The Pitfalls of Growth

One of the biggest challenges facing an entrepreneur or CEO is how to manage growth. Life would be so much easier if, at least for a while, nothing changed. But that doesn’t happen, because it can’t.

Your company’s external environment is always changing. Costs are rising, technology is advancing, competitors are introducing new products, your customers’ needs are changing, government is issuing new regulations, and so on.

To deal with that continually shifting array of challenges, growth is not only desirable, it is necessary. Businesses that are not growing are dying.

The CEO’s job includes two key responsibilities:  managing for growth, and managing growth.

Managing for growth means creating an environment which will generate the products, services and market initiative that will make your company grow. Then you must manage that growth by running your company effectively as it grows larger and more profitable.

Neither of these is easy. Some CEOs are better at one than the other. They may do a great job of fostering a creative, environment that results in an endless stream of innovative products, but do less well at less exciting but equally necessary nuts-and-bolts management chores. Or vice versa.

As if balancing these responsibilities wasn’t tough enough, growth itself introduces its own set of challenges. When you were running a small business, you could stop at Staples to pick up the office supplies your company needs. That won’t work when you have hundreds of employees and million in revenues.

The good news is that the stages of a firm’s lifecycle are fairly predictable. So, knowing where your organization is in its lifecycle can help management be proactive and it can enact preventative measures to deal with future problems earlier or avoid them altogether.

Over our 20 years of consulting we have identified the critical areas of concern that companies often confront as they go through various stages of growth. These are listed below:

Stage Critical Area Approx Sales Rev.
Start-up Markets & products Less than $5 million
Expansion Resources $5 – $15 million
Adolescence Management $15 – $50 million
Controlled Growth Management Systems More than $50 million

In the start-up phase, the initial challenge is to develop a product or service that serves a need in the marketplace. Then the company has to find appropriate staff and figure out the most effective way to market the product or service.

A new set of developmental problems and challenges appear in the expansion stage. Resources typically are stretched to the limit by continuing need for people, financing, equipment and space. Sales don’t match what’s in inventory, and accounting may be a mess. Everyone seems to be putting out fires, and management-by-crisis is the order of the day.

In the adolescence stage, there is a need for professional management. The company is beyond the size where everyone reported to the founder, there was no delegation of duties and there were not enough well trained people. Senior management begins to recognize the need for better systems and metrics, and for a rational, effective planning system.

In its controlled growth phase the company has installed functional systems and established a formal organization chart with roles, responsibilities and accountabilities. Formal planning and budgeting is introduced, and training and compensation programs are established to attract and retain the talent the company needs.

Where is your company along this growth spectrum? How are you coping with the challenges that your company’s stage of growth is introducing?

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