4 stages of growth

Introducing the 4 Stage Growth Model

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.  I have recommended this book to my clients and members of the Silver Fox Advisors’ CEO roundtables.

4 Stage Growth Model for Small Businesses

Clients have found it 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?”

These questions plus work on developing a new approach for the Silver Fox Advisors’ CEO Roundtable led me to develop a 4 Stage Growth Model for Small Businesses. 

In this blog, we will look at the 4 stages with a high-level sketch.  In future blogs, we will examine in more depth the different stages and how the model can help guide you forward.  This is not a researched base model but rather a combination of my business experience, education, teaching, and advising small business clients.

Development Phase

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.

Growth Phase

Owner(s) are getting excited about organization success.  Traction with new customers or expanding activities with current customers is generating 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 to compete more effectively for new business.  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 perform critical roles.  Often, these players interact more, and teamwork is emerging.  Organization 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 business into extended and new offerings.  Revenue generation feels robust giving 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 doubling of sales approaching $20 to $25 million.

Organization has become a going concern and largely self-sustaining if owner were to disengage.  Thus, business also become sellable for potential multiples of revenue depending on growth rate of revenue and profitability.  Owners consider acquiring competition to expand current market or move into new markets.

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.

Expansion Phase

Organization has matured to stage where planning systems have been implemented and natural ongoing routine with a comprehensive framework, guidelines, meetings, and so forth.  Accountability clear with target objectives and follow up for business units and individuals.

Revenues are significant exceeding twenty to twenty-five million but still with clear upside through organic growth and acquisitions. Sustainability is no longer an issue.  Company is fully functioning with vibrancy and robustness. Raising money for expansion can impact growth rate.

Generally, there are clear roles and responsibilities with multiple organizational levels.  Human resource manager/group is an ongoing function managing competitive salary and benefit offerings as well as performance management systems.  Management team is clear with defined accountabilities.  May have a board of directors or board of advisors. As with other phases, size of organization 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 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.

Contributed by Lane Sloan, former Shell CFO and Silver Fox Advisor.

Entrepreneurs-Agents of Renewal

Small business has a significant role in the economy. Owners and entrepreneurs create jobs, provide goods and services, and serve special niches that help round out our economic vitality. The health and well-being of small businesses is a critical element of our culture.

Let’s discuss this in more detail. This blog is a little “academic” to drive home the importance of entrepreneurs and small businesses to our economic progress.

Without the renewal that entrepreneurs and small businesses provide, economic stagnation will eventually result.

Capitalism provides the incentives for entrepreneurs and small businesses to bring about this renewal process.

Capitalism provides opportunity to pursue self interest

Back in the 1700s, the industrial revolution fueled the rise of capitalism and the eventual demise of European feudal systems.  The key driver was machine technology that transformed the way society functioned from transportation, to agricultural production, to consumable and hard goods production, etc.  

Fortuitously, Adam Smith recognized that underpinning the freedom to pursue one’s self-interest in a capitalistic system overall delivers the best possible social outcomes through his concept of “an invisible hand.”

A main ingredient for a productive society is also having rules of law that facilitate interactions within the economic and societal eco-system.  These rules need to fit the evolution of economic entities.

When entities like Standard Oil grew so enormous to have monopoly power on petroleum markets then anti-trust rules were enacted.  Boundaries were put on this economic freedom.

Facts of Life

Now living systems including economic entities follow S shape curves where there is a slower early learning period followed by steep growth which eventually slows and ultimately takes a downturn and dies. 

What happens in economic entities causing them to die or be absorbed into another entity?

One reason is the natural competitive process that occurs in a capitalistic system.  Another reason results from the also natural bureaucratic growth where over time entities shift their focus to internal structures becoming more rigid in their ideas rather than learning the evolving dynamics in the external market landscape.

Capitalism creates renewal through entrepreneurship

We often hear of Adam Smith’s invisible hand, but the other characteristic that makes capitalism such a strong economic system was described by Joseph Schumpeter “Theory of Economic Development.” 

In short, he believed that entrepreneurs introduce new products and services revitalizing markets and enabling continuing growth, in Schumpeter vernacular “creative destruction.”

Thus, entrepreneurs disrupt through innovation the “circular flow” of entrenched bureaucratic entities following their routines. Schumpeter was a product of the great depression and the massive economic downturn.

He felt that ultimately capitalism would self-destruct as the political strata become dominated by those undermining the capitalistic framework of renewal.  His view was that socialism would be the ultimate successor.

