As a business grows, it goes through major, distinct phases of growth. These phases have unique characteristics and challenges and require some strategic planning. Recognizing these characteristics (even better, preparing for them) will help you manage your business through these challenges, or “growing pains.”
Stage One: $1 million (manufacturer) or $2 million (distributor)
The first stage typically hits when your business reaches around $1 million in sales for a manufacturer, or $2 million in sales for distribution. Your business is building momentum, but you’re overworked and need additional help.
You’ve been adding employees and now need to face the challenges of managing a growing workforce in addition to building a business.
Your challenges will include laying the foundation for later stages of growth, even though they may not be your top problems right now. Laying a good foundation now will help solve problems later. Things to remember:
1). Hire people carefully–you need people who are secure in a smaller company but who have the capability to take on more responsibility as your company grows.
2). Be consistent with your employee practices and start having documented HR (human resources) policies.
3). Make sure everyone knows the plan to grow the business and they know how they fit into the plan, but be cautious in promising additional responsibility in the future.
4). Be careful to conserve cash and maximize your cash flow — you’re going to need it.
5). Understand how to benchmark your business against similar businesses.
Stage Two: $10 million (manufacturer) or $20 million (distributor)
This stage typically hits a manufacturer when it grows to around $10 million in sales, or around $20 million in sales for a distributor. At this stage you may be frustrated feeling like you have to handle all the problems yourself in order to get them done “right.” You may feel like your business isn’t structured very well. You probably have some employees who have been with you, but have not been able to keep up–the business has outgrown their abilities. Profits are harder to come by at this stage than they were before, even though sales have continued to grow. Employees feel most meetings are a waste of time and start to play company politics. There is little follow-up and things seem to never get done, and you spend a lot of time fighting fires.
1). You need to consider bringing in professional experienced managers.
2). Evaluate your communication and management methods–do you need all those meetings? Learn to delegate effectively so your workload is reduced, and your employees follow through.
3). Discourage company politics by not tolerating them, and fostering open communication which is a good tool to prevent politics. As people move from broad roles into more specialized, focused roles make sure they understand what their roles and responsibilities are.
4). Learn effective strategic planning.
5). Develop defined systems for handling customer problems, planning production or distribution, managing inventory, ordering supplies, etc.
Stage Three: $20-$30 million (manufacturer) or $40-$50 million (distributor)
This stage can hit at around $20-$30 million for a manufacturer, or $40 to $50 million for a distributor. Your business must be professionally run.
You may have some bad habits that crept in when your company was smaller, like poorly managed inventory or cumbersome paperwork.
1). Be honest with yourself, can you manage the day-to-day challenge of a business this size? If you can, great. If not, hire someone experienced to run it and let them run it. This is one of the single most difficult things that any entrepreneur will ever do.
2). If you haven’t yet implemented benchmarking, do it now.
3). If you haven’t yet determined best practices for your industry and implemented them in your company, do it now.
4). If you aren’t yet an expert in strategic planning, learn it or hire an expert now.
5). You will probably need experienced managers in more than one layer of your company, but resist the temptation to add too many layers. Remain lean. Employees have evolved from broad responsibilities/”wearing many hats” to narrow responsibilities.
6). Assess your company’s entrepreneurial spirit. Is it still there like it was at the last stage? If not, you’d better figure out how to light that flame again. Do it now.
Quick. What’s your company really good at?
If you can’t answer that question easily then you might have a strategic problem brewing.
Most well-run, highly profitable companies in the performance aftermarket or any other industry can point to one of three core competencies: product development and innovation, customer relationships, or operations. For more information see our blog post “Rule of Three Marketing: Market Share and Market Dynamics.”