FCB #007: Stages of Growth: Which Stage Is Your Company In & How Do You Get To The Next Level?

Most firms go through five stages of growth.  Each has its own set of challenges which smart founders must overcome to “take it to the next level.” Scaling a business is not easy, but it gets easier if you know where you are at in the process and what you have to do to get to the next level.

STAGE 1: START UP

Stage 1 businesses are startups. Few essentials (like structure, processes, market fit) are established. It’s all about proving product/market fit and keeping the lights on. During the first two stages, founders are keenly focused on their most pressing needs.

During the startup stage, the leadership is small and necessarily involved in day-to-day operations. The entire team is small and many wear multiple hats.  Direction and priorities are not always clear.  Organizational structure is loose and weak.

 As the founder-owner in Stage 1, you’re still designing and planning your new venture. Your core focus is testing whether your business model and concept is viable. It seems like you’re doing everything yourself, and you don’t really have a solid team or plan in place yet.

 Your key challenges in Stage 1 are planning your business and proving it’s viable.  This includes designing and developing your product, getting enough clients to buy your initial offering, and starting to assemble your team.

STAGE 2: SUSTAINABILITY

Stage 2 is about making your business sustainable. Your focus in Stage 2 is securing your early clients and becoming profitable. At this point, you have a product and now it’s all about aggressively marketing and selling your services.

 Learning more about marketing, social media, and sales funnels is your order of business in Stage 2. You, as the founder-owner, are still wearing just about every hat in the business. Your primary concerns are to prove your business model and then stabilize operations.

 At this point, you start focusing more on hiring staff and developing your basic business systems: marketing, sales, recruiting, production, and finance. Still, your focus is right in front of you. Your ability to look further out in the future – to forecast – is very limited.  You still need to keep the lights on and fund infrastructure for continued growth.

 Your key challenges in Stage 2 is to generate sales, establish your market position, and become a truly sustainable business.

STAGE 3: AN OWNER-RELIANT BUSINESS

Stage 3 is a middle-stage business: one that is still primarily an owner-reliant business. Most small businesses never get past Stage 3 because the founder-owners still want to control everything, have the business revolve around them.

 These owners pride themselves on being the “top producer” in their companies.  If they can’t make the paradigm shift from working ON the business to working IN their businesses, they never will break through to Stage 4, a rapid-growth business that can scale.

 Assuming the owner is aware of the “work on the business not in the business” dilemma, they can start to put together an organizational structure and team that they can start to delegate to, freeing up their time to focus on strategic planning and initiatives.

 One of the key challenges in Stage 3 is the need to focus on building out documented business systems for most key, repeatable business processes. Smart owners delegate this task to their front line workers and build a “systems-dependent” not an “owner-dependent” business culture.

STAGE 4: SYSTEMS DRIVEN FOR SCALE

For smart founder-owners, Stage 4 is all about increasing their capacity and scaling their businesses. At this stage, the owner has learned about all of the key leverage points: marketing, networks, people, technology, systems, and automation.

 Once key processes are systemized, Stage 4 owners take it one step further and introduce automation, artificial intelligence, and machine learning. Depending on the business, robotics can play a big role. All systems are finely tuned to work together to enable scale.

 The other big accomplishment for Stage 4 companies is developing their leadership and management teams. They have fully implemented a strategic planning process and related meeting rhythms at all levels of their organizations. They are able to forecast reliably.

 The key challenge at this stage for the owner is to replace themself with the right people in the right seats, empowering their teams to lead, manage, and run the company.  Their main focus is on strategic growth and the many opportunities that become available with this success.

STAGE 5: AN EXIT-STAGE COMPANY

When an owner arrives at Stage 5, their business could be considered world-class. It is system-dependent, not owner-dependent. It dominates its niche in the market and has addressed the key value drivers (most on this next week’s newsletter).

 Characteristics of a Stage 5 business:

•  The business is run by a competent and winning management team. The owner may still be on the leadership team, but has a replacement groomed and ready to step in.
•  The business runs smoothly whether the owner is there or not. The owner takes lengthy vacations or leaves of absence from the business, not because they want to, but to prove to a future buyer that the business no longer depends on them.
•  The clients have purposely been trained to look to the business and its brand, not the owner, to fulfill marketing promises.

 The founder-owners of Stage 5 business have three possible exit strategies:

1. Sell - Once you’ve built a Stage 5 business, you’ve created a very valuable asset with clear market value. Selling you pride and joy is one way of realizing the tremendous equity you’ve built.
2. Continue to Scale - Many owners reach Stage 5 and realize they’ve built a scalable machine that is capable of scaling 10X, 100X, or even 1,000 X. They are excited about taking it to the next level, which is a level they couldn’t even dare to imagine when they were starting out.
3. Own Passively - Some owners, now that they’ve built a world-class, turnkey business, decide to own it passively and enjoy the fruits of their labors, knowing their new CEO and management team will continue to run it professionally well into the future.

CONCLUSION

Some key takeaways:

Stage 1 - Get your business plan put together, capitalize, create and sell your product, and work you butts off.

Stage 2 - Get you basic marketing/sales, production, and back-office systems in place and start focusing on building your team and infrastructure.

Stage 3 - This is where it gets tricky.  You’re starting to have success and it’s starting to go to your head.  You think it’s all about you, but in the end, that paradigm is not your friend.

Stage 4 - Hooray!  You got beyond yourself and made it all about the business and your brand, not about you as the founder-owner. Your business is fast-growing: a scaling machine!

Stage 5 - You worked hard for this, and now you have choices: options!  Do you sell, continue to scale, or own passively?  The choice is yours.  Savor the moment.  You’v earned it!