Pace of change is accelerating

My view is that Schumpeter did not recognize that the pace of change would continue to increase.  The information revolution is just another form of the industrial revolution where technology revolutionizes information to being both global and individual at the same time. 

This has also enabled a discontinuity in the delivery of goods through the Amazon’s of this world. The nanotech or bio-tech revolution through advances in technology is making the change much more chaotic.  We find the very foundations of our beliefs in how the world works being reworked. 

Dominant entities are moving up the S curve much more rapidly as change accelerates the dominance shifts with the emergence of new concepts and technologies.  In the information revolution, IBM was the early dominant player. Their foray was more in the industrial form with its emphasis on hardware. They were dethroned by the software side through Microsoft. who has now lost its preeminence to Google and its follow-ons that have shifted the focus of information power and flow directly to the consumer.

The accelerating and chaotic pace of change will only enhance the renewal process under capitalism. On occasion, there will need to be interventions with tools such as anti-trust should the dominance of some entities become too great in their marketplace. 

This dominance can occur quite quickly and political systems which are more bureaucratic will have difficulty in adjusting.  Nevertheless, the ongoing technological developments will transform the dynamics over time.

Socialism stifles renewal

With socialism, the means of production, distribution, and exchange are owned or highly regulated by the community (i.e. government) not by private individuals. This spreads the economic wealth through political intervention and further enhances the bureaucratic nature of the political and economic systems stifling the renewal process. 

Back to S shape curves, the capitalistic system relies on building new S shape curves to be overlaid on top of the current S extending the economic and societal growth. Socialism largely relies on the condition of the current S curve when implemented which leads to much faster stagnation.

Helping entrepreneurs succeed

This is a backdrop to the importance of the entrepreneur within a capitalistic system that drives our economic growth.  Here in the United States, small business added almost 2 million new jobs in 2018. 

At that time there were about 30 million small businesses accounting for not quite half the private employment of the United States.  Small businesses truly are the economic engine of our economy of this the largest economy in the world.

Thus, a fundamental question is how can we help small businesses accelerate their growth and avoid a premature death on their S curve? In this world of accelerating change, understanding the growth stages of a small business is exceedingly helpful for the entrepreneur hoping to become a successful enterprise.

If I have your interest, come back to future blogs that describe my four-stage growth model.  It should add greatly to your understanding of the key elements in the different stages of growth for small businesses.

Lane Sloan

Alligators in the Swamp

In my office, I have a plaque on the wall that was given to me thirty years ago, and it has helped me over the years to stay focused. The message reads: “When you are up to your backside in alligators, it is difficult to remind yourself that your initial objective was to drain the swamp”.

Too often in business today I see company owners struggling for years with some of the same underlying issues because they never really address the issues that are causing their problems to recur. Let me give you some examples.

“I can’t get good people to stay with my Company”. The underlying issue could be a lack of current well-written job descriptions. Why is this important? If you provide an outdated vague job description to a new employee and that employee does not do the job expected, then whose fault is that? Or, if pay increases, incentive, and/or recognition programs are not in place to reward employees for good or exceptional performance, why would that superstar employee stay with the company when other companies have those types of programs in place? The days of a person staying with a company for an entire career and being happy with a gold watch at retirement are long over.

“I wish I could get my people to do the job right the first time”. This could be a problem of simply not having a well-documented process for those key processes in the company. Some business owners tell me they have a process manual someplace, and when they find it, the dust accumulation is a telling sign of the last time it was opened. Further, in today’s world of messages limited to 144 characters, a longwinded exposition is likely not going be read all the way through, or even understood for that matter. Think about redoing and updating your process manual in a colorful flow chart format with short sentences in boxes and arrows pointing to the next steps.

One last example: “I wish I had better cash flow so I could grow my business”. Being a former banking executive, I have heard this one more often than I would care to remember. Having adequate cash flow to grow any business is so critical to the business it should be paramount in every business owner’s mind. Make and take the time needed to understand and plan cash flow, and study what causes cash flow to increase or decrease.

Without cash flow, the business is not a business for all practical purposes. I will admit cash inflows can and do happen if you are selling something, but the timing of cash inflows and cash outflows is what needs to be understood, planned for, and monitored on an ongoing basis.

If some of these phrases are familiar to you and you think it is time to address the real underlying issues, and you need assistance with your planning, you may want to consider working with an experienced Silver Fox Advisor and business professional. I encourage you to visit our website at silverfox.org to learn more about the Silver Fox Advisors, including their business advice, consulting, and mentoring offerings.

Dick Hendee, Chairman 2020

COVID Fatigue is Real!

