The Business Growth Lifecycle helps leaders identify their performance today and what they need to accomplish to scale to the next level.
Based on decades of experience with thousands of business leaders, the Business Growth Lifecycle is an approximate timeline of how successful organizations scale. It also outlines the opportunities and pitfalls to be aware of at each stage of scale.
As a leader, you must know your organization’s current stage to be able to recognize when it’s time to change in order to move to the next level.
Only one out of ten companies make it to Level III. The remaining 90 percent slide back, shrink, fight the same battles in different ways, or go out of business when they hit the transition period between Level II and Level III.
Learn about the Three Levels in The Business Growth Lifecycle:
Level I – The Startup
Level II – Rapid Growth
Level III – Entrepreneurial oriented, professionally managed and led businesses
Level I: The Startup
Business Growth Lifecycle
LEVEL I CHARACTERISTICS:
- The founders are intimately involved in the day-to-day running of the organization.
- The primary emphasis is on producing and selling products or services.
- The need for fundraising to meet the vision of the business quickly emerges.
- Management, development, systems, and planning receive minimal emphasis.
- Communication is casual.
- Employees work long hours and are paid modest salaries (typically with equity).
- Management and leadership react more to customer needs than to employee needs.
- The founders are either technically oriented or incredible market builders.
- They are usually not skilled managers.
- The company culture (the non-negotiable values and ways of treating customers and one another) is generally understood. This does not require a lot of reinforcement.
- Innovation and new ideas happen quickly, without friction.
- Every day at the company can seem like a fresh, exciting opportunity.
- It is an uncertain, but fun time.
- Growth is sporadic.
LEVEL I: Top Warning Signs of Success™
If these problems are present in a company, they will eventually cause “train wrecks” that slow down or stop the company’s ability to scale. It is the role of the leader(s) to predict and resolve these problems before they show up in the results:
- When there are two or more founders or partners in the business, there is confusion around their functional role and their value as a founder.
- New employees are less motivated by money and more motivated by opportunity and work environment.You’re solving today’s problems without thinking through the long-term ramifications. For example, custom solutions or one-offs are created for customers.
- Systems have been “hacked” together and don’t scale well.
- More and more people are hired, but founders have trouble working “on” the businesses, instead of “in” the businesses.
- Minimal cash planning and/or misuse of cash result in capital shortages.
- Entrepreneurial founders are often tempted to diversify into unrelated products, services or businesses.
- Outside influences start to cloud the original vision of the business.
What happens to Level I Companies in the Business Growth Lifecycle?
With the right idea, some businesses can brute force their way through this inflection point. For everyone else, leadership and processes/systems need to change for Level I organizations to evolve to Level II. Once in place, usually after some level of turmoil, the organization generally advances to the Level II stage.
Level II: Rapid Growth
Business Growth Lifecycle
LEVEL II CHARACTERISTICS:
- You start to realize you don’t know what you don’t know.
- The business is growing at a rapid pace.
- You’ve found your product/market fit.
- Business growth is funded from outside investment or cash flow.
- The business has multiple locations, such as sales offices, branch offices or off-site warehouses.
- The organizational focus diversifies. You start paying more attention to areas such as strategy, marketing, employee benefits, budgeting, etc.
- Jobs start to become more specialized.
- The growth rate is faster than in Level I, accelerating at a very fast rate.
- The culture needs to be explicitly communicated and reinforced in words and actions.
- You start to benchmark yourself against other rapid-growth businesses. You stack up well.
LEVEL II: Top Warning Signs of Success
Leadership
- The executive leadership team does not function as an aligned team. For example: entitlement plagues some executive team members, long-term loyal employees cannot scale themselves to meet the needs of the business, friction emerges between old and new leadership.
- The org chart starts to look like a rake – everyone reports directly to the CEO.
- The org charts are built based upon the people currently within the organization – not the future needs of the organization.
- Executive leadership team fails to understand or react to changing market conditions or increasing competition.
- There is less communication from the top.
- Too many strategic bets are placed in the hopes that few will work.
- Entrepreneurial owners and leaders are tempted to sustain rapid growth indefinitely without the infrastructure needed to scale the business.
- One or a few customers represent a disproportionate amount of the business, increasing vulnerability to competition.
Management
- The organization feels the effects of mismanagement. For example: top-performing individuals are brought together to become the management team, but they lack the experience of working in a rapid-growth organization, It may be their first job as manager or leader. Delegation becomes increasingly difficult for the C-Suite leaders, but managers don’t have the authority to make decisions on their own.
