As a company grows, the company’s leader often needs to change their leadership style.
By Sam Keller TEC 62 Chairman
Business researchers have long known that there is a business lifecycle. Here is what the lifecycle looks like.
Stage I: Start-up
- The Idea
The business starts with an idea of the founder – a product or service that the founder passionately believes is needed by others and can be sold or delivered at a profit. In the very initial stage, which I call pre-revenue, the founder will seek funds from friends, family and from Angel Investors. In this stage, the main problem of the business is finding customers and finding the resources needed to deliver the product or service offered. The “office” is often a spare bedroom or a garage. Key questions are the following:
Can I attract enough customers, deliver my products or provide my services well enough to become a viable business?
Do I have enough money to cover the considerable cash demands of this start-up phase until revenues increase enough to allow the business to become cash flow positive?
At this stage, the organization is a simple one—the owner does everything and directly supervises few if any subordinates. Business systems and formal planning range from minimal to nonexistent. The company’s strategy is simply to remain alive. The owner is the business, performing all the important tasks.
By now the business has demonstrated that it is a workable business entity. It has enough customers and satisfies them sufficiently with its products or services to keep them. The key problem thus shifts from mere existence to developing a sustainable/profitable business.
The main issues shift to:
Can we generate enough cash to break even and to cover the repair or replacement of our capital assets as they wear out?
Will the business continue to grow enough to allow both fixed and variable costs to be covered, i.e., become profitable?
Can we generate enough cash flow to make it to the next stage – Growth?
The organization is still simple. The company may have a limited number of employees supervised by one or more managers. The owner still makes all the major decisions and the managers carry out the rather well-defined orders of the owner.
Systems development remains minimal. Formal planning is, at best, cash forecasting. The major goal is still survival, and the owner is still synonymous with the business.
Stage II: Growth
By now, the company has attained true economic health, has sufficient size and product-market penetration to ensure economic success, and is profitable.
Growth requires cash so in this stage the key problem is how to grow as rapidly as possible and how to finance that growth without running out of cash.
The most important questions are in the following areas:
Can the owner delegate responsibility to others to improve the managerial effectiveness of a fast growing and increasingly complex enterprise? Further, will this action be true delegation with controls on performance and a willingness to see mistakes made?
Will there be enough cash to satisfy the great demands growth brings?
How can we prevent cash flow from being eroded by inadequate expense controls or ill-advised investments brought about by owner impatience?
Organizationally, the company has grown large enough to require functional managers to take over certain duties previously performed by the owner. Again, these managers should be competent, but key decisions will continue to be made by the owner. This will begin to change as the company moves into the next phase – maturity.
Stage III: Maturity
Companies entering this stage will consolidate and control the financial gains brought on by rapid growth while attempting to retain the flexibility of small size. The management team needs the competence to eliminate the inefficiencies that growth can produce and professionalize the company by use of such tools as strategic planning, budgets, management by objectives, cost systems and balanced scorecard and do this without stifling its entrepreneurial qualities that got the company to where it is.
Systems are well developed. The owner has delegated operational responsibility and gives attention to strategy and other higher level pursuits. The company has now arrived. It has the advantages of size, financial resources, and managerial talent. If it can preserve its entrepreneurial spirit, it will be a formidable force in the market. If not, technological and business environmental changes may lead it to enter a forth stage – Decline.
An understanding of this lifecycle clearly shows that the necessary skills and characteristics of the CEO vary greatly as the company moves from one phase to the next.
In the startup stage, the founder does everything – sales, product development, finance and so on. Setting priorities along with time and stress management are essential. As the company grows and more employees are added, developing a culture of trust and open and honest communication will go a long way towards ensuring success as the company enters the growth phase and beyond. Additionally, startup CEOs need to be the evangelical face of the company in order to attract talent, customers and investors.
As the company moves through growth to maturity, recruiting the best possible people, building them into a highly functional team coupled with true delegation become key characteristics of the successful CEO. Having a dedicated group of advisors like a TEC Group can increase the CEOs effectiveness aid in continuing growth and help to avoid disasters.
For CEOs in the mature phase, clarity of vision and frequent communication with employees and customers becomes even more critical along with keeping the entrepreneurial spirit that got the company where it is.
Successful CEOs know that they must continue to acquire, develop and refine leadership and team building skills and that learning is a lifelong process. The behaviors and abilities that serve them well today may not be adequate tomorrow as the company moves through its lifecycle. A TEC Group can give the CEO an understanding of the need to change and provide the motivation and direction for the necessary plan of action for continued success.
Acknowledgements: Some of the ideas for this blog appeared in the May 1983 issue of Harvard Business Review, other parts came from the July 2012 Bank of America/Merrill Lynch white paper “Growing with Your Company” and still others came from the experiences of the author, Sam Keller, TEC Chairman.