Growing Your Small Business to the Next Stage
As a business grows, its needs grow, too. While many companies tend to "evolve" from one stage to another, more successful business leaders learn to streamline operations and grow their businesses smartly and efficiently.
Corporate growth can be broken into four stages, each with different characteristics:
Stage 1 — $.5 to $5 million in annual revenue
- Energy and creativity
- Organic growth
- Processes and procedures just evolve
- Limited profitability analysis
Stage 2 — $5 to $25 million in annual revenue
- Processes need to be streamlined and stabilized
- Initial organizational realignment may be required
- Information access is improved through better reporting
Stage 3 — $25 to $100 million in annual revenue
- Customers and competition force change in the organization
- Organization continues to realign; stronger internal talent requirements
- Continuous improvements
- Performance metrics improving
Stage 4 — $100 million+ in annual revenue
Business transformation takes place
- New applications
- New processes
- New organization
- New performance metrics
Companies that grow most effectively don't just let the business evolve between stages. Leaders strategically direct change and manage the people, processes, technology and infrastructure through each stage.
The transition from Stage 1 to Stage 2 can be the most challenging for entrepreneurs. Their business vision may have included growth, but probably didn't plan for the challenges that growth would present for them as leaders,
For example, for the CEO, CFO or COO of a Stage 1 company, everything moves quickly. You may be more focused on the day-to-day operations than on strategic planning. When you get to Stage 2, you need to establish organizational infrastructure, processes, policies and standard operating procedures and learn to use technology more effectively. This is when it becomes important to surround yourself with the right people within the company and as advisors. During this stage, you should also create an invaluable resource for your company: an informal board of corporate advisors, including legal, accounting, marketing, finance/banking, technology and overall business optimization experts, who can provide insights and best practices. Take advantage of helpful organizations for small business entrepreneurs, such as SCORE, Vistage and your local office of the U.S. Small Business Administration (SBA).
Next, focus on the four elements that facilitate growth between stages: people, processes, technology and infrastructure.
- People: The team that starts the company may fit well in the entrepreneurial Stage 1, but may not be well suited to more corporate stages. You may have tough calls to make in putting the right people in the right positions, especially key roles such as CFO, COO, sales director and customer service manager.
Processes: In Stage 1, the mantra is "just get it done." Make the sale, receive the customer's order, fulfill the order, do it well, send it to them on time, collect your payment and — hopefully — make a profit. In Stage 1, you and your team wear many hats and do whatever it takes to "get it done." As the company to grows into Stages 2 through 4, it's time to establish processes, policies and procedures. The right administrative framework will ensure that things are consistently done the right way. As your entrepreneurial business grows and you add people, you must provide guidance and training to maintain quality and establish essential performance metrics to measure effectiveness.
People can be the biggest obstacle here. Getting your employees to change old habits or systems can be a tough sell. Studies from groups such as McKinsey, have shown that change management is one of the most critical components to success in any significant project, whether implementing new technology, new processes or a company merger.
Technology: Every day new technology options emerge or gain popularity. For example, cloud computing has been around for decades, but is seeing renewed attention. Cloud-based systems reside in servers in very secure data centers and are managed by teams of tech professionals who support these systems for multiple companies and users.
With the advent of personal computers (PCs) and networked PCs in the late 1980s, many small-to-midsized businesses (SMBs) started running core accounting and other systems internally. But as the companies and systems grew, so did the staff to support these. Stage 1 and Stage 2 companies may not be able to afford to compete for talented IT staff and it may not be a top priority. For many of these entrepreneurial companies, technology is simply a tool that they can use to operate more efficiently and support their growth. Stage 1 and Stage 2 companies may want to consider using cloud-based technology to store and manage their data. Stage3 and Stage 4 companies may want to invest in internal IT teams to handle their growing needs.
- Infrastructure: At the core, assessing your company's infrastructure means focusing on facilities (e.g., warehouses, fulfillment and distribution centers, corporate offices, sales offices, call centers for customer service), all of which may be managed internally or outsourced. Infrastructure also includes aspects of your supply chain and distribution channels. At each stage of growth, take the time to evaluate your infrastructure, make sure it is the best fit for your company's present needs, and streamline where necessary.
By focusing on these key areas and strategically changing and managing your company's people, processes, technology and infrastructure through each stage, you will be able to grow your business smartly and efficiently, rather than just "evolving."
The views expressed are those of the author and do not necessarily reflect the views of the publisher.