with enough capacity and wherewithal to simultaneously pilot, nail, and scale the second unit.
What I didn’t appreciate fully until I had been through it as a CEO myself is that despite all our attempts to free up the second unit to be autonomous from the mothership, it is the health and capacity of the mothership that still controls the destiny of the child.
The irony is that most of us don’t realize that we actually have a design flaw in the mothership until we attempt to launch the child.
Let me give you an analogy. If there’s a crack in the foundation of a building, is it a problem? If it’s a small one or two story building, it’s probably not a big deal. Patch it up. But if it’s a large multi-story building, a crack in the foundation can be a very big problem indeed. The whole thing risks collapsing.
Similarly, the design flaw in the main business has probably been present for years. But until the second unit was added to its foundation, it wasn’t known or if it was, it wasn’t seen as a big problem. However, this hidden design flaw is now causing problems for both units and the whole thing is at risk of collapsing, or at the very least, the risk of the second unit stalling out.
Where to Spot Hidden Design Flaws
To understand where to look for hidden organizational design flaws in the main business that are causing harm to itself and the second business unit, here is a picture that I use in my books Organizational Physics and Designed to Scale called the Strategic Execution Diamond.
The basic concept of this picture is that every organization has mass (M) or resistance to change. Resistance to change exists everywhere, including within yourself, your team, culture, structure, process, systems, and the markets in which you operate. If you don’t manage the organizational mass well, it will naturally spread everywhere under its own inertia, and your business won’t get very far. But manage it well, then under its own inertia, it will build up organizational momentum and really begin to fly, like a freight train roaring down the tracks.
The Strategic Execution Diamond shows that the major levers you can use to keep the organizational mass aligned and heading in the right direction are Strategy, Culture, People, Structure, and Process. In case you’re asking, incentives are an element of Process, including the process of setting and refining them.
To cut to the chase, the major design flaws that are harming the launch and growth of the second business unit, are usually hidden under the Structure and Process of the mothership, but I’ll highlight all of them to make sure we’re on the same page.
One of the first things that I do with my CEO coaching with clients is to identify the right lifecycle stage strategy for the mothership and for the second unit. Basically, just as you wouldn’t parent a thirteen year old as if they were three, you don’t manage different-stage business units in the same way. They each have different stage-dependent goals and needs. This should be reflected in the strategy and if it isn’t, or if it isn’t fully clear to the rest of team, then priority #1 is to make it clear.
- Key Question: Do we have the right stage-dependent strategic objectives defined for each business unit?
- Key Actions: Run an annual Entropy Survey and Top-Level OKRs Strategy Survey with your leadership team to align on the right strategic objectives.
Most of my coaching clients take a lot of pride in the strong culture they’ve built. And they should take pride because they’ve worked very hard to define and reinforce a vibrant culture. True, the pressure of the second unit is creating a gap between the company’s cultural aspirations and the on-the-ground reality, but there is a strong drive within the CEO and other key influencers to create a culture of missionaries, not mercenaries. Occasionally, when it is entering its expansion stage, a company needs to drop a core value that no longer serves its mission, but unless the company is way over on the aging side of the lifecycle curve, then its current culture is usually more of an asset than a liability to achieving success.
- Key Question: Are the company’s core values and core ideologies well defined for the next phase of growth?
- Key Actions: Learn about The Culture System and complete the Company Core Survey together with your leadership team which will help you to scale your business without compromising your values.
Jim Collins has a saying that I like: “First who, then what.” Put another way, if you don’t have a strong entrepreneurial leader and team with dedicated focus on the new business unit, you probably shouldn’t be pursuing it until you do. However, there is another people issue that needs to be addressed when it comes to launching and growing the second unt: the capacity and focus of any shared services leaders and teams in the core business.
I’m sure you’ve heard this refrain before. Management: “Hey, we want you to spend your spare cycles working on the second unit, OK?” Employee: “Ehhhh, what spare cycles actually? I don’t think you realize what a cluster is happening in this area of the core business….”
