In the United States, 79.6% of small businesses are self-employed individuals with the great majority falling within the parameters of the first stage of growth. The challenges of growing to a second or third stage company come with very specific challenges. The chart above shows the looming differences between the three stages. Below is a further breakdown of employees to the number of businesses and their associated percentages (Source: Capterra International). As you can see, the vast majority of companies have fewer than 10 employees. Why is this?
Business moves fast today. Long before open and well after close, the beat of progress is always present so understanding your market and how to address your customers’ needs is paramount. From staying in business to growing your business depends on your ability to efficiently and quickly serve customers.
In service industry organizations such as accounting, finance, technology and related, speed equals revenue. This dynamic can cause serious problems for small businesses who don’t have the time or energy for executive training and coaching because they are too busy dealing with the day’s demands! This puts a strain on any small business so once it grows to say 7 to 10 employees and establishes a continuous net profit line, often the business owner says, “Let’s just keep what we’ve got and not screw this up!”
Over three decades of consulting CEOs and Senior Executives I often applaud this decision because the next stage of growth is not going to be any easier. And it’s going to present a different set of challenges the business owner may be unprepared to address using his gut instincts. So what should the business owner think about when contemplating growing larger? Here is a critical consideration.
First Stage Leadership Won’t Work In The Second or Third Stage
Don’t assume the leadership principles you’ve honed during the first stage are going to work during the second or third stage. In the first stage, a CEO stays engaged in all facets of the business. In the very earliest stage, the CEO is probably wearing many hats from manager to financial director to sales rep to customer service to the one who makes the coffee and cleans up! This is necessary and fine during a first stage ramp-up but in the next larger stages it simply won’t work because the CEO won’t have enough time or bandwidth to address all of these areas and issues.
Instead, several delegations will be required and this is often a very difficult change for a CEO to make. It requires him or her to move from boss to coach and play a much different role. This requires deep knowledge of Best Practices that many CEOs have never used so they struggle to make the shift. When this occurs the organization typically does not grow and remains in the first stage despite the CEO’s Best Efforts.
If you’re leading the first-stage company and are considering growing to the next stage it’s critical you count the costs involved. Your role will need to change. People will need to relate to you differently and all of this will either make you very happy or unhappy, depending on your ability and desire to adapt. The very best decision you can make as a first-stage CEO contemplating growth is to determine if you’re willing to pay the costs involved associated with this transition.