All organizations have a life cycle and thus face standard challenges as they grow. At each new stage, an organization must deal with these challenges. How well or poorly management addresses these challenges, and goes from one stage to the next, deterimines if the company succeeds or fails.
This process while easily understood is not easy. One of the greatest challenges a manager faces is the belief that a set of systems, challenges or processes can be skipped. While occasionally, what venture capitalists call Unicorns, may fast track the situation. Eventually a well-managed company must put in place standard systems and processes or they will fail. Leaders who fail to understand thier life cycle needs will impact the growth of their companies. This will lead them to premature failure.
Therefor, the challenges that every company must overcome at each stage arise from the growth and success of the company. This simple unavoidable reality leads to the following phases and typical challenges.
The 4 phases of life cycle growth in an SMB Companies are:
- Consultant ($50K to $400K)
- Small Business ($400K to $1M)
- Medium ($1M to $20M)
- Large ($20M to $100M)
The best way to understand each life cycle is through a structured approach to the organizations style and company culture. This starts with consulting which leads to small business and finally to operating a large company.
This phase consists of one or two people working as business-to-business advisors. They generate between $100K and $200K, per consultant. Each consultant can supports a staff of one to three people. In addition there are seldom systems or rules, thus processes are owner-driven and controlled.
This model is slightly scalable through the addition of other consultants. Also some growth is possible if product or hardware sales are included.
This phase is driven by wide-ranging clients which drive company ups and downs. Thus the consultants must single-handedly managing all aspects of the enterprise. Examples include having to market and produce income. The limitation of revenue and personnel either inhibit or drive growth into the next phase.
This phase consists of three to fifteen people. Systems become necessary, therefore, systems start to take shape. Payroll becomes mandatory and infrastructure begins to develop. This can be a difficult phase because roles begin to stratify while key individuals must continue to perform both sales and operations.
The long hours begin in this phase. Thus, it is not unusual for key personnel to regularly work sixty-hours plus. So many companies never make it out of this phase. Therfor a system of operations is needed (usually retail type operations) or they fall back to the consulting phase. A more manageable and lifestyle-friendly undertaking.
For example, owners with young families often have to make a choice of growing through this phase and missing some of family time or falling back into the consulting mode and spending more time with family.
During this phase, it is also not unusual for owners to pour money back into the company and actually make less money than in the consulting phase. This is due to the fact they are feeding --or investing gains—into a growing company.
This is the target size for many businesses. This size creates an company with clear roles and responsibilities. There are between twenty and 150 employees. Employees can focus on systems, growth, customer relationships and strategic direction. First line managers can focus on execution.As a result, at this size, they can have dedicated sales people, accounting, and professional services.
A healthy mid-size business can fund several six-figure salaries and generate profit of $500K plus. Though key employees at this income level can afford to reduce their hours, because of their heightened level of responsibility and commitment to the company, it isn’t usually the case.
The transition to a larger company requires significant change for growth to occur. This may happen by the business being purchased by a larger company. Thru long hours of work and significant dedication, this stage and beyond, is attainable.
Large ($20M to $100M)
Very few businesses achieve this size. It is $20 Million to $100 Million in revenue with a few hundred employees. At this size knowing all of the employees is difficult for a leader. To have any hope of success, the processes must become mature which leads to less flexibility. As this level is reached, any significant growth will probably occur through acquisition and owners explore employee buy-outs or IPOs as exit strategies. At this size, the company also becomes an attractive target themselves.