We all have finite energy in time and there is great power and clarity in stripping away competing accountabilities in most roles in your company. The first step in accomplishing this is actually to design the right organizational structure (see Structure Gaps below) rather than resourcing more people or reallocating resources.
- Key Question: Do I have the right leadership in the right roles, including the leadership core of the second unit?
- Key Actions: Provide PSIU Individual Assessments to your leadership team members and PSIU New Hire Assessments to prospective and important new hires (same link). It will help you to create a better role fit and improve communications across the team.
Structure is usually an area that is filled with design flaws that are stealing capacity from the core business and making the launch and development of the second unit more time-consuming and aggravating than it needs to be. This is because the existing structure grew up organically with the core unit. It served its purpose to get the business this far. But now with the added complexity of managing the second unit, a new structure is required.
The secret here is to not allow yourself to design the new structure around the existing people and the status quo. Start from a blank slate and design a new structure from the ground up using first principles. Then add the people back in.
- Key Question: Do we have the right structure to support our multi-pronged growth strategy?
- Key Actions: Read the book Designed to Scale to learn the process for designing a new structure with multiple business units. Consider applying to my Designed to Scale Coaching Program, in which I design a scalable structure for you and we work together to refine and implement it quickly.
There is inherent tension between the need to push greater autonomy towards the new business unit and the need to keep some centralized control over that unit. This tension is never going to go away and it’s never going to be perfect. However, if you haven’t designed the right process to harness this tension and make it constructive, then you’re going to run into big problems. Either the mothership will attempt to exert too much control—or control in the wrong areas—over the child, or the child will run amok and could cause serious financial and brand damage to the entire business.
- Key Question: Do we have the right strategic execution process in place that allows us to successfully drive both units to their next stage and manage the tension between centralized control and decentralized autonomy?
- Key Actions: Read “Part III: Process Brings Structure Alive” section in the book Designed to Scale. If yours is a qualified business, apply to my Designed to Scale Coaching Program which allows us to implement the ultimate leadership team process and drive smoother strategic execution of both business units.
There’s one final area of focus that isn’t shown on the Strategic Execution Diamond but is probably the most important. It’s you. As an entrepreneurial leader, if you don’t have the individual capacity to give the second unit the time, energy, and attention it needs, it’s going to be hard to launch it successfully. If you find that you can’t spend the time you need to on the second unit because you’re caught up in fighting fires or managing the complexity of the current business, then that’s a symptom that also points to design flaws in these other areas.
The solution is the same. Set the right strategy, redesign the structure and key processes, get people into roles where they can focus and thrive—including you. In fact, redesigning the environment so that the visionary and entrepreneurial founder can focus more time and energy on the new unit is the linchpin that allows everything else to come together.
How to Attack the Problem
Using this same picture of the Strategic Execution Diamond, here’s how I’ve learned to attack this problem:
In other words, at certain stages of development, like when launching a new business unit, focusing on Structure and Process will give you the greatest leverage points. By working at the level of Structure and Process, you can quickly evolve the development pace of both units while maintaining the same core strategy (if it’s a good one), and your core team and culture intact.
But if you attempt to solve this challenge just by working at the surface level of People and Culture because the same underlying structure and processes are in place, you will likely fail to both launch and grow the second unit.
To recap, if your company is having trouble launching and growing its second business unit, then you likely need to address a design flaw in the original or core business unit first. It’s wise to look deeper than culture and people to the underlying structures and processes that support them. Design controls behavior.
The following resources will help you understand how to evolve your structure and key processes in smart ways:
- Designed to Scale Book
- Designed to Scale Videos
- Strategy Map Download
- Structure Map Download
- Draft Board Download
And if yours is a qualified business where it’s critical to get your underlying design right fast, then apply to my Designed to Scale Coaching Program.
To your success,