What Stage is Your Business In?
Building a business is like building a house. As with houses, there are different stages of the building process. When you understand what stage your business is in and what its primary challenges and opportunities are, it will enable you to make better decisions on where to focus and how to more effectively grow and scale.
Based on experience, we have observed that the phase at which our clients are at can be broadly categorized into one of four stages;
- Stage One – Infancy – Zero to One Million in Revenue
- Stage Two – Childhood – One Million to Ten Million in Revenue
- Stage Three – Adolescence – Ten Million to Fifty Million in Revenue
- Stage Four – Adulthood – Fifty Million and beyond…
Each of these stages have different problems, challenges, and opportunities. Knowing what to expect at each stage really allows you to foresee the challenges so you can get ahead of the curve. You will also have clarity on how effectively you are executing through each stage.
Stage One – Infancy
In stage one, zero to one million in revenue, the main problem is that you are still figuring out what you’re doing. That’s a very bold statement. I know! This is one of the concepts that can receive the most resistance. Think about it for a second. My clients have built successful businesses. They’re alphas, they’re operators, they’re in charge then I come along and tell them “You’re still figuring out what you’re doing”.
It is very, very, hard to take in and one of the main reasons this is hard to accept is that it feels like it’s all working fine. If fine is the target then OK, I can walk away. My job is done. But fine is not the objective. My clients are looking to scale, to grow beyond their current expectations and in order to do that the CEO’s I work with realize that they need to be open to outside input, they need to invite collaboration and they cannot continue to drive the business in a vacuum. As soon as the CEO has the right mindset, we are ready to get our hands dirty.
The main challenge at this stage is making the first profitable sale. To be profitable is to operate cost-effectively. The business itself may not be profitable at this point, but the cost of the sale should be so that once you reach critical mass and generate back-end revenue, you will be profitable. The main opportunity is, therefore, creating that critical mass of customers.
Stage one, zero to one million, is all about driving revenue, figuring things out and creating profitable sales.
Stage Two – Childhood
The main problem at this stage, one to ten million in revenue, is that you may be just breaking even or operating at a loss. The main challenge is continuing to expand sales, and the challenge that comes with sales expansion is identifying the best types of revenue streams or how to expand existing ones.
When a business is growing demand for new products or services can arise. The company may choose to generate many new products quickly and what can happen is that we end up with many new products and services with little or no cohesion. Things can become messy internally when there is no centralized theme around which products and services are going to be implemented.
By applying the hedgehog concept, as discussed in the book Good to Great by Jim Collins, the company can stay focused on doing what it does best. To reiterate the main challenge here in stage two, is expanding existing revenue streams and creating new revenue streams that are actually in alignment with the core business model. It goes without saying that the main opportunity here is to increase cash flow and become profitable.
Stage Three – Adolescence
Going back to the house analogy described above. The purpose of a house is clear and simple, but underneath all of it, there lies a complex network of wiring, framing and plumbing. For a house to function all these things need to be constructed in a way that allows them to work. A business works the same way. There needs to be systems, processes and procedures in place which keep the business running smoothly.
The main problem at stage three, ten to fifty million in revenue, is that your systems may have become strained and your customers are noticing it. This is one of the things that we work with our clients to prevent. The main challenge in stage three will be learning how to establish useful protocols and manage processes and procedures. In other words, turning the chaos into order.
This main challenge will not exist at stage three if proper planning has been undertaken in stages one and two. We establish systems, processes, and procedures early on so that our clients are prepared to effectively scale and avoid these common challenges of growth.
When a company crosses this 10-million-line, they can scale massively. This is the main opportunity in stage three.
Stage Four – Adulthood
The main problem in stage four, fifty million and beyond, is that sales growth can begin to slow down. It may even stall. The main challenge is infusing the business with entrepreneurial spirit again. The main opportunity at this stage is getting the business to run itself.
Getting the business to run itself is the main objective with all my clients, even those in stage one and two. We always focus on this end result because this gives the Owner/Founder the freedom and ability to sell the company, have it as a cash flow engine or move into their area of greatness in the business.
This is a general framework of problems, challenges and opportunities for businesses at different stages of growth, and while it may not be the case for every business, it can be very empowering to understand this overarching framework of building a business. If we are looking towards building a company, where the goal is to generate ten million in revenue and then sell it, that objective will determine how to move forward along the four stages. In other words, we adjust the stages above according to the revenue goals of the company.
In this article, I have outlined the main problems, challenges, and opportunities a company faces as it progresses through the four growth phases. We help our clients to anticipate the challenges and address them before they become problems. For those already experiencing problems and challenges, we make it a priority to address these issues as soon as possible.
By understanding the growth phases and taking appropriate action at the ideal moment, our clients can scale as effectively as possible.
