7 STAGES OF BUSINESS GROWTH OVERVIEW
You may know your product or service better than anyone, but do you know how your growth stages will alter and change your business dynamics?
Luckily for you, researchers like James Fischer have identified 7 predictable stages that you and your company will experience as it grows and grows. Here’s what James’ research tell us:
Your business will begin in a start up phase, will be completely dependent on you and will be totally CEO Centric. The company will change rapidly depending on how many people you add to your organization. You see it turns out that people have a powerful impact on organizations. In fact the more people you hire and retain the more complex your organization becomes. Most of us who have dealt with people find this easy to understand! Since companies are growing and breathing entities, your company can experience as many as 7 stages of growth-depending on how rapidly you grow and how many people you add to the mix.
Key Challenges
Cash Flow
Limited capital available to grow
Chaotic Periods that destabilize company
Challenge of expanding sales
Slow to get products and services to market
You have a great idea. It’s hot-you know it and everyone else knows it too. You’ve always wanted to be an entrepreneur and now it’s happening. You really didn’t think it would happen so fast. But you’re going to go with the flow!
Sales have been great and you begin to hire your first employees-get ready. So you have 1-10 employees and now you’re cooking’. Your company will be CEO centric until you get to Stage 2. You are the key here, you are the star! That means that 50% of your time should be spent as the technician or the specialist while only 10% of your time will be spent as a manager.
You brought the service or product to market-you developed it, you are the visionary. But keep in mind if you want to survive into Stage 2 you will need to begin to think about others who can hire quality people, and manage the processes-you cannot do it all.
The people you’ve hired are excited. They believe in you. They think you have all the answers and you do-mostly. They love the unpredictability of the start up, they love the pace. You come to work thinking of one thing only-revenue. How can you get more of it and that is exactly what you should be doing at this stage of growth.
Organizationally things may be chaotic; perhaps you could use a few more processes or systems to streamline the business. Here’s where you can become derailed if you don’t have a strong business plan. You’re just moving fast and making money.
Chaos happens as soon as you start adding full time employees to the mix. When you add more people to the mix, it becomes more and more difficult to manage.
You may find yourself having difficult staying on top of all the new people and keeping track of what they are doing. You’re experiencing what is called a shift. You will find it more and more difficult to supervise these employees while keeping up with your own schedule.
In a nine year research study of entrepreneurial company's along the Front Range and Silicon Valley, the trigger to growth trauma wasn't brought on by an increase in revenue/sales or profits. It was brought on by an increase in the number of people in a company.
This model helps business owners get ahead of growth issues, actually allows them to predict growth impact and helps them understand what they have to do to manage their company as they add more people.
As a company grows so must the leader. Each stage of growth will require something different from the leader. Understanding what is required of you as your company evolves can either propel the company forward or cause the company to become 'stuck' - profits never materialize; sales suffer; there is high employee turnover.
Survival is the name of the game in a Stage 1 company. As you grow closer to Stage 2 (10 - 19 employees) it shifts to being about growth. Stage 2 is about supporting higher sales levels and making a profit.
Key Challenges
Continued cash flow challenges
Limited capital to grow
Hiring quality staff
Leadership/staff communication gap
Challenge Expanding Sales
At this stage of growth, you still must keep a keen eye on cash flow. You are hiring more and more people so much of your cash reserve is going to people management. Hire the right people at this stage becomes critical because you will be anticipating the next stage in which you will begin to delegate much of the work. Your important focus now is hiring the right people, and I am talking quality. In this stage, you’re not just adding people to do the work you’re adding quality people. You must find people that have the skills and training to do specific jobs. This is a critical juncture for business owners. You may need to let go of people that were functional in Stage 1 but no longer “fit” in your organization. You really need to get after this because you need to be fully in the sales mode. Since you’re not in survival mode (hand to mouth) anymore, you’re in growth mode, so generating revenue is important.
Generate cash is important but at the same time, managing expenses and cash flow is crucial. Many business owners get in trouble right in this stage of growth because they haven’t recognized what needs to happen when. In short, they’ve been focusing on the wrong things instead of planning for the next stage of growth. Keeping a keen eye on your expenses is essential. Make sure you communicate this to everyone in the organization. Everyone needs to be watching the expenses.