The United States is in a high state of uncertainty where the future is concerned. We’re a nation that wants our news, meals, and money right now. Once a big event happens, we are all consumed with Twitter, Facebook, and news outlets for a few days or even weeks. And then we move on.

We’re not able to move on from COVID, at least not yet. We’re still wearing masks, social distancing, working from home, dealing with childcare, loneliness, financial, and mental issues. We drag on wondering when this will be over.

I spoke with a group of CEOs recently that are highly concerned with employee fatigue. They’re seeing a rise in employee issues and considerable productivity drop off. Words of encouragement are falling on deaf ears when the actions following are not personal. “Just do your job” or “find a way” is not cutting it.

Each person is wired differently. How they act under fatigue may be quite different than normal circumstances and not easily recognizable.

If you want to combat COVID fatigue, you have to meet your employees where they are. Get personal.

team meeting

Here are some ideas for you to think about that I’ve heard were effective:

Conduct 30-minute discussions with staff daily. One on one meetings may not be doable but small group calls can be. Ask how are they doing at home, how are the spouse and kids, is there anything impeding their work that you could help with?

Proactively identify those at risk. If you already have a personality assessment on employees, dust them off. If not, consider getting one. Look for things like their Social Energy scores, or Restlessness, or Organizational needs.

Employee Surveys– Do a formal and confidential survey and get a pulse. Results may not be specific, but it can be a good starting point.

Professional Counseling – Many insurance companies offer some form of counseling for mental challenges. Inquire about eligibility through the Employment Assistance Option or consider purchasing an option for the employees. Whatever you do, make sure the employees know it is confidential.

No one is certain when the risk with the pandemic will finally subside. We should expect COVID fatigue to get worse before it gets better.

Get on top of it with your employees now. It is real.

If you need further assistance, send us a note through SilverFox.org.

leading people

The 3 P’s of Leadership

In a previous blog, I mentioned the 3 P’s of leadership. You often hear about the triple bottom line for companies or the 3 Ps of People, Planet (as in save the planet), and Profits.  

I am a fan of this thinking on what a company must achieve.  I think there are some similarities with leadership.  My 3 Ps for leadership are People, Planning, and Performance.

Having taught leadership for many years, a lot of different leadership models have crossed my path.   One that I used in my strategic leadership class was Zenger and Folkman’s leadership tent in their book The New Extraordinary Leader, 3rd Edition: Turning Good Managers into Great Leaders.”

It’s a well-researched model with character in the middle holding up the tent.  The other four stakes are personal capability, focus on results, leading organizational change, and interpersonal relationships.

They obviously chose specific orientations that matched the way they wanted to talk about the key dimensions of leadership.  I could go on with other models of a similar nature.

Leadership is all about People

Unfortunately, I have never found one that was totally robust for me and straight forward with the world a leader deals in. That is why I’ve gravitated to the 3 Ps which are broad in scope focusing on the key dimensions a leader should keep top of mind.

The reason for starting this conversation with Zenger and Folkman is in my opinion, they have the right orientations but are limiting in their characterization.  Let’s take my People dimension of leadership. 

Certainly, interpersonal relationships are one key aspect of that People dimension, but there are a lot more concepts that would fall underneath this broad umbrella.  All the work on emotional IQ, the Concern for People axis of Blake & Mouton’s managerial grid, and so on. 

There are just a whole bunch of ideas and research that fall under People, and you would get bored with this blog if we started sketching that out.  The point is that People is a big dimension of leadership.  You don’t have a leader without followers.

Planning is crucial to Success

Now let us turn to the second P, Planning. Zenger and Folkman highlight leading organizational change. Change is all about envisioning where the organization should go. Professor Kotter was insightful in the 1990s with his article entitled What Leaders Really Do (Harvard Business Review Book) 

He contrasted leadership and management. He talked about leadership as being all about coping with change by setting direction, aligning people, and motivating people.  

My point is that coping with change involves all the elements of strategic planning: strategic assessment, strategy development, implementation planning, and performance feedback.  I am not talking about the old regimented models of planning, but dynamic, real time, virtual, parallel processing type planning needed in today’s world of accelerating chaotic change.

Followers need to understand where the leader wants to go. The leader must engage People on the direction. If they support that direction and been involved in the thinking process, then they will follow.

Performance the ultimate gauge

Finally, Planning is somewhat irrelevant if it does not lead to results. Keeping with the Zenger and Folkman model, focus on results is all about Performance. But Performance is more than just focusing on results.  It is also about having the capability to perform and the motivation to do so. 

I would include Zenger and Folkman’s personal capability under this Performance dimension. Performance has a lot to do with management, the ability to achieve organizational goals.  Leaders are ineffective if they can’t achieve results. People like winners.  Performance counts big in having people follow.  And like People and Planning there are a whole lot of topics under Performance.

Leadership is about integrating these 3 Ps together. They are totally interdependent on one another.

What about character in the Zenger and Folkman tent model?  Character is a license to operate as a leader.  In the end, people will not follow a person lacking in character.  Thus, character is part of the People dimension. As one of the great authors on leadership Warren Bennis once said, “Managers do things right. Leaders do the right thing.”

4 Inner Ps of Leadership

If you keep these 3 Ps of leadership top of mind, your Leadership success will follow naturally.  This is presuming that you have a good understanding of yourself.  Becoming a great leader is a never-ending process of self-development and developing those you lead.

My framework on leadership includes 4 Ps on your understanding your inner self.  We will talk about those Ps in another blog as well as more fully develop the 3 Ps above of what you do as a leader.

Managers vs Leaders

When I taught Strategic Leadership, the students had to read John Kotter’s 1990 article on “What Leaders Really Do.”  Kotter was very effective in setting out different functions for leaders and managers such as leaders align people as opposed to managers who organize and staff.

Over the years, there has been debate on whether one can perform both roles as though they are two distinct types of people.  According to Kotter, the essence of the difference is managers deal with complexity whereas leaders focus on change.

On this basis, one might think leaders and managers are different.   Over time, managers seem to have lost their gravitas as we deal in a world of accelerating change.

Recently, the New Cambridge Advanced Dictionary defines a leader as “a person in control of a group, country, or situation”.  

Control is a rather funny word to use for leaders. Control is really more of a managerial notion on controlling resources including staff and not per se the foundation of leadership.

We seem to be running amok on intermingling the concept of managers and leaders without a clear understanding of their similarities and differences.

The Basics

In my opinion, the concept of management and leaders are clearly different, but there is opportunity for significant overlap. This overlap corresponds to  some of the basic thinking of John Gardner outlined in his article 1990 “The Nature and Tasks of Leadership.” 

He has a very thoughtful delineation of leaders and managers and truly worth a read with rather sophisticated analysis that I largely agree with.

For me, the key is that managers are derived from organizations.  They are given a distinct role with certain responsibility and authority. 

Leaders have followers.  People follow because they are inspired by the leader’s vision and direction, which supports their needs in some meaningful way.

senior leaders

Managers are given the authority and responsibility to achieve organizational objectives.  Likewise, people follow leaders to achieve envisioned results.  A manager can be a leader and vice versa a leader can be a manager.  If a manager in an organization has people following them because they are inspired by the direction, leadership is being demonstrated. 

Likewise, if a leader exists in an organization, by definition followers have been inspired to pursue a course of action. Of course, a leader does not have to be part of an organization’s hierarchy to have followers.  And a manager in an organization may not be exhibiting leadership skills.

Today’s World

In today’s dynamically changing world, to achieve great results, it is critical that managers be great leaders.  It is also critical that those not in positions with managerial authority also exhibit leadership.  Thus, I think focusing on leadership is a strong agenda for organizations seeking high performance.

In previous blogs, I have outlined the construct of a leader’s outer world with the 3 Ps of Leadership: People, Planning, and Performance.  Traditional leadership characteristics play a significant role on the People and Planning side.  A leader must understand the needs of potential followers and set out a direction and vision that reaches critical needs. 

Of course, management functions also play a role in people and planning, but a real key to management is the execution of the plan that leads to achieving the vision.  Thus, leadership and management occur simultaneously in these different phases with emphasis varying depending on the phase. 

While there are meaningful differences in functions, activities, and perspectives between the manager and leader role, achieving great results requires an orchestrated intermingling in a business setting. 

The 3 Ps provide a highly useful framework that facilitates understanding of this interaction of leader and manager roles.  Much more could be described on how on this interaction, but let’s leave some of that for you to explore.

Contributed by Lane Sloan, former Shell CFO and Silver Fox Advisor.

OUR ROLE AND RESPONSIBILITY – NAVIGATING THROUGH COVID-19

The world is grappling with an issue of enormous scale and human impact, and our hearts go out to all who have been affected by the outbreak of coronavirus (COVID-19). At Silver Fox Advisors, we believe it is our role and responsibility during this time to prioritize two things: the health and well-being of our …

Read more

UPCOMING EVENTS
Loading...