Six Disciplines, chambers of commerce, and economic development councils share a common vision of strengthening business in America. When faced with increased global competitiveness and economic uncertainty, it’s vital that we develop better ways of doing business, and more specifically, creating new business opportunities and extending existing business development, especially among small and midsized companies. History shows us that it is these organizations that are the backbone of our local economies, which are responsible for the lion’s share of employment and economic growth.

To support this assertion, the Small Business Association (SBA) published a new report in June 2008: High-Impact Firms: Gazelles Revisited. This new study revisits and expands upon some of the conclusions about rapidly growing firms conducted in the 1980s. Specifically, this report examines firms with significant revenue growth and expanding employment.

The revealing research findings about “high-impact firms” are summarized as follows:

• They are relatively old, rare and contribute the majority of overall economic growth.
• They exist in all industries, in almost all regions, states and counties.
• They represent only 2%-3% of all firms, yet they account for almost all private sector employment and economic growth in the economy.
• On average, they are 25 years old.
• In the four years after a high-impact firm undergoes its high-growth phase, only about 3 percent die.
• Yet, 75% of them fail to sustain their high-impact status.

For community organizations that have a strategy focused on an economic development platform, the implications and benefits of acting on this data are significant. Those who do will recognize the value of cultivating high-growth firms versus trying to increase entrepreneurship across the board, or trying to attract relocating companies.

Following are some game-changing implications for you to consider, particularly before going into next year’s strategic planning process:

• What kind of impact could your community organization have on your community’s economic development if you could help to cultivate the number of local high-impact firms from say, 3% to 4%, or perhaps even 5%?
• What if your community organization could recommend a systematic approach to enable companies to get to the high-impact stage sooner — and stay there longer?

The answers to both of these questions are outlined in my new book, Six Disciplines Execution Revolution. Growing the number of high-impact firms, getting them to the high-impact stage sooner, and getting them to stay there longer, are all essential drivers behind the revolution in strategy execution that’s already underway.

In Quadrant I of the Business Excellence Model, we begin with a company that has developed a strong strategy, which typically means they’ve crafted a stategy that offers them a competitive advantage.  This competitive advantage may be the result of offering premium products or services, or more convenient availability, or an advantage in price.  The advantage could also be rooted in other key elements: technology, distribution channels, manufacturing expertise, or even a major innovation over existing solutions.

What happens to companies with strong strategy is that it usually leads to a growth in sales, a “growth wave” occurs. An organization with a strong strategy grows because it has something that people want/need, with some advantage over the competition.  Perhaps the advantage is easy to copy - or maybe it’s not. One thing’s for sure:  if it works, the competition will follow!

Let’s take a different look at the same two companies from the previous post.  This chart illustrates the quarterly growth rate in sales over a five-year period for Company A and B.

Even though over a twenty year period they both achieved the same compound earnings growth, which business would you prefer to manage? How would you sleep at night? While I know nothing personally about these two companies, it appears there is something cyclical going on in Company B, but it isn’t in the same quarters each year.

The people in Company B may have total confidence in what’s going on, but as an investor or outsider, Company B looks to be pretty nerve-wracking.

My point? An organization that learns how to execute its strategy and deal with day-to-day surprises operates in a less stressful environment and, as you will see, increases its value. How you get there, indeed matters - BIG time!

To get better insight about why execution is such a tough challenge, we analyzed the quarterly and annual earnings performance of 200 companies over a twenty year period.

The following graph shows the annual earnings rate on the vertical axis. The horizontal axis shows the volatility produced by that growth. Volatility is another word for how predictable the growth was. The farther to the right the more Unpredictable the earnings performance is. The first thing we learned in this analysis was that as the growth rate increased beyond about 15% per year the volatility increases faster than the growth rate.

For example, when growth rate doubles from 20 to 40%, the volatility increases from 20% to 150% — a 7 fold increase. The faster a business grows the more unpredictable it becomes. So there is something about growth that makes execution more difficult.