MSOs, Growth Can Kill – Part 1
“Beware the Ides of March” Shakespeare, Julius Caesar
Ok, we are in October not March, but I will channel the Bard’s foreshadowing of tragedy to many growth-focused MSOs.
Right now, the seeds of corporate failure are baked into the growth plans of many MSOs. Here’s why: When firms recklessly expand into newly legal states & categories or invest significant capital in advance of a market opening, they are adding lots of operational complexity. Pay attention if you are eying large, new markets like Florida, New York and Ohio.
New complexity is manifested in both visible (e.g., higher costs, slower execution, diffused focus) and hidden problems (e.g., complicated decision making, reduced agility, increased risk). Textbooks and insolvency archives are replete with companies that grew too quickly and clumsily without paying attention to the implications of said growth. The nature of the US cannabis sector - hyper competitive, profit-challenged - is to risky to ignore the pernicious impact of complexity.
Complexity is a natural by-product of growth. Higher sales beget more people, assets and practices. One can’t prevent complexity, only tame, mitigate or limit it through proactively tweaking your organizational strategy and business model design.
One way to do this is to fashion an organizational design that enables your strategy and reflects regulatory considerations as opposed to grafting on new structures, practices and processes to create an organizational kludge.
Here are 3 ways to deal with added complexity:
1. Decentralize
Shift accountability and decision making to the people and units close to the action. This will improve the speed and quality of decisions and performance measurement while enhancing consumer & market knowledge. Don’t, however, replicate business activities that should be centralized such as IT or product management.
2. Separate P&Ls
Managing business units according to their own P&Ls will drive better resource & capital allocation, improve cost control, and help maintain strategic focus.
3. Protect Your Core
It’s easy to lose sight of your core business ( i.e. your foundational revenue and capabilities) when entering a new market. First, ensure the core receives sufficient capital, talent and attention. You should also leverage new market revenue by reinvesting in key areas like data analytics, innovation and people management.
In Part 2, I will explore what a new MSO market entry strategy could look like and why it would make sense.
#MSO #growth #organizationaldesign #strategy #M&A