- New, innovative businesses cannot grow within a rigid corporate structure
- Large, mature organisations tend to replicate results rather than creating them
- The key is to protect the parent company while growing new revenue streams
The Acorn Method: How Companies Get Growing Again, by Henrik Werdelin
"The upward growth of successful organisations, like that of oak trees, slows as they mature," the author explains. These companies must find growth opportunities in sufficient quantities and of sufficient quality to find their new growth curve. The alternative is a ‘slow decline’, but that is not that slow, anymore.
New, innovative businesses cannot be created by, nor can they survive, inside rigid corporate structures, as many failed attempts have proven. This is the problem this book addresses. While it is aimed at demonstrating how growth is possible in mature large businesses, the book nevertheless holds true for successful medium-size businesses as well.
To understand this contribution to the body of wisdom informing business, we first need to unpack why big businesses cannot continue on their original growth trajectory.
Large mature organisations are designed to replicate, not to create, results. Initially their growth was linear: that is what they were structured to achieve. This is a "custodial structure” and the leadership is there to be a custodian of their once winning culture and processes. They no longer experiment and develop new products; they cautiously make improvement to existing ones in the hope that it will boost sales.
The extraordinary companies that we all know of that survived longer than the lifetime of a human being, are the exception: most companies don’t survive that long. Some are disrupted, other falls into bad management practices, and others simply run out of puff.
That said, no one would want banks, hospitals or airlines to think ‘errors are interesting’ as start-ups should. The structures that have ensured the continuity of mature businesses are their institutional wisdom, deliberately refined over decades. We are fortunate these big interesting companies exist and many continue to serve us well. To remain and capitalise on their achievements, they must be augmented not replaced.
To achieve this distinction, they would have to do two very different activities at the same time with equal dedication. Scott Fitzgerald said that the test of a first-rate intelligence was the ability to hold two opposing ideas in mind at the same time and still be able to function – ditto for a first-rate, mature company.
Protect the parent company, grow new revenue
So, what is the solution? The solution is to protect and grow the parent company while at the same time going on a quest for innovation that will lead to strong, new revenue streams. However, this is beyond the capability of a mature company: structure determines outcomes and a rigid corporate structure cannot spawn edgy, scrappy startups. But they should do. Why? Because they have the maturity, the money and best reason to.
This is the novel insight of the book. Establish a separate unit dedicated to finding new ways to serve customers who will be pleased to pay well for these goods and services. Werdelin calls this the "Revenue Exploration Studio” (RES).
The mandate of the RES is to find a host of ways to serve customers better, ranging from solving persistent problems, to improving the product or service; from introducing new offerings for different markets that the company may understand, to only loosely related products. The RES, staffed with people with the appropriate temperament and energy, is a creative hub for startup businesses all allied to and owned by the mother company. They must go through much the same process as does any start-up – find an opportunity, pitch, get approval to move, but with defined deliverables, and so on. But there is one critical exception: their task is not to find a great opportunity that will scale to the level of a significant contributor to the mother: it is to find many, select a few and pursue these with energy. Then find more and repeat the process.
An oak tree doesn’t produce the one or two acorns that will ensure its propagation. It produces thousands, most of which get eaten or rot. But those that survive make a forest. This new unit is not to be a ‘one hit wonder’, but an ongoing Revenue Exploration Studio. Their’s is not only to find, but to act on these opportunities.
If the RES is successful and significantly so, it could drastically change the mother company, with different organising principles, around which the new and old are structured. Apple, for example, started out as a computer company, then became a music distributor and now is a phone company. Amazon started as an online bookseller, and today sells everything from clothes to batteries. It entered the high-end grocery business by buying Whole Foods, and is one of the biggest cloud storage computing companies.
There is another, too easily overlooked advantage of having a RES. What happens to bright, energetic, creative mavericks in large companies, the ones who come up with innovative ways to improve the company fortunes? They either wither in the face of the bureaucracy and stay, or leave and start their own businesses. In the RES they would be able to start a new business with the backing of a large one, with the advantages of the mother company’s resources and connections. And for the benefit of the mother company.
"Large, mature companies can be both stable and evolving, institutional and entrepreneurial. These characteristics do not need to be mutually exclusive.” This book is a very practical and solid guide to doing just that, explained in clear detail, step by step. Again, the model it describes will be of benefit to large and medium-size businesses.
Readability Light -+--- Serious
Insights High --+-- Low
Practical High +---- Low
*Ian Mann of Gateways consults internationally on strategy and implementation, is the author of ‘Strategy that Works’ and a public speaker. Views expressed are his own.