In the Harvard Business Review article from May 1883 by Neil C. Churchill and Virginia Lewis on “The five stages of small business growth” the authors set out the five stages as follows: Existence, Survival, Success, Growth and Take off. It is in the success stage that the decision to go for growth is made and the commitment to scaling up the business is taken.
Many business commentators think that there are three stages: Start up, Scale-up and Maturity. However, this glosses over much of the early stages of company growth. There are many businesses that remain in the existence and survival stages and never get to the scale-up stage. These are company’s which do not grow beyond the 1-5 employees, with many remaining at the single employee stage.
This is not to say that these businesses are not successful in their own way, however they often have limited objectives as to what their success looks like. Scaling up a business requires certain foundations, without which the process is fraught with the same difficulties as the start-up phase. In my time as a CFO and financial consultant I have seen many different businesses at all stages in the process. From start-ups trying to establish themselves in their respective and failing after a few short years, to companies who want to grow, who borrow money to fund the product and infrastructure development only to fail at the last hurdle by coming up short on reaching new customers and so fail to generate enough cash to sustain the business.
So, I hear you ask, what are the key foundations your business needs to have in order to scale up?
1. A sound foundation is absolutely critical to being able to scale the business. This includes:
i. A business which has a clear operational structure which can be reflected in an organisation chart with clear roles, responsibilities and procedures.
The critical test is to see if the company’s employees are able to recognise the organisation chart and the responsibilities and procedures which the management team or the CEO have shown to them.
I had a situation with a client once, where when I went to visit the company the Managing Director (MD) gave me an organisation chart with details of the staff, their roles and responsibilities for a certain department that turned out to be completely different and unwritten organisation chart, with their own sets of responsibilities and procedures. The MD hadn’t effectively explained the new changes to his staff which inevitably led to a crisis where none knew what was happening or where the company stood.
This is not a good start to scaling the business. A better starting point is to document the current roles, responsibilities and procedures and check with staff that this is consistent with their understanding. It may even be a good idea to involve the staff in drafting the documents since this will most likely show up misunderstandings which the CEO and his management team did not know themselves.
ii. A subset of the roles, responsibilities and procedures is the staffing structure.
These should be connected to first point above. However, there may be inconsistencies of line management and day to day responsibilities. Sorting out these inconstancies at the planning stage is important and can save much trouble later in the process.
iii. The two previous points should lead the business to a position whereby they have clarity on the nature of the roles and responsibilities that is needed and can clearly specify the roles.
This is important part as it aims to avoid creating roles for people who can’t fulfil the role they have been recruited for; where the CEO does not want to lose them and so constructs a role no real purpose other than keeping the employee.
Understanding the roles that the business needs and how these roles change during the growth of the businesses is import to its overall success. I saw a recent example of this with a company who I was consulting for who had the opportunity to recruit a Sales Director, but had not thought through what day to day role and responsibilities of the Sales Director would actually be and how they would direct the sales activities of a business. It turned out on further discussion that the role the company had in mind was a Sales Manage role which was completely different from that of a Sales Director.
This discussion and planning avoided a significant cost to the business as well as significant disruption within the wider sales function which might have happened due to a knee jerk recruitment proposal and lack of structured thinking. There was a successful situation where a company who not only recruited a sales director but also supported and incorporated him successfully into the company’s organisation structure. He turned around the company’s sales pipeline within 2-3 years and transformed the prospects of the business.
iv. Management information systems are often a hit and miss affair in the first two stages of growth.
However, these become vital in the growth stage because the various moving parts of the business need to be coordinated. If there is a problem in one part this can cause problems in another part of the business and always has an impact on cash and profit, which are critical measurements in the growth phase.
A company that I know had problems producing enough products because the production department was a poorly structured and best described as a little chaotic. It further didn’t help that the money available for investment was limited. This affected the availability of the product and the ability of the company both to meet customers’ needs and led to losses and negative cash outflow.
Therefore, the importance of a strategic understanding of the critical path of the business cannot be understated.