PITFALLS OF GROWTH

          Growth is not only desirable, it is necessary.  To last you must grow.  Businesses that are not growing are dying. The external environment is rapidly changing- costs are rising, profits are shrinking, technology is changing, paradigms are shifting, competition is increasing.

          All organizations evolve thru development stages very much like those of living organisms.

          After getting the business off the ground and beginning to expand, the very fact of your success will be the seed that creates your next set of problems. As your firm moves through the stages of growth it will encounter many different challenges that could threaten the firms survival if not properly addressed.

          However since the stages of a firm’s lifecycle are predictable, