Growth is the critical aspect for any business to survive. As they say, "if it's not growing, it's dying." hence, scaling up is not an option but a compulsion, especially for small and medium-sized businesses, to survive. But, for an entrepreneur, it is more critical to understand the stages of growth to plan and structure the business for successful expansion year after year effectively.
The Enterprise Growth Model
This model was developed to help entrepreneurs identify and proactively solve business challenges associated with a growing company. It was developed over a period of 3 decades after studying hundreds of small and medium enterprises across industry verticals. The study was aimed at discovering the growth pattern of successful businesses that were able to overcome the growth chasm. It also identified why most businesses do not survive over five to 10 years or longer, let alone be able to scale up.
This growth model suggests that any successful business goes through 7 different stages. These stages are not defined based on revenue or profitability but the number of employees. Revenue is only one of the determinants of growth. However, most organizational complexities are developed due to the people working there. Managing human resources is the most challenging part of a growing organization. As the business expands, it hires more and more people to support its operations. Unless the business is structured around the human element, it runs into chaos in no time. Hence, at each stage of its growth, a business requires different management approaches to simplify the stumbling blocks and stay focused on growth.
Stage 1 Company : Start-up
The business operates with less than ten employees.
Passion and guts are the fuel at this stage of growth.
Revenue and Profit is the dominant Gate of Focus.
Innovate quickly - don’t get locked into any one specific focus.
Focus on creating a vision of where the company is going and how you will get there.
Don’t try to manage the chaos; perfection is not the issue.
Get processes in place to track and preserve cash.
Stage 2 Company : Ramp-up
The business grows beyond ten employees but has less than 20 employees
Growth is now paramount.
Ensure sales in the door.
Critical to monitor key business health indicators daily.
Communication among the team should be as frequent as possible and in writing.
Profit is still a dominant Gate of Focus.
Begin to identify key people to take on more responsibility.
The biggest challenge is hiring quality people.
Stage 3 Company : Delegation
The employee strength grows between 20 to 34.
Now the company has grown beyond the owner’s span of control.
The delegation stage is the most challenging and delicate stage for making a transition.
People are the priority Gate of Focus. Profit is second.
Leadership must begin to delegate, train, and encourage accountability throughout the company.
Look for a staff revolution as employees demand more responsibility. It is the time to establish the culture of the company and its core values.
Stage 4 Company : Professional
Company now has a team of 35 to 57 employees
The complexity of the company requires advanced operational and managerial systems.
Competitive forces are very intense.
Bring on experienced managers or in-house train staff.
Create influential performance-driven departments that compete with each other.
The process is the Gate of Focus – allocate 5-10% of gross revenue for new systems.
Communicate how growth is impacting the company as often as possible.
Invest in training before it is needed.
Stage 5 Company : Integration
At this stage the company has 58 to 95 employees
Team alignment is critical.
Turn an independent group of managers from Stage Four into a harmonious, synergistic foxhole team.
Growing revenues/profits are the primary focus.
The process should be the last priority.
Integrate all departments.
Decisions should be made according to a plan.
Without integration, the size and complexity of the company will not allow the company to attain efficiencies of scale.
Stage 6 Company : Strategic
The company employee strength becomes 96 to 160
New staff orientation is critical.
People are the primary focus.
Company goal-planning is now the responsibility of the entire management team, and theirmain focus becomes multi-year strategic plans.
The competition will start noticing you, unlike you being a small fish in a large pond.
Maintaining staff-buy requires much more communication and weekly sharing of goals, vision, and mission.
A weak business design could lead to eroding margins.
Stage 7 Company : Visionary
The company has an employee strength between 161 to 500
Foster exploration, identify new opportunities and develop action plans to manifest these plans.
Create a corporate culture that supports entrepreneurial endeavors.
Overall business model to optimize direction and margins.
People are again the most critical priority.
Enormous demands on leadership to be Visionary as the company begins the journey into a whole new world of organizational challenges.
Begin succession training for critical positions.
Each of the above stages of a business demands the CEO or the founder to adapt to the company's needs in the current stage and plan specific activities to move along the growth curve. The organizational architecture needs to be different in each stage to manage internal complexities and stay focused on growth towards the next stage.
Evolution is an inevitable part of every business considering today's dynamic environment, which is quite volatile, uncertain, complex, and ambiguous (Welcome to the VUCA world). The only way to survive and grow is through continuous innovation and embracing organizational transformation as a part of the growth process.