How to Manage Change
Want to know a secret? We’ve never invested in a perfect company. In our Investment Criteria, we’ve built a framework that we believe helps us invest in healthy businesses. But over the course of nine acquisitions, we have yet to invest in a company that didn’t benefit from meaningful change.
We’ve also never invested in a company that didn’t have significant advantages in their products, processes, and people. So how do you effectively introduce change in an organization without doing harm to what has produced its success?
Make the Case
Effecting change, either to capture an opportunity or to fix something that’s broken, is nearly impossible if the people involved don’t believe that change is necessary. Sure, you can create initiatives, assign tasks, and physically make changes, but you will spend the majority of your time cajoling, explaining, and fighting reversion if people don't understand what you’re driving towards and why.
That’s why the process of change doesn’t begin with action, but with changed minds. Here’s how you lay the groundwork:
Step One: Listen
No matter how weird and counterintuitive the processes and structures you might encounter in an organization, they exist for a reason. They may have been in response to a long gone condition in the market, a knee-jerk reaction to a move by a competitor, or the brainchild of a leadership team trying to address a specific cultural challenge. Whatever the case, it always pays off to find out why the thing you’re trying to change exists. Why doesn’t the sales team travel? Why doesn’t marketing get along with the product team? Why is pricing structured in a way that hurts long-term profitability?
Taking the time to listen to those involved in and affected by these past decisions will dramatically increase your success in changing them. Often they will be able to give you both the problem *and* the solution, as there's a chance they haven't had the opportunity to be heard before. If you show the team that you care enough to listen and your solution takes into account the issues that were top of mind when the current process was put in place, your ability to get buy-in from others is greatly enhanced. If you’re new (as we often are), bringing a fix as an outsider with no cultural or operational context is a recipe for failure.
Step Two: Persuade
If changed minds are where real change starts, you now must make it abundantly clear why change is necessary. There isn’t a default answer for this -- the best way to persuade is highly dependent on your audience. Some will be very receptive to a numbers-driven case, clearly laying out the financial implications of pursuing a new strategy or ending a poorly-conceived program. Others can be swayed by showing success in other situations with related context. The time you invested in the listening phase will give you awareness of what's important to people and the best way to persuade them, and you will want to frame your discussion in a way that effectively demonstrates the why, how, and benefits.
It’s worth noting that no matter how much thought and effort you put in, you will not win over everyone. That said, it’s critical to get buy-in from leaders you’ll be relying on to bring the change to life. Investing the time to build awareness of and appetite for a challenge with these key players will pay huge dividends.
Step Three: Separate the Goal from the Initiatives
As you work to convince the team that there’s substantial opportunity worth pursuing, a crucial distinction must be made between the merit of the Goal and the merits of any particular initiative undertaken in pursuit of the Goal. Without this distinction, the failure of an initiative can be conflated with the Goal itself not being valuable. Be clear that the Goal is enduring and will continue to be worth striving for even if the first few initiatives don’t work out. As you begin to make changes, the expectation is set that you’re going to be resilient together as a team and keep going after the Goal despite temporary setbacks.
At the same time, don’t keep pursuing an initiative that is clearly not working out of fear that doing so might stall or subvert achieving the Goal. Doing so can end up calling the Goal back into question all over again.
Make the Change
With the foundation laid you can now start making the changes you’ve identified. But that process is fraught with risk as well and you will want to be thoughtful about how you roll it out.
Step One: Be Strategic
Big bang change rarely works. Rolling out a new idea to an entire organization at once opens you up to unnecessary risk of distraction and potential damage to morale and your credibility if an idea doesn’t work. There are two tactics we’ve found to be helpful in phasing in a change.
The first is finding one ally who is willing to try the change themselves and report back on results. An early adopter of the change, especially one who is a natural leader and respected by the team, can be effective at bringing others along if the change works as intended. If the idea blows up, damage is contained and you can iterate and try a different tactic. This method limits disruption to the full team and allows you to have one on one discussions about the solution with someone who is predisposed to helping you see it through.
The second is to position your change as a test. Ask the whole team to try something new for a discrete period of time after which you’ll get together to see how things are going. At the end of that period, listen again and decide if you should make any alterations based on others’ feedback. Setting it up as a test alleviates fears that things are changing forever and gives them a commitment that you're going to listen to their concerns. It also affords you a chance to examine unintended side effects before your change is formally rolled out.
Step Two: Test Above the Waterline
If you’re thinking about setting off fireworks on a ship, it’s best to do it above decks. The same goes for trying something new in a business. It’s wise to launch new initiatives in a place that’s not going to blow a hole in your profit center. As you plan out your launch, construct it in such a way that your core revenue generating activities are minimally impacted. If the whole point of your initiative is to change these activities, consider one of the test methods in the previous section, or targeting the initiative to a subset of customers and prospects. This point of the exercise is to give yourself room for experimentation that will generate the learning (and the occasional setback) you need to move forward.
Step Three: Own It
When you mess with people’s work, there’s bound to be frustration and sometimes even anger. As a leader, the worst thing you can do is sidestep criticism by feigning ignorance, passing the buck, or avoiding confrontation. If you believe in the change you’re making, take the time to hear people out. Be compassionate but firm. Stick to your guns, but be willing to make reasonable accommodations for legitimate concerns. Own your decision whether it works or not. If it completely blows up, be willing to say so, going back to the point that just because this initiative didn’t work as expected, our Goal is no less desirable. Dust yourself off and try the next idea.
And be sure to keep score. Whether an initiative is working or not, you’ll want to have clear data that can complement or clarify an individual’s more subjective feelings and conclusions.
A Case Study
One of our portfolio companies had a unique problem - its marketing efforts were generating too many leads. Its small sales team was large enough to handle the number of leads that were actually qualified for the product, but there was such a large volume of unqualified leads being generated the team didn't have enough time to spend with potential and current customers. We had two options: invest in better targeting for our marketing or in a process that would help us better determine who qualified leads were without the sales team needing to speak with each one directly. The targeting option proved prohibitively expensive, so we needed an internal process.
When we initially floated the idea of a formula to score leads to determine who should get called, it was met with skepticism and resistance. As we sat down with each of them and heard their concerns, they were primarily centered around potentially losing a critical sale as part of the filtering -- throwing out a proverbial baby or two with the bathwater. We realized that to make this idea stick, we were going to need to develop a system with as few false negatives as possible.
Using historical data, we created an algorithm that did a pretty good job of separating out hot and cold leads. When we showed the data to the sales team, they were pleasantly surprised that our data was good enough to filter people so well. We agreed to roll out the lead scoring system in such a way that the lead score didn't impact any internal workflows, it was just added as a datapoint to the information salespeople received with each new lead.
Fast forward a few weeks, and we didn't need to do anything else. The sales team changed their own internal processes to adopt the lead scoring system with no further encouragement from us. By involving them in the decision-making process and being clear that we were open to feedback and tweaking the algorithm based on their real-world observations, the rollout ended up being driven by employees, not us.
Conclusion
Change management is an inevitability in any line of work. While it can feel risky to disrupt the status quo, it’s only by doing so that you can meaningfully keep growing any business. Because what’s gotten you here typically isn’t going to be what also gets you there. By listening carefully and being strategic about how you implement change, your chances of enacting and sustaining meaningful change are dramatically improved as is your ability to maintain healthy relationships with those whose work you're changing while achieving better outcomes.