If you aren't talking to your staff, individually, on a weekly basis - and I mean having a dialogue about how they are doing, what they need, how you can help them - you are looking at the beginnings of a communication chasm that you won't be able to bridge. Start talking now – communication is essential.
Key Challenges
Weak Business Design
Staff Buy In
Leadership/staff communication gap
Core Values Unclear
Culture is Resistant to Change
Stage 3 is no longer CEO-Centric. You must recognize that in Stage 2 you hired all the right people now let them do their job.
Up to this point in the company's history, it's been CEO-centric - your passion, your vision, your blood, sweat and tears have carried the company successfully to this point.
When you add employee 20 a shift occurs. You are just a few months away from a staff revolution. You've felt the subtle change - your employees are a bit harder to manage, they push back more often, their attitude hits you in the face when you least expect it - you seem to be at odds with them on a daily basis.
Here's a hint. Don't look at them - look at yourself. Your company just hit a wall in how you manage it and it's you who has to make some changes -- quickly.
A couple of critical forces are hitting at the same time. In Stage 1 and Stage 2, a company is CEO-centric. When you move into Stage 3, it becomes Enterprise-centric. It's too big for you to continue to 'wear all the hats'. It's time to start 'passing those hats' around to the incredibly talented people you have hired.
You have also just come through a Wind Tunnel - a chaos zone that requires you to let go of methodologies that no longer work and adapt new ones that do.
Stage 3 has the highest incident of CEO-burnout of any stage of growth and it's not difficult to understand. Suddenly you have to start managing, delegating and team building. Not exactly what you wanted to hear but…
Four out of five of your top challenges center around issues with people.
It's no wonder that as a company moves into this critical stage of growth that many CEOs lose some of their enthusiasm and passion. Now instead of doing what you love to do, what you started the business doing you have to start relying on your people. You must trust and believe, manage, teach, coach, care and reward and you need to begin to communicate with each and every person-DAILY. And you have to do it daily.
Want to know how to avoid the staff revolution? Communication.
And lots of it. Now. Today. Tomorrow. Next week. Next month.
Your employees are just as excited about the success of your company as you are. Give them a chance to succeed. As a leader, you have to evaluate your leadership style and ask yourself: is my style hindering the success of this company? If you tend to lean on the micro-manage, command and control approach to managing people, you're in trouble.
Stage 3 demands that you start letting go and start bringing your key people into the fold. Many companies never make it past Stage 3 - the revolving door starts early. When you hire smart, capable people and they aren't allowed to be smart or capable, they will leave. Wouldn't you? Put yourself in their shoes. Tap into the intelligence of every single person in your company.
Key Challenges
Weak project management
Difficulty forecasting problems
Employee turnover
Not getting systems in place
Organization uninformed about company growth
More people, more complications-so now you’re experiencing the impact of hiring all those people.
And the CEO is now spending at least 70% of their time 'managing'. Getting the right people on board to take your company through this stage of growth is all about bringing on experienced managers, creating management systems and maintaining your market position.
Still hanging onto your need to control everything? Still playing specialist or out there 'visioning' your next opportunity? Sorry - wrong time, wrong focus.
Stage 4 is all about Internal Focus; it's all about Internal Processes.
Remember Stage 3? It was all about delegation, all about you, the CEO letting go. The necessity of that lesson will become painfully clear if you head into Stage 4 looking like a cat dangling from your living room drapes - you have to LET GO!
Why is one of your challenges 'employee turnover'? Because if you haven't started getting 'strong, experienced managers' in place, your employees will leave. Remember, people stay at a company because they respect their manager. If you can begin to provide your employees with managers who know how to manage the work of the company, as well as manage the people, your employees feel less frustrated, work fewer hours, are way more productive and receive solid input on their performance on a regular basis.
Stage 4 is also about helping each manager feel confident about their team, about their work, about their own identity as a team. Your job is to help them gain that confidence. Don't worry about integrating these managers across the company just yet. Help them find 'their own way', work with them to be accountable as their team evolves and matures. You will avoid a lot of finger-pointing and department disputes if you let each manager build a stronghold and develop their own sense of commitment and team-ness.
This isn't just about 'training' qualified people to move up in your organization. You also need to start hiring people that are already competent as managers.
