Many companies flat-line after a growth spurt, as the organization, faces new issues to handle the increased customers and orders and complexity.
To explain why this happens, I have included part of an article that appeared on the Growth Institute Blog– “4 Stages of Growth.”
Most businesses stay at Stage 1 or get stuck at Stage 2– less than 10% make the leap into Stage 3 [where the owner has sustainable financial value and freedom].
This is a good outline to see where you should focus your attention and invest your time and money:
4 Stages of Growth, by Daniel Marcos [Growth Institute Blog]
The four stages are a roadmap that guides how your focus, priorities, and key decisions will change as your company grows. The roadmap will prepare you for the barriers you will face and the new skills you need to develop to overcome them.
Here is an overview of the four stages of scaling up:
Startup: 1-5 employees
Grow up: 6-15 employees
Scale-up: 16-250 employees
Dominate your industry: 250+ employees
The Dynamic Growth Model
For a company to scale to $5, 10, or even 100 million in revenue, you need to understand what to expect at the four stages of scaling up, and how to shift gears from one stage to the next.
Shifting through these four stages is what we call the dynamic growth model. Let’s now look into each stage of the dynamic growth model so you understand the priorities and barriers of each stage, plus the key decisions you need to make to go to the next stage. [To read about all the stages see the full blog here].
Stage 2: Grow up:
At this stage, you have grown to 6-15 employees. You have fixed expenses such as salaries and rent. This is a discovery stage where an entrepreneur ages the most. It’s the most painful stage because you begin to face a lot of cash flow problems and leadership problems.
Focus: 100% of sales.
Priority: Hire the right team.
In Stage 1, you don’t really choose your employees because you are not able to offer an attractive salary or attract people with a good brand. So at Stage 2, your employees actually choose you.
By the time you reach Stage 2, you need to switch gears. Now, you are choosing your employees. You have to be more selective of who you hire, and have clarity of their role.
In Stage 1, the entrepreneur wears multiple hats — from administration to technical work, accounting and more. At Stage 2, you have to become a leader.
Ability: Delegate, predict, repetitiveness
As a leader, you now need to know how to delegate, set up systems and procedures, and leading your team to help you grow the company.
Decisions: Cash and team.
As mentioned earlier, this is the stage you begin to face cash flow procedures now that you have fixed expenses. Thus, your key decisions will revolve around managing cash flow and hiring the right people who can grow your business.
Note how Daniel points “it’s the most painful stage” and yet so many businesses get stuck here– causing that hamster-wheel feeling for owners who are frustrated that growth hasn’t led to a better team, a well-oiled machine, higher profits or less stress and time off.
You can stay at Stage 2 with a smaller team, but evolve to a professionally run and super-profitable business– it’s all about the focus and decisions [people + process].
You may have heard this quote: “The purpose of a business is to create and keep a customer” -Peter Drucker
One of the best presentations I attended at the Scaling Up Summit in October was by Christo Popov, a coach for fast-growing businesses in Europe.
He started with that quote, and simplified strategy down to three crucial elements –
What is “the market” for your goods and services?
Who is your ideal customer?
What do customers need?
-> and then figure out your most profitable offering: “What almost no companies offer but [most] or some clients care about.” [credited to Kevin Daum of the Awesome Experience.]
Sounds so SIMPLE right?
Yet according to statistics Christo shared:
75% of businesses have not clearly defined their capabilities
90% admit to missing opportunities
80% of employees don’t understand their strategy
8% of those with a clearly defined strategy actually execute it well!
The moral of the story is that this lack of strategic focus and execution planning by your competitors is leaving a potentially underserved client-base for you.
This is the concept of a “niche” business.
When you offer something your competitors do not and your customers want it… you have more pricing power and higher revenues and profits.
This is far preferable to being a tiny fish in a big ocean of companies with a commodity competing on price. Based on economic theory, they beat each other up on price until it’s “perfect competition” – meaning very small profits. That’s not the ideal business to be in.
When people talk about having a strategy, they often consider this just one thing.
While it’s important to have a clear and focused one-phase strategy, there are actually 7 “Strata” [layers] of strategic thinking, from the Scaling Up process:
1. Mindshare — what words do you own in the minds of customers and prospects?
2. Brand Promise— who is your core customer, what needs are you providing for them, three brand promises that are compelling reasons to buy from you, and metrics to know if you are delivering on those promises.
3. Brand Promise guarantee— what you offer to your customers if you break your promise
4. One-phrase strategy— the key competitive “lever” that drives profits, serves your core customer and repels other prospects and competitors [example IKEA is flat-pack furniture]
5. Differentiating activities-– what your business does to execute your one-phrase strategy and is hard for your competitors to copy
6. X-factor— your hidden advantage that allows you to deliver 10-100 times the value compared to your competitors, often expressed as Profit per X [an example is Southwest airlines focus on profit per plane, not per passenger or mile]
7. BHAG [credited to Jim Collins]– your Big Hairy Audacious Goal– your 25-year goal that is aligned with your Purpose and often expressed by X-factor
All of these 7 Strata are designed to be aligned with your Purpose and Core Values and clearly communicated to your whole team on a One-Page Strategic Plan.
When you have clarity and focus on these 7 key elements, they are an amazing filter to make decisions and focus your priorities and efforts.
If you would like more explanation and examples, email me and I will send you an executive summary of Scaling Up by Verne Harnish.
How is your business doing?Can you tell me if you are having a “good” year or a “bad” year?
If you can only check your bank balance or ask your accountant, you are flying blind… this is not enough information to make good decisions and evaluate what is working and what to change.
You may have heard of “Key Performance Indicators” or metrics, so let me tell you why I highly recommend that every business track these on a simple one-page document called a “dashboard.”
8 Benefits of a Dashboard for Your Business
1. Visibility: The new field of “Business Intelligence” or BI shows that the more you measure in your business the more you can improve. What is measured becomes a higher priority and gives you a tangible target to improve.
2. Maintain quality during growth: If your business is growing, you need to make sure that you are maintaining the quality and customer experience standards and your team are not burning out.
3. Alerts before systems break: When you track leading indicators, you can see issues coming before they happen. For example, if you track pending orders you might see that your current production schedule can’t handle the order volume and will be backlogged by two weeks. Dashboards can alert you to this before chaos ensues.
4. Less stress: When you have a dashboard, you can get timely and accurate data on your business health, compared to your targeted goals and to historical trends. This will allow owners and general managers to feel more comfortable letting go of responsibilities while knowing they are “watching the store” and things are running smoothly.
5. The basis for accountability: How do you know your managers are doing their job? Easy, just check their department dashboards. Where do they need more coaching? — you will see a lack of improvement or a drop in their key numbers to let you know there is an area to discuss and determine the root cause. This ongoing process improvement conversation increases the business knowledge and the decision-making competencies of your managers.
6. Data to make/evaluate decisions: Did that marketing campaign or new training program yield positive business results? If you see improvement in your dashboard numbers, you can see if a project was successful.
7. Creates ownership thinking and alignment: This is especially true when business dashboard metrics “cascade” down to departments and to individuals. Employees and managers start to understand what they can do to increase revenue and customer service and efficiency or reduce costs.
8. Improves revenue, productivity, margins, profits, and teamwork. As you can see from the list above, focus and clarity around what is important to drive business value and improve your value to customers will only improve your financial results and operational capacity.
These are not just a “report card” or your income statement from last month– they are far more powerful as they look under the hood at the engine and other moving parts of your business.
Implementing dashboards and management review and planning around the data can be the foundation of high functioning, profitable and growing organization.
“That which is measured improves. That which is measured and reported improves exponentially.” Karl Pearson
If you want to find out how dashboards can be the foundation of your business management and team coaching, you can read the rest of the process in myGuide to Coach Your Team for Accountability & Performance.
Download here: “Guide to Coaching for Accountability & Performance”
If you want to “grow” your business 20% or more in the next year… what is your plan to make it happen?
Do you have an achievable sales plan? Great!
What about a People Plan to handle the additional work and keep your customers happy?
Are you planning any changes to your process or technology to be more efficient?
Do you have a plan to handle the increased cash needs that always come with growth?
Most companies focus on the sales side of growth and just let the People and Operations side just figure itself out… this approach causes the “growing pains.”
You might be surprised to know that I speak to business owners every month who want to grow 20% next year, but they don’t have a plan to get the sales and/or handle the extra work.
“More companies die from indigestion than starvation.” – Dave Packard, Hewlett Packard
According to the book “Scaling Up” by Verne Harnish, these are 4 warning signs that you aren’t ready for more sales:
Your profits are at or below the industry average [or you don’t know what that is]
Processes are not running smoothly now
There is drama on the team or from customers from missed deadlines, increasing mistakes, lack of resources, and “communication” issues
People are working overtime to fix problems
At the very time when the focus becomes more important, your key people start being “too busy” putting out fires to work “on” the business.
Maybe you are doing this too…
Getting dragged into daily work instead of setting aside time to evaluate, plan and work on the key projects that will improve the business.
A few real-life examples:
I spoke with three business owners this week who are living this right now.
One almost doubled the revenue but the profits plummeted.
another doesn’t have the hourly staff in place to handle several new clients so she is filling in and training $12 an hour staff.
A third added more customers but one technician team “burned out” and quit… now he is back in the field and everyone is working 50+ hours handling the overload, and revenues are down 20% and profits are zero. Ouch!
What is the solution?
Build the 4 Foundations to Scale Up– Strategy 6 People + Execution + Cash– all TOGETHER.
Changes to one of these four impacts the other 3– so you need to look at the “whole picture” of your business.
[from “Scaling Up” by Verne Harnish- graphic from book summary by Readingraphics]