It’s common knowledge that most companies fail.
Companies have many different challenges. They are often underfunded, their products can be underwhelming, they are often mismanaged, they started in the market at the wrong time, they don’t take advantage of changes in the market, or just simply fail from a myriad of other problems, many of which can simultaneously occur.
On the other hand, some companies succeed like rocket ships, and really hit it out of the park. News outlets love to talk and write about Uber, or Tesla, or any Unicorn company that is leading their category. Their top executives, people like Elon Musk make for a lot of clicks, their personalities and stories are inspirational, and they are a beacon for many entrepreneurs.
However, there is a missing cohort of companies, which rarely gets talked about. In fact, I’d guess that this cohort makes up the vast majority of companies. These are companies that are off-the-ground today but treading water and going nowhere.
Or, they have revenues but can’t get close to an exit, along with their investors who have been invested in them for too long and want out. Or there are those with no near term exit imminent, or possibly they don’t even a plan for an exit at all. We’ve all seen them.
These same companies tend to have tired management, with people that have poured their hearts and bodies into something they’ve created, but can’t quite figure out how to move it forward beyond a certain point.
We call these companies “tree-top” companies.
Tree-top companies are always at risk for dropping into the trees and crashing, or they just simply flatten out growth-wise.
What causes companies to “tree-top”?
There are many factors that can cause tree-topping to occur, but the primary issue is often that the tactics the company used to get it off the ground aren’t necessarily the same things that will carry forward and expand growth.
It’s one thing when the team is very small and the product is narrowly focused, and it is quite another when you suddenly have to put a real marketing plan in place, raise significant institutional capital, and then manage sophisticated shareholders and complex product planning, as well as build and execute on go-to-market strategies. Getting to sustained growth is hard, and often quite a bit of luck is involved too.
A company’s existing management team itself may have topped out, but many people lack the introspection and sounding boards, let alone the humility, to understand this. Founders are often and understandably very loyal to the people that did the early heavy lifting.
It may also be that the primary product for the company isn’t really that compelling. “Me-too” products don’t dominate markets and earn super high valuations. Lower valuations limit capitalization opportunities and cost existing shareholders troublesome levels of dilution which may in turn limit a capital raise which in turn limits the company’s ability to grow.
It also makes it harder to hire the best people, as the flywheel motion hasn’t kicked into gear to drive momentum forward.
What should be done?
Face reality. For many, this is easier said than done.
Consult with outside advisors, people that know the industry but don’t have a direct, vested interest. Take a long look at your product relative to your competitors.
Are you generating $1M in a $10B market? Then that ship sailed and you need to exit. Or, maybe you’re just burnt out and need to do something else. Hold your chin up, you’ve already accomplished something in launching and growing a business which is no mean feat, so plan and execute an exit.
Is this a bump in the road for what otherwise has been a solid growth story? Double down, dig in, and figure out how to grow.
Feel like you’re spinning and can’t quite grasp how to manage all of the pieces? Consider bringing in experienced management. Starting a company and managing one are two different skill sets.
No matter what the right course of action is to take, the most important part is to take the time to analyze the best possible course required for the current stage, and know that this may be comprised of not a perfect, right answer, but, rather, a set of answers.
Regardless, when the time comes to take action, do it.
Commit yourself and your team and see through whatever decision you make together.
Good luck.