Building a business with real profits, good jobs and sustainable growth takes time, as Charles Fred, TrueSpace founder and CEO, knows. As a successful serial entrepreneur, he has experienced firsthand the difficulties associated with leading a business through the startup stage to post-startup and finally mid-market.
Motivated by the desire to understand the systemic reasons keeping businesses from scaling, Fred spent four years conducting an ethnographic study whose conclusions helped define a conceptual Framework – the Five Conditions – codifying the processes, structures and behaviors that go into building a business. TrueSpace then partnered with Gallup to develop an online assessment based on that framework and test it with 2,500 U.S. entrepreneurs.
This new research was released Thursday in parallel with a panel event held at Gallup’s World Headquarters in Washington, D.C., featuring Fred alongside Sangeeta Badal, Principal Scientist at Gallup; Dr. Eric George, Founder and CEO of ERG Enterprises; Jennifer Maher, CEO of 1776; and moderated by Secretary Maria Contreras-Sweet, Former Administrator, U.S. Small Business Administration. The conversation centered on the three main takeaways below.
Debunking the myths around entrepreneurship
Entrepreneurship and the upward social mobility it seems to enable have always captured the nation’s imagination. But Americans’ obsession with startups and the cult of the entrepreneur, fueled by the imposing shadow of a few wildly successful unicorns, has created unintended consequences, hurting the very kinds of businesses that were once revered by holding them to unrealistic standards.
While much attention is devoted to fast-growing venture-backed startups, other companies that have moved past the startup phase but whose growth has stalled before reaching the middle market lack support. Yet, contrary to popular belief, the real job creators are these “post-startups”, a group of over 2 million small businesses with revenues between $2 million and $10 million employing on average between 20 and 115 people. The study demonstrates that if only 10% of those post-startups were to grow to mid-market, they would create 17 million quality jobs.
A comprehensive roadmap for entrepreneurs
The focus on rapid growth, often at the expense of sustainability, has led entrepreneurs to prioritize the wrong levers. They often lack a clear understanding of the operational, structural and cultural factors that drive consistent growth. Based on her experience at 1776, a network of incubators, Jennifer Maher believes the foundational condition to the entrepreneurs she works with is Discipline, or the ability to identify and monitor key systems that bolster organizational resilience. She explains how difficult it can be for entrepreneurs to define KPIs and formalize rules to safeguard their assets when they’d rather focus on their services and products.
By helping entrepreneurs identify areas in which an investment of time and resources is most likely to pay off and providing the tools and roadmap they need, Fred hopes this study will help change the narrative around scale and support entrepreneurs in their number one job, “to create the capability to become predictable.”
An objective standard for investors
It is challenging for investors to identify the companies that will predictably perform at a high level. As a result, they often must rely on subjective proxies to evaluate their chances of success, such as the talent and charisma of the individual entrepreneur, the sector and competitive set and the established reputation of the company.
Because it captures 21% of the variation in performance, the Five Conditions Assessment is far more predictive of the growth of a business than factors like the company’s age or industry or the demographic characteristics of the entrepreneurs. As explained by Dr. Eric George, the 5CA gives an unfiltered picture of the ins and outs of a business and “gets to the truth of the business,” providing investors with an objective, evidence-based standard to inform their decision-making about a company’s capacity for consistent growth.
Benedicte Clouet at Gallup, Senior Consultant