Successful CEOs surround themselves with knowledgeable, experienced people - they want to be challenged on decisions, knowing that the more diversity of ideas and even attitude they bring on board, the more depth they create in their organization.
Your company is growing up. The biggest question to ask yourself is 'are you'?
Key Challenges
Improve Sales
Difficulty forecasting problems
Cost of lost expertise
Weak business design
Staff training
Alignment, Integration: Stage 5 is All About Synergy
You've moved beyond 50 employees.
As a Stage 5 company, you have 58 - 95 employees. The company is beginning to align itself - sales and marketing understands and is involved with product development. Customer service is tied into every aspect of your operation. As the CEO, you are operating in a proactive, systematic approach instead of a reactive, scattered approach. You have trained and/or hired qualified managers and their divisions are operating on solid ground.
There's a subtle difference now that you have 'breached the 50' - while managing this dynamic organization is your number one priority, you have to shift ever so slightly into a more visionary role. No longer invisible to the outside world, your competition is heating up because you are now playing in a larger fishbowl.
Because you are entering a larger competitive domain, you need to focus more of your energy developing new opportunities and cementing key relationships with current customers. In short you must improve your sales.
You’re probably going to notice increased difficult forecasting problems- Larger is harder and in Stage 5 it's easier for problems to simmer underneath your radar and create cracks in your armor. Staying alert, not allowing mediocrity to set in, paying attention to the little things (never assume your vision and values are safe), will help you continually stay ahead of the tidal waves that can sink your ship.
It going to become harder and harder for your employees to feel 'valued'. It's more difficult for you, the CEO, to 'touch' every single person in the organization. You need to maintain a constant vigilance to stay on top of how your managers are aligning employee performance to company goals. That's the hard part. The easy part is for your employees to disengage because they aren't feeling 'valued' and decide the grass is greener someplace else. You will start to see some of your best talking of walking.
You may need to tweak your business design. Focusing on Value Exchange, Organizational Structure, Business Development, Operating Systems, and Knowledge Management is a good place to start in evaluating your profit design as you move into Stage 5. Assuming what worked before will continue to work is a mistake many leaders make as the company grows beyond their capacity to manage all aspects of their business.
Does each of your departments have their own budget with spending discretion? Do they understand gross margins, how the company makes and keeps money? Is there an intentional training program in place for all employees that is focused on company goals? How much of your budget have you allocated to training? For my money, training your staff on Company Goals, Company Issues and Company Priorities is far more productive at this stage of growth then sending them to expensive conferences and outside training programs.
Where Stage 4 was all about developing strong independent departments, Stage 5 is all about Integration. Because you took the time to develop strong fiefdoms, the art of integration will be much smoother.
You lead by showing that you value people's input and you work to get commitment through participation, not dictation. Having spent the time and energy to build a great team, look to them for guidance and advice in their areas of expertise.
Teamwork and collaboration is crucial as you lead your team into the future.
Key Challenges
Staff buy in
Staff satisfaction
New staff orientation
Weak business design
Hiring quality staff
Compete from Strength by Developing a Strategic Perspective
Patterns of behavior have been established, processes are in place, the morning walk through your company has an air of familiarity that feels good. Feels comfortable. Your confidence in your staff is strong.
If you've captured the imagination of your managers, they now provide the stability to make good decisions, connect with their direct reports, and provide sound input that keeps you updated on critical issues.
This level of engagement is critical in Stage 6 because it's time for you to, once again, shift your view, your attention and your energy. The company must pay strong attention to its strategic orientation in the market place. With 96 - 160 employees, it's time to look beyond the arena you have built and prepare to take the company into a more challenging competitive environment.
You must set in motion the longer view, move from an annual planning perspective into a multi-year strategic perspective and drive the organizational culture as a visible leader. Emphasis is once again on people as your top growth gate with profit/revenue as a second priority.
As a leader of a Stage 6 company, you must engage a unique blend of managerial and visionary styles. Orchestrating a company's move into Stage 6 requires a leader who believes strongly in the power of effective and consistent communication. Your leadership style must help create synergy by connecting people to each other, be able to heal rifts in a team, and motivate during stressful times.
It's also time to revisit some areas that you might assume are okay:
How's the vision? Still clear? Just make sure you've revisited this with your management team to make sure there's not been any erosion. This doesn't happen because people don't believe in the stated vision, it happens because you've trained and developed strong-minded staff - they will be testing and questioning the direction of the company.
Values still driving behavior? Again, check in frequently with how these are being adhered to in your company. Are the values still a part of determining who gets hired? Are people making decisions based on those values?
If your vision and values have survived the complexity level you've grown to, then your culture should be well defined. Any erosion of the culture you wanted to create will manifest itself clearly at this stage of the company's growth.
Do you have a powerful strategic plan in place? More critical than ever is your ability to put a strategic plan in place that focuses the company's resources on opening up new markets, refreshing products and/or services and directing the company's future growth.
Key Challenges
Products not differentiated
Inadequate profits
Slow getting offering to market
Weak business design
Marketplace changes too quickly
You are now running a company of anywhere from 161 to 500 employees. Quite an accomplishment. You might think to yourself, “finally I can sit back, relax and enjoy the ride.” If you do that, it could be the biggest blunder you experience. Be proud of what you’ve accomplished but relax-no way. Not if you want to continue to make success happen.
If you are like most CEOs, you spend very little time in reflection of where you have come from - you move quickly on to your next challenge, your next successful endeavor.
Stage 7, the Visionary stage of growth, offers great opportunity while throwing even larger challenges your way.
The phrase "You can tame a wild duck but you can't make a tame duck wild", speaks volumes about a CEO's challenges in Stage 7.
Management's efforts to professionalize the company often crush the entrepreneurial spirit that is so necessary in order not to be left behind by other, newer entrepreneurial firms.
Because of your size, your company has started to form layers of bureaucracy that quickly impede performance and growth.
As you 'listen' to your direct reports and employees talking around the
proverbial 'water cooler', are you hearing:
"That's the way it's always been done, I don't know why they want us to change."
"We really don't have the right people on board to make that change."
"No one cares about what I'm doing, so why should I care?"
"I don't know what's going on - they never tell us anything anymore."
If there is one thing I know from experience, if you aren't telling your employees what's going on, they are making it up on their own. And their 'fill in the blanks' verbiage is MUCH different than yours. Theirs is full of fear, uncertainty, negative speak and 'attitude'.
Your primary role as the leader is to spend 75% of your time as the
Visionary. You need to engage, excite and empower your employees to think about and see the new vision of where the company is going from here.
Spend time communicating the vision, the strategic plan, and your desire to maintain the entrepreneurial spirit of the company that got you where you are today. And then make sure you are 'walking your talk.'
Don't let your company fall prey to the 'invisible employee' syndrome. You now have enough employees in your company that the mediocre ones can simply 'fall through the cracks'. It's sometimes easy to overlook them, allowing these employees to become 'invisible' and if you do, you are making a mistake. Don't let them become an invisible negative force in your company - either focus on raising their performance level or part ways.
A company in Stage 7 will have an overwhelming tendency to gravitate toward safety and equilibrium. It will start to act like a large company - its decision making is slower, the product innovation is slower, and the bureaucracy is formidable.
It's harder to respond as quickly as a younger, more agile organization. Your job as the leader in a company of this size - along with sustaining and propagating the vision of the company - is to create a degree of disequilibrium and chaos within the enterprise.
Your goal? Create a corporate culture that supports entrepreneurial
endeavors.
How? Start by going through your company lighting fires of inspiration and innovation. Be relentless in allowing mistakes in the pursuit of new endeavors.
Get out from underneath the strategic and operational challenges in order to identify and carve out new opportunities.
Recapturing the entrepreneurial spirit that you had when you were a much smaller, much more nimble company is critical. Identifying new opportunities, fostering exploration, developing action plans and assigning the necessary resources to manifest those plans is your new paradigm.
1 - 10 Employees
Stage 2: Ramp Up 11 - 19 Employees
20 - 34 Employees
35 - 57 Employees
58 - 95 Employees
96 - 160 Employees
161 - 500 Employees
The 7 Stages of Growth were developed by James Fischer, Founder of Origin Institute, a research and consulting company out of Boulder, CO. The Stages of Growth are based on a nine year study of entrepreneurial companies in the Front Range and Silicon Valley and interviews with over 700 CEOs to understand and decipher the patterns, the behavior and the characteristics of growth in entrepreneurial enterprises.