- An “out of touch” feeling pervades as senior management is less engaged with day-to-day operations.
- It becomes apparent that managers are not developing as skilled leaders.
- Silos start to form.
- Poor decisions are being made by unqualified managers in areas such as systems, facilities, or recruiting.
- Meetings are awkward, time-consuming, or ineffective. Employees spend a disproportionate time in meetings.
- Accountability becomes confused and sporadic.
- Increased internal problems threaten the organization’s ability to scale. For example: outdated corporate cultures, “Look the other way” deals on non-negotiable values for certain “special” employees, and bureaucracy sets in
- Major shortages of management time occur.Some key employees become disenchanted and leave.
- Throughout the organization, relationships become more important than qualifications or accountability; the organization becomes a political beast.
System/Processes
- Inefficient or outdated systems and processes.
- No predictable people process that attracts, motivates, and retains the best employees.
- There may be an annual strategy, but no ongoing mechanism to track progress toward the goals.
- Despite town halls, all-hands, fireside chats, and employee communication, you start to hear, “We don’t get enough communication.”
- Some employees in the organization start to complain that “Things aren’t like they used to be” or “We aren’t as nimble as we used to be.”
- There are “pockets” of both tight and loose cost controls.
- Vendor relationships become strained. Long-term service providers are no longer effectively able to serve the organization.
- Financial performance reporting and control systems are often inadequate for sales volume.
What happens to Level II Companies in the Business Growth Lifecycle?
Level II organizations face a crisis before making it to Level III. You can’t brute-force your way through this transition. Three possible outcomes:
🌪The Twister: The company fights the same battles day after day, month after month. The Twister of activity (churning around and around) eventually wears out the people in the business.
🔫The Shrink Ray: The company can’t crack the code. The company shrinks because they can’t solve the problems of scale. They grow again, but since they haven’t solved the root causes, they have to shrink again.
💰The Money Option: If a rapid-growth company can’t break through to the next level, it’s a prime target for acquisition.
To scale to Level III, businesses must solve three key issues:
- An aligned leadership team
- A true management culture
- Processes and systems that can handle the weight of scale
💰Remember the money option? Many Level II companies that can’t break through to Level III are acquired. That’s because an outside investment will unemotionally bring in a new, aligned leadership team and a true management culture. Guess what? Qualified leaders and managers will install systems and processes that can handle the weight of scale.
Level III: Entrepreneurial oriented, Professionally Managed and Led Business
Business Growth Lifecycle
LEVEL III CHARACTERISTICS:
- The entrepreneurial spirit is still alive and kicking. Smart bets are placed on the future of the company.
- There is an appropriately robust operational rigor that brings the strategy to life.
- Little to no complacency.
- Aligned executive and middle management teams are in place and are staffed with qualified people.
- Accountability is clear and well managed.
- The organization has an identity beyond the founder and the current leader.
- The organization has well-defined and communicated short- and long-term strategies and plans. They are being executed.
- Signal strength of communication is strong – from the top of the business to the bottom. The overall vision is reinforced through an ongoing strategy process.
- Managerial leaders are doing more managing (working “on” the business) than technical work (working “in” the business). They’re focused on developing systems, accountability, and people that will allow the business to scale.
- Unproductive or unprofitable products and services are phased out.
- Market research, development, and planning is timely and competent in all areas of business such as products, services, customers, and competition.
- Competent staff, management and leadership development processes are in place, including performance feedback, training, and coaching.
- Managers effectively use financial and non-financial performance data in presenting, planning, decision-making, problem-predicting, and expense control.
- Profitability is strong.
- Financial health is strong and cash flow works well.
LEVEL III: Benefits of Becoming a Level III Organization
- Survival and continued development of the organization are not dependent on one or a few people.
- Customers, investors, and employees are enjoying the fruits of being a Level III business.
- More capable executive, management, and technical employees can be hired and retained.
- A strong middle management team frees ownership/executive leadership to plan, predict problems, and react to major opportunities.
- The organization can more effectively expand product lines and markets.
- The organization is able to quickly react to an adverse economy or market.
- Profitability is usually sustained and predictable.
- The increased flexibility and stability generally makes the business more enjoyable for owners, managers, and key employees.
- The owners can spend more time away from the business if desired.
- The business is more marketable at a premium price if the owners desire to sell (privately or publicly).
- Other companies can be successfully acquired.
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