Learn the stages of business growth
The stages of business growth tend to be similar for many growing businesses. As a business grows, it goes through distinct stages of growth. These stages have unique characteristics and challenges. They also require strategic planning.
Stages of business growth have common problems and characteristics. Knowing these problems lets you manage our way through them.
Recognizing these characteristics—or even better, preparing for them—lets you manage your business through these challenges, or “growing pains.”
In our experience it’s common for growth stages of a company in the automotive aftermarket to align with annual sales revenue.
Is your company in startup phase?
Even if your company is still in its startup phase it’s good to know at what’s ahead for you in the coming years. This article assumes you’re beyond the startup phase. That’s not to minimize this important stage that new companies go through. It’s at this first stage where you’re trying to determine how to find customers. You might be trying to manage cash flow, secure funding and maybe figuring out just how to survive! This is an exciting and sometimes crazy, stage to go through.
But let’s skip to the next stage in your company’s growth. This is when you hit that first $1 million in sales as a manufacturer, or $2 million as a distributor/retailer:
Growth Stage One: $1 million (manufacturer) or $2 million (distributor/retailer)
The first of the stages of business growth typically happen when your business reaches around $1 million in sales for a manufacturer, or $2 million in sales as a distributor/retailer/reseller. Your small business is building momentum, but you’re overworked and need additional help. You probably work long hours including weekends.
You’ve been adding employees and now need to face the challenges of managing a growing workforce in addition to building your business.
Your challenges 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 for this stage of business growth:
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 human resources (HR) policies. Employees often don’t like the increased structure or “red tape” but it’s essential to do this now to avoid problems later.
3). Make sure everyone knows the plan to grow the business and they know how they fit into the plan 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.
Growth Stage Two: $10 million (manufacturer) or $20 million (distributor/retailer)
This stage typically hits a aftermarket 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 a long time. Maybe from the beginning. But some of these employees have not been able to keep up and 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.
Things to know at this stage of your company’s growth:
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.
Growth Stage Three: $20-$30 million (manufacturer) or $40-$50 million (distributor/retailer)
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 like when your company was smaller. This can include poorly-managed inventory or cumbersome paperwork.
Things to know at this stage of your company’s growth:
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. This is where you compare important key performance indicators (KPIs) for your company against other industry benchmarks for similar businesses.
3). If you haven’t yet determined best practices for your industry and implemented them in your company, do it now. (This article was written primarily for aftermarket companies but it does apply to other industries.)
4). If you aren’t yet an expert in strategic planning, learn it and hire a strategic planning consultant now.
5). You’ll probably need experienced managers in more than one layer of your company, but resist the temptation to add too many layers. Remain lean. At this stage your company’s employees have evolved from broad responsibilities/”wearing many hats” to narrower responsibilities.
6). Assess your company’s entrepreneurial spirit. Is it still there like it was at the last stage and like at the beginning? If not, you’d better figure out how to light that flame again. Do it now.
Strategy to deal with growth stages of a company: define core strengths and competencies
If you can’t easily define your core competencies 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.”
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