Small Businesses: Understanding your pathway forward
When I taught corporate strategy at the University of Houston, publishers would send me Strategic Management books by their authors hoping they would be used in my classroom.
For the most part, these were all very thick tomes with an assortment of large company case studies. This was worthwhile for students wishing to pursue executive careers in large enterprises.
However, as my focus shifted to advising small company entrepreneurs, these books were not something I could recommend to clients even though the concepts were very worthwhile.
Entrepreneurial Operating System (EOS)
Then, I was introduced to a book by Gino Wickman entitled Traction: Get a Grip on your Business.
It is specifically geared for small businesses.
Wickman has thoughtfully integrated the planning concepts espoused in Strategic Management books in a straightforward and thoughtful manner for the small business owner.
It is very digestible and takes a wholistic systemic approach.
4 Stage Growth Model for Small Businesses
Clients have found EOS very worthwhile, but continue to ask the question of ”What does the pathway forward look like for a small business?”
Said another way, “Where am I at in trying to grow my business into a successful enterprise and what comes next?”
The “what comes next” leads to the idea of stages.
I have developed this 4 Stage Growth model to answer that question.
Bigger businesses have already gone through these stages, so this is particularly focused for smaller companies with less than $50 million in sales.
This is not a researched base model but rather a combination of my business experience, education, teaching, and advising small business clients.
The feedback has been very supportive of the model indicating a lot of face validity.
The purpose of this blog is to overview the stages. Other blogs go into specific phases with advice and suggestions.
When a business is in the early stage, revenues are not robust.
Achieving a million dollars is often a goal.
Cash is king and everything if focused on getting customers and limiting expenditures.
The offering is the owner’s idea without a lot of customer validation.
Processes are not well defined and often ad hoc.
Planning is sketchy at best and words like leadership are somewhat of a distraction.
In general, the time horizon is noticeably short with firefighting on a day-to-day basis.
The owner(s) is/are getting excited about the organization’s success.
Traction with new customers or expanding activities with current customers generates a growing revenue base.
Typically, revenues run above one million and below ten million.
The organization is approaching a going concern where the owner is less critical to survival and growth.
Revenues are providing cash to invest in the business and improve operability and the ability to compete more effectively for new business.
The loss of key customers can prove devastating.
There is a fair amount of activity on generating new ideas for products/services/customers and more sophisticated approaches to attracting customers through marketing.
Still planning is heavily oriented towards current year.
Planning still may be rather ad hoc lacking strategic focus synchronized with tactical game plans.
Planning framework including mission, vision, objectives, value propositions, target markets, strategic themes, competitor analysis, goal cascading, accountability, and so forth are often lacking.
Effort does not seem to match current rewards for many with the focus still on the here and now.
Other key players beyond the owner have evolved and performed critical roles.
Often, these players interact more, and teamwork is emerging.
Organizational structure is still somewhat loose with not overly formal role definition.
The size of the organization varies based on the nature of the product or service provided.
Often staff exceeds ten and but generally does not exceed fifty and almost always less than one hundred.
Contractors are used to avoid adding staff in many cases.
People can perform multiples functions.
Processes have emerged and there is a level of documentation and sometimes training.
Processes are often changing and adapting as more effective functioning progresses and customer feedback requires modifications to be made.
Local market continues to dominate customer base in most cases.
Customer loyalty has emerged and identified as key customers with a retention focus.
Expenditures for sales and marketing have expanded significantly.
Often there are some dedicated people to sales beyond owner and budgets for improved web sites, marketing collateral, and marketing campaigns.
Owner and key players are beginning to think about how to motivate and retain employees.
Decision making processes are receiving some scrutiny.
Delegation has emerged where owner feels comfortable with key players carrying out more defined roles.
Level of participation in decision making varies but generally still well controlled by owner.
“Take Off” Phase
Customers are pulling the business into extended and new offerings.
Revenue generation feels robust giving the confidence to be more aggressive in investing and taking business activities to next level.
As revenues trend towards ten million the excitement begins that the business could be much bigger.
This phase generally drives the business through a doubling of sales approaching $20 to $25 million.
Organization has become a going concern and largely self-sustaining if the owner were to disengage.
Thus, businesses also becomes sellable for potential multiples of revenue depending on the growth rate of revenue and profitability.
Owners consider acquiring competition to expand current market or move into new markets.
The leadership team recognizes that making this leap forward requires much more sophisticated planning.
Planning exercises with key staff and down deeper in the organization occur.
Outside consulting assistance can occur with business plans developed and EOS type structures implemented.
Current year still receives the greatest focus, but plans can extend out 2 to 3 years and occasionally to five + years particularly where new geographic markets are being pursued.
Organization has matured with more structure on roles and responsibilities.
Delegation has taken shape.
Developing staff for further growth is an agenda item as is how to acquire more of the right people to help drive the organization forward.
Often a human resource manager or responsibility is defined.
Owner will not always get involved in hiring lower-level staff, but still heavily engage in getting the right team in place.
Management team is generally defined and often have team meetings.
Decision making generally becomes more participative.
Again, the size of the staff will vary depending on product and services offered but generally greater than twenty and may approach or exceed one hundred.
Operational and organizational processes are often seen as a competitive advantage as they have become fine-tuned for offerings.
Focus centers on developing capabilities that beat the competition.
Accountability around the processes has become an important aspect of daily operations. Often computer system applications play an integral role with key processes.
Strategic account management for key customers has generally emerged.
Much greater understanding of competitors and their strengths and vulnerabilities.
These insights are often brought together to pursue new markets whether geographical or enhanced/new offerings.
The owner now typically sees their role as leader and that developing their leadership further will be key to breaking out.
They begin reading books on leadership and exploring support to improve their leadership and often that of their team.
They begin to assess leadership of their key players.
The organization has matured to a stage where planning systems have been implemented and a natural ongoing routine with a comprehensive framework, guidelines, meetings, and so forth.
Accountability is clear with target objectives and follow-up for business units and individuals.
Revenues are significant often exceeding twenty to twenty-five million but still with clear upside through organic growth and acquisitions.
Sustainability is no longer an issue.
The company is fully functioning with vibrancy and robustness.
Raising money for expansion can impact the growth rate.
Generally, there are clear roles and responsibilities at multiple organizational levels.
Human resource manager/group is an ongoing function managing competitive salary and benefits offerings and performance management systems.
The management team is clear with defined accountabilities.
May have a board of directors or board of advisors.
As with other phases, the size of the organization is dependent on products and services however staff levels may be several hundred.
Empowerment begins to emerge as a discussion topic.
Values are generally well defined and seen as key to an organization’s culture.
Almost always the processes are well defined and considered key to success.
As expansion occurs through mergers or strong organic growth, processes may need a revamp.
Often more sophisticated computer application systems are installed for some key activities.
Processes are generally considered owned by the function or management of the area.
Generally, the company has already moved into new markets from the original conception at the Development Phase.
Sales and marketing activities have matured in Take Off phase and often require revamp to drive further growth with greater sophistication.
The organization expects to move into new opportunity areas often into new geographies as local market’s growth may have played out but are highly leverageable for new entry.
Markets and customers are well defined. Often company has developed a go to market strategy.
Value proposition seen as multi-dimensional.
Company excels on various dimensions such as product leadership, operational excellence, and customer intimacy with one chosen as the lead theme.
The organization begins to evaluate the quality of leadership.
Informal groups have emerged and can begin to counterbalance management team objectives.
New levels of leadership sophistication become important to an organization’s success.
Utilizing the 4 Stage Growth Model
The beauty of the model is that it gives you a picture of the way forward if you are on one of the early stages.
Thus, when you describe your vision into the future you can use the language of the stage you want to achieve in forming your picture of that vision.
It also gives you an assessment of your current position. You are likely to fall into different stages on different elements of the model.
That identifies for you areas that need improvement to reach the next stage.
It is a tool to talk with your team and get their input on where the company stands which promotes dialogue and new ideas.
And, it provides a tracking mechanism on your progress to grow your company.