Growth & Success(ion)
The Evolving Demands of Small Business Ownership
THE FIVE STAGES OF SMALL BUSINESS GROWTH
adapted from Harvard Business Review, 1983 - N. Churchill & V. Lewis
complete shift
of skills required
AS THE BUSINESS GROWS,
DIFFERENT SKILLS ARE REQUIRED OF THE OWNER
What size company do you run today?
Has it grown over time? If so, how has your job changed... and do you still enjoy your daily routine as much as you did in the early days?
Running a medium-sized company requires a very different skill set from founding a small business. And handing off the management of a business that you founded is arguably one of the most difficult transitions to make.
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Much of the work I do is in preparing companies and their Founders to move between these stages of business. Identify areas where an improvement in personnel or systems will help their company become more profitable and stable.
What stage is your company in now?
> Where would you like it to be?
In the chart above, the white circle represents you:
The Founder. The black dot represents the Business.
Stage One: Startup mode. Your business does not exist without you.
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Stage Two: The vast majority of small businesses do not pass this stage. The company produces income – perhaps even in the low millions – but there is no extra profit floating around (beyond expenses). The owner is tied to the company. This type of business cannot easily be sold, and can even be a burden to transfer to the next generation.
> I have owned and operated a business in stage two. And while I earned a good living and had a lot of pride in the business, when it came time to move on, sale was not an option. Instead, my business partner and I had to continue operations.
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> We learned from this experience how to make the necessary changes. And we transformed the business over a period of years into a profitable, viable, turn-key operation.
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Stage Three: This is a really tricky stage to live in for almost every business owner I have ever dealt with. Because most business owners start out scrappy in the early stages, they become accustomed to a co-dependent relationship with their company – sinking every dime of profit (beyond their personal income) back into the operation. They seem like they should be profitable – but cash flow is still a constant struggle.
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> These are some of the most fun projects to work on. Moving a company to Stage 3. The owner has really built something of value, but is just not equipped with the right tools, people or systems to make it "hum" the way it should. It is satisfying to help founders refine their 'flywheel', and take in profits.
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Stage Four: Many companies (founders) breeze right through Stage 3, moving directly to Stage 4. They are laser focused on growth, which requires continual investment. And then, at some point they burn out. Burnout is never planned for. This makes sale, or retirement, tricky. The company has a proven value. But if margins are thin and the founder is burnt out, it can quickly become a fire sale – leaving massive amounts of value on the table.
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> I have the scars (and rewards) from a battle like this. Fortunately, we succeeded. In preparing for sale of a valuable company, you will encounter sharks, difficult partners (who seem to be very nice), and self-interested people along the way.
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> Founders of companies are not dispassionate investors. They genuinely care about their company and its people. Making ownership changes at a medium or large company that someone has built from scratch is highly personal, and there is a lot of pride (and money) at stake.
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> There is a critical place at the table here for an independent "owner" consultant. Not to work on the business itself – you have managers for that. And also not someone to replace your lawyers, accountants or business brokers. (See 'Working as a Team' section).
> If you're thinking about engaging in the sale of your company, you need someone on your side, who is committed to the project, understands the position you are in, and has personally been through it.
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Stage Five: More often than not, the company achieves this stage without the founder. This is about legacy – the story you leave behind. How the employees feel about you, and the value you are able to create for your family.
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> Does this resonate with you? Provoke thoughts? See it differently?
> Reach out by email and let's discuss.
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