Value: John Warrillow

When flexibility turns from strength to weakness

Special to The Globe and Mail

McDonald's logo is seen on the window of one of its restaurants in New York. (SHANNON STAPLETON/SHANNON STAPLETON/REUTERS)

Patrick McDonald opened the Airdrome restaurant in Monrovia, Calif., in 1937.

The Airdrome was a reasonably successful little business, so, in 1940, Mr. McDonald decided to invite his two sons, Maurice and Richard (Mac and Dick) to help with flipping burgers.

The sons renamed their family restaurant and spent almost 10 years tinkering with their business before they introduced the “Speedee Service System,” which borrowed techniques from the factory assembly line to serve customers quickly.

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In 1954, 14 years after joining their father in the business, the McDonald brothers were approached by a man named Ray Kroc, who sold them their milkshake machines and wanted to know if they would be interested in selling him the franchise rights to their restaurant.

Mr. Kroc negotiated the rights to franchise the McDonald brothers’ idea throughout the United States and went on to found McDonald's Corp.

According to Interbrand, McDonald’s is now the sixth most valuable brand in the world, with a market capitalization of more than $77-billion (U.S.).

The McDonald clan ran a single-location hamburger stand for almost 20 years before Mr. Kroc came along. The brothers had the skills to create a successful one-location business. Under their tight rule and foreman-like management style, they succeeded on a modest scale.

But arguably the skills that allowed them to manage a startup were not the skills needed to grow a business.

Over the next couple of columns, I will explore how the very same skills that are assets when starting a business can become liabilities when trying to grow it.

Flexibility: First an asset, then a liability

In the early days, when cash is scarce, you need to be flexible. Instead of hiring full-time employees, you may subcontract work to a partner. This arrangement works well since you pay subcontractors only when you have work, and they pay their own expenses.

You also stay flexible when dealing with customers. As a startup, you’re not in much of a position to dictate to your prospects, so you listen carefully and adjust your offering to what resonates with the people paying the bills.

Instead of setting up a physical location, you may create a makeshift office by patching together a home office, car headset and a sprinkling of Starbucks locations across the city.

All of this flexibility allows you to get your business off the ground on a shoestring and enables you to stay in business. In fact, without an ability to remain flexible, most businesses would never get beyond their first year of operation.

The problem is, being too flexible can start to become a liability.

Your employees working on contract may have other customers and can’t be at your beck and call. You may instead need dedicated employees but your desire for flexibility tells you to keep them on contract. Your intuition – the very thing that got you successfully past your first year in business – starts to limit your growth.

Your customers start to ask for so much customization that you are the only person in your company with the technical skills to fulfill their special requests. What you need to build a valuable, sellable business is to standardize your offering so you can train others to do the work, but your gut tells you to listen to what the customer needs and remain fluid.

Eventually a customer will want to see where you work and may think less of you if your office is your car. Your intuition tells you to stay flexible, and avoid signing a lease because you can fake it for another year. But what you may really need is a permanent place to do business.

It’s a cruel twist of fate. Flexibility, a prerequisite in the beginning, can actually become a liability.

Thursday: How your attitude toward money can make you a successful startup but undermine your ability to grow.

Special to The Globe and Mail

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company.

Follow on Twitter: @JohnWarrillow

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