Why is it so difficult to manage a hypergrowth company?

[The conversation] - Published on December 9, 2019 in Entrepreneurship, Science-Society

Many business leaders dream of hypergrowth. Being at the head and heart of a company that accelerates by more than 20% a year for at least three years has become a real ambition for entrepreneurs.

Bénédicte Aldebert, Aix-Marseille University (AMU) and Ophélie Laboury-Barthez, University of Montpellier

Indeed, this is where Google, Facebook and Airbnb came in. Yet hypergrowth is a truly disruptive element in the life of a company. Whether young or more mature, hypergrowth generates radical instability, making it fragile, and the way out of this situation still too often corresponds to the company's failure. How can we explain and prevent the tensions arising from this exceptional situation from causing the company to fail?

We have focused our analysis on the issue of governance, which emerges as one of the main difficulties (along with recruitment and cash flow) faced by hypergrowth companies, according to a recent study by KPMG.

Indeed, governance plays a vital role in managing the subtle balance between different paradoxes encountered by hypergrowth companies. We therefore embarked on an unprecedented mission of exploration involving a sample of 10 hypergrowth companies and their ecosystems. Following this analysis, we present our initial observations and findings on the governance of hypergrowth companies.

Different approaches

Corporate governance is a theoretical concept originally formulated for large corporations, which deals with the balance of power within a company, between those who hold responsibility for the company's performance, investors and other stakeholders.

In simple terms, there are two main approaches to understanding the regulation of relations between shareholders, stakeholders and management within companies.

The first approach, contractual and disciplinary in nature, focuses more on the relationship between shareholders and executives, and looks at the role of the board of directors and ways of limiting the executive's discretionary scope. This was notably the case with Carlos Ghosn when he was head of Renault-Nissan.

A second, more recent, alternative approach focuses on understanding the knowledge and resources required and mobilized by the manager to develop the company. This approach is known as cognitive-behavioral.

The leaders of the hypergrowth companies we interviewed have adopted this type of cognitive governance, which focuses on the value-creation process and places particular importance on building skills, innovating and changing the business environment. Managers emphasize that this type of governance remains preferable to disciplinary governance practices for managing tensions.

The company in its adolescence

A company undergoing hypergrowth must rapidly manage contradictory situations, and most of the time it is not prepared to do so. Research has shed light on four major paradoxes within organizations, which are exacerbated within hypergrowth companies. They concern :

• Learning: hypergrowth pushes the company to explore new knowledge (often taking a long time to mature, through trial and error), while continuing to exploit its own knowledge (i.e., operationalizing day-to-day operations). The company needs to be ambidextrous, which means knowing how to rationalize without becoming too rigid, while retaining what has always been its strength: improvisation, innovation and flexibility;
• Identity: the rapid explosion in the size of the company is not keeping pace with the acceptance of these changes by historical teams, leading to fears that the founding cultural model may be disintegrating;
• The organization born of the delicate balance between control and autonomy, or between stability and change. One manager we interviewed had this to say: "I give employees a lot of freedom, but I want to control everything";
• Performance: hypergrowth brings with it numerous and diverse new stakeholders (e.g. new associates or collaborators) whose interests can be contradictory and conflicting.

Among all these tensions, our study shows that managers feel they have to cope with organizational tensions in particular.

To sum up, hypergrowth corresponds to a situation where a company moves from childhood to adulthood through an acute, exacerbated and accelerated adolescence.

Four levers for effective governance

Our exploration has led us to identify four main levers for implementing governance adapted to hypergrowth situations:

• Assuming tensions within the company: the manager must admit that his behavior and the hypergrowth situation generate tensions, and allow himself to build his company with these tensions. Fighting these tensions would be counter-productive for the health of the manager and the company. The solution lies in skilfully combining these tensions to find a balance.
• Building a culture of hypergrowth: the arrival of all new employees requires special attention to ensure that the company's identity and values are not lost. It can be useful to create routines for sharing with employees, transmitting the company's vision and raison d'être, as well as times for debating upcoming changes. These times synchronize and align employee behavior with that of the company.
• Take the time to build governance: this involves anticipating and initiating internal structuring by setting up a management team, customizing the shareholders' agreement, and choosing your financial partners. This must be accompanied by a strengthening of the manager's legitimacy, who must question his or her abilities and skills at every stage: is he or she a doer or a doer's doer? Is he a manager or a leader? Should he be involved in operational or strategic matters?
• Ensuring the legitimacy of governance: the governance put in place will enable us to manage the various paradoxes and tensions encountered. This governance must be both cognitive, to provide trust, relationships, networks and expertise, and disciplinary, with the implementation of metrics and financial ratios to inform decision-making and secure the exit from hypergrowth. As one of the managers we interviewed put it: "In hypergrowth, the most important thing is to have financial and commercial indicators. Driving a Formula 1 car blindfolded is fine, you're going 300km/h, but you don't know if there's a bend [...]. If you don't have the indicators, you'll hit the wall. This balance between cognitive and disciplinary governance will facilitate dialogue with all stakeholders and make entrepreneurial ambition a reality.

In conclusion, hypergrowth is a phase that can really jeopardize a company's survival. It's hard to imagine, because in most people's minds, hypergrowth is synonymous with success. However, appropriate governance is needed to ensure the best possible distribution of power between management and stakeholders, while taking account of organizational paradoxes and not neglecting the company's culture.

This contribution is based on the paper entitled "Can we govern a gazelle like an elephant? Étude des tensions et de la gouvernance des entreprises en hypercroissance", Boulmakoul N., Aldebert B. and Amabile S. (2019), presented at the ^18th International Association of Strategic Management (AIMS) conference and supported by Ophélie Laboury-Barthez.

Bénédicte Aldebert, Senior Lecturer, Entrepreneurship, Aix-Marseille University (AMU) and Ophélie Laboury-Barthez, part-time lecturer in innovation strategy and management, University of Montpellier

This article is republished from The Conversation under a Creative Commons license. Read theoriginal article.

Key words : Economy, Company, Policy, Start-up