Business growth plateaus/barriers

I've often pointed out that very few companies survive beyond the initial entrepreneurial stages to the next levels of growth and success. There are several obstacles/plateaus/barriers to growth which are important to understand.

First there's the $10 million/100 people barrier; this could be $20 million or $ 40 million and 200-400 people, but the concept remains. A company starts with one or two founders, usually an engineer with a good idea and perhaps a marketing or sales person who teams up.

The exceptions are companies that have good products, with big enough markets and management teams strong enough to continue growth. But most of these too get acquired before they get to $100 million, or 1,000 people – the next plateau. This has been documented extensively in Harvard Business Review and other business journals.

Then there are those companies that get stuck at the next plateau: $100 million to $1 billion. Typically, the founder is still around (getting older), the company goes "public" but is stuck in a niche that defies growth to the next level, stays independent (read cannot be acquired because the major shareholder refuses to allow it).

Analog Devices (founded by engineer Ray Stata, 72, still Chairman of the Board) is a good example of a startup that broke the $1 billion barrier – Analog Devices now approaches $2.5 billion revenue, with 8,800 employees.

Hewlett Packard (started in a garage by engineers Bill Hewlett and David Packard) grew to several billion in revenues with the founders still in charge while they were well into their 70’s.

An unusual and significant company that broke the $100 million barrier and looks like it will grow well beyond $1 billion is National Instruments. The culture of this company is the subject of this article.

Scaling up for growth and success

Still headquartered in Austin, National Instruments has grown to become a global company, with stock trading on NASDAQ, with 2005 revenue of nearly $600M, market-cap of $ 2.5B and more than 3,800 employees.

FORTUNE magazine has named the company as one of the "100 Best Companies to Work for in America" for the past seven years. In 2002, Electronic Design inducted Jim Truchard into its Engineering Hall of Fame, and in 2001 Frost & Sullivan, honored him as the CEO of the Year for the test and measurement industry. Worth magazine named him one of best CEOs for 3 consecutive years, emphasizing his focus on long-term growth and innovation.

Jim Truchard has led the company with a conservative and deliberate approach that has yielded consistent success. He has succeeded in generating innovation, growth, and expansion in a highly successful, worldwide enterprise, while still maintaining the entrepreneurial spirit. National Instruments has seen 28 years of growth in its 29-year history.

I met Jim Truchard years ago at an exhibition somewhere in the world, and we discussed his algorithms for success. His original approach was to hire bright people, straight out of school, before they were "spoiled by outside experience". His advice rang bells in my head! There I was, trying to scale up Action Instruments by hiring seasoned heavyweights at high salaries. Every expensive "professional" I hired immediately sought to change the Action culture that had made us successful. For example, one new manager insisted that we must start "wearing ties to be professional". This was before the days when everyone, even GE, started casual dress-down.

Scaling up for continued growth

• First Decade – self financing with GPIB – 1985 Revenue $7.2M
• Second Decade – Virtual Instrumentation with GPIB, LabVIEW and DAQ. 1995 Revenue $165M
• Third Decade – Measurement and Automation, Modular instruments and systems – PXI, Fieldpoint, cRiO. 2005 Revenue $572M
• Fourth Decade – Test & Measurement and Graphical System Design Target $ 1B and beyond.

National Instruments remains strongly people-orientated, with regular meetings and sharing of information and results. They always make an effort to use good judgment, hire young talent, and set high standards. A corporate presentation for new recruits makes them aware of the company’s high expectations and the long-term rewards. Jim Truchard remains actively involved, and is affectionately knows as “Doctor T”.

High margins and profitable growth

As the company transitions from high-margin products to larger systems (where comparable industry margins are usually lower) what is National’s strategy to keep gross profit-margins high? Jim Truchard’s response: By keeping the in-house developed software and firmware content high, and offering systems with a very high ratio of National’s own developed and manufactured products.

National manufactures all its own hardware products in a corporate owned facility in Hungary. Why Hungary? Jim Truchard’s answer: Taxes are low, people are good and there are no language problems.

Continued growth & success

How will National Instruments fare as it gets beyond $1B in revenues, and as Jim Truchard approaches 70? Well, judging by top-tier comparables – Ray Stata of Analog Devices at 72, Bill Hewlett and David Packard of HP who were actively involved well into their 70's – Jim Truchard will continue to generate growth and success for National Instruments as the company launches into its fourth decade.

Related links:

National Instruments – Company Overview

Experience NI – What makes NI Unique – a culture of fun