Stages of growth of a business are an important yet often neglected responsibility of being a business owner. Stages of growth do not occur on a specific time table, they occur at different times in the life of each business. The important thing to be aware of is that each stage must be recognized as each, and requires a different approach, different skills and different management approaches to maintain sustainability and profitability.
Let’s examine the first four stages (there are a total of 7) of growth in a company’s life cycle:
- The Start: this stage usually starts off with an idea for a product or service for an identified market. Enthusiasm on the part of the founder usually fuels this stage with the main function being the solidification of the product/service and the delivery to the target audience. This stage can last to perhaps a million dollars in revenue.
- The Growth: initial success leads to a new set of problems: systems, cash flow, employees, accounting, collections, financing and equipment, just to mention a few. Juggling the start of the business was a lot easier for the owner than coping with these new challenges. Failure is often seen at this stage as many owners don’t understand the infrastructure required to establish an effective operational system. This is the stage where a founder needs to admit his limitation and consider management help.
- Change to professionalism: perhaps informality was the mode of operation in the first two stages, but once revenue approaches 5 to 8 million dollars, formal administration, defined organizational roles, management controls and planning become important. At this point the business should be “professionally managed” and the role of the founder may undergo a drastic change.
- Developing the professionally managed firm: we identified the first two states as the entrepreneurial phase of a business. Stages 3 & 4 build the professional management system. Things like budget, profit, innovation, leadership and even corporate culture become the main focus.
The first four stages are not necessarily tied into a specific revenue stream. There are many indicators that signal “growing pains” which must be addressed. A few of the indicators include spending too much time “putting out fires” or not having enough time to get the necessary work completed. When an owner feels that he must do all the work himself because his employees aren’t capable is another often identified issue.
Many business owners don’t want to take a step back and take an objective look at their companies. Recognition of the different stages and how to transition between them is best accomplished with the help of a trusted advisor who can help you take that necessary step back.
Systems permit ordinary people to achieve extraordinary results. Michael Gerber
Nick J. Petra CFP