Governance, Hygiene, and Growth
When it comes to running a business, we’ve found that there are three core areas operators can focus on: (1) Governance; (2) Hygiene; and (3) Growth. Further, it's possible to view these areas as legs of stool, which is to say that if a business focuses on one more than another, it’s going to topple over. What’s interesting, however, is that rarely do we find a business that pursues all three in balance. But before I get to why that is, let’s define terms:
Governance is the setting up and maintaining of systems that reliably generate accurate information that tells you how your business is doing. (Example: If you operate a business but don’t bother looking at your financial statements because they’re not helpful, you don’t have good governance.)
Hygiene is the deliberate ongoing improvement of best practices in key areas that leads to steady-state improvement. (Example: If your cash consistently lags earnings because you’re not on top of AR collection, you don’t have good hygiene.)
Growth is the generation, prioritization, and execution of new and compelling strategies that leads to a step change in trajectory. (Example: If you haven’t hired and/or promoted 10% of your organization in the past year, you don’t have good growth.)
As for why it’s hard to do all three at once, growth is fun while governance and hygiene are not. Business operators of the more aggressive and visionary kind know this and will pursue growth without regard for governance and hygiene. The problem there is that if you grow without good governance and hygiene, that growth will break your business.
Governance and hygiene, on the other hand, aren’t fun, and what’s worse is that they can be incredibly time consuming. More risk averse operators will focus on these areas and end up not growing either because they don't have the time to think about how or because they consistently see inadequacies in the business that make it uncomfortable to pursue growth. For those folks it’s important to understand that business hygiene can be a black hole in terms of inputs and outputs, so know the difference here between perfect and good enough.
I’ve talked in the past in this space about the four important roles. These are the people who (1) create opportunity; (2) decide which opportunities to pursue; (3) execute opportunities; and (4) measure results. You can also bucket these functions with regards to governance, hygiene, and growth. (1) and (2) drive growth while (2) and (3) watch hygiene and (3) and (4) keep good governance.
Yet for it all to work, the functions need to respect one another and maintain balance. As for how to do that, again, it’s rare, but being aware of the forces at play is step one.
– By Tim Hanson