Complexity naturally grows in a business over time.
While this is not necessarily a bad thing, if you fail to notice it and adjust for it, complexity can quickly stall growth and negatively impact profitability. Companies can even die from this increased complexity if it goes unaddressed for too long without reaching renewed and simplified clarity.
I will note three different areas in which this occurs and offer a few tips for adjusting accordingly.
When my father started building sheds back in 1972 (and for the first few years of business), we built one style of storage shed: a small gambrel-roofed barn in five sizes and a small collection of colors. I don’t recall it happening often, but I’m sure there were occasional but rare exceptions to this product line.
About eight years in, we started getting more requests for other models, and the product line began to diversify. Complexity began to grow as we brought in the Dutch Barn, the Carriage House, the Cottage, then gazebos, and then an entire vinyl siding line.
When we opened our first retail store, our expanded product line meant we needed a larger inventory. And then came the pergolas and pavilions, lawn furniture and accessories, horse barns, playcenters and garages, greenhouses and chicken coops. While we only built a few of these product lines ourselves, the requisite inventory grew significantly and (needless to say) consumed a lot of capital.
All this growth exponentially increased the complexity of our operations.
Every manufacturer we worked with had a different process for ordering their products. Each came with disparate terms and payment plans. Each product line required careful attention to the pricing structures, markups, and margins to ensure they contributed to the profits enough to justify the space they took at our store.
This expanded product line also required more time and people. While it did bring more traffic into our store, our average ticket also fell dramatically, and hours of sales time were consumed dealing with customers such as the talkative client who only came to spend $150 on an Adirondack chair.
Then we opened the second store. The same inventory in a second location, another sales team, and having to manage both the team and the inventory in two locations. Suddenly all the processes were more complex, and we found ourselves unprepared to continue growing without addressing these complexities.
This brief description of our experience is typical of any business going through the various stages of growth. Complexity grows in at least three key areas: culture, operations, and market.
CULTURE
Culture can be simply defined as the set of shared expectations about who the company is, for what purpose they exist, and how they operate.
The people involved in a company at its earliest stages are usually all connected to the founder and leader. During this stage, leaders rarely give much thought to the company culture; they are the culture, as everyone they hire goes through their personal filter. Everyone is directly managed by the founder, and the company culture is largely determined by his words, actions, and relationships.
This begins to change as the number of people in the organization grows. As growth brings the staff numbers up to around seven to 10 people, other leaders or managers emerge (either intentionally or by pure necessity) in the company. These people begin to have a greater impact on the culture.
In subtle ways, the culture of a company begins to shift or at least take on more nuances and departmental flavors. Before long there is some haziness as to the actual intended culture and priorities of the company.
This growing complexity must be addressed by clearly defining, reinforcing, and protecting the company culture that the leaders have deliberately chosen. Not only must there be clear, simple language to describe the cultural expectations, but time and energy are required to intentionally nurture the desired culture.
In my experience working with companies, culture is the most often overlooked part of the company and is typically the hardest space to create and maintain clear expectations.
OPERATIONS
Many small businesses are started by someone who has a particular skill set, has been in the employ of another business, and dreamed of having his own business to gain more control over his lifestyle and future.
In short, he started a business in a particular trade in which he already had significant skills. This led to his own operational development often being the strongest area of the business. He himself was the hands-on part of the business, the place where he could see tangible signs of work being done and value being created, measured, and experienced.
Managing growing complexity oneself usually creates less obvious stress. Product lines expand, and right along with that growth, the business owner broadens his scope of skills and processes to efficiently produce the products.
The challenges begin to emerge when the founder is no longer on the shop floor and someone else assumes responsibility for the production. This additional layer of management introduces complexity for maintaining shared expectations around quality, efficiency, and general workflow. Once again, someone must provide clear leadership to be sure everyone is on the same page regarding expectations in each of these areas.
Production processes need to be streamlined and documented with each person having clearly defined roles and responsibilities around distinct measurables. Without maintaining clarity and frequent assessments, quality standards and efficiencies quickly deteriorate or at least vary widely across the team.
MARKET
A third area in which complexity grows is in the market you serve. As product lines expand, so does the customer profile of people buying your products and services.
This starts in as simple a space as sales: offering not only cash purchase options but also finance and rent-to-own. Rent-to-own buyers are typically a different demographic than cash buyers. Someone buying a $200,000 cabin or garage is often a different profile than the person getting a $3,000 economy shed on a rent-to-own program.
While initially this may not seem like a big deal, it becomes a matter of significant concern once you start investing money in advertising and marketing to grow your sales. Targeting the wrong audience for a particular product line or service means your advertising dollars won’t get you much in return. Broadly targeting everyone with your advertising means your return on investment will be very low—because, at any given moment, only a small percentage of the population is actually in the market for your product.
In order to address this complexity, you need to be very clear on your demographic. Where do they live? What are their particular needs and desires? Then craft a marketing message for them specifically. This might mean that you have several different target markets for your business, each focused on a particular product line or service.
Failing to address this growing complexity in your market will inevitably result in a poor return on your advertising dollars.
Complexity in a business and growing complexity in a growing business are given. What you do with these increased complexities is a matter of good leadership.
Leaders and managers must identify the complexity and achieve renewed simplicity in order to operate efficiently and profitably. The ability to consistently do this sets truly great companies apart from the average.
Make 2025 the year to address the growing complexities in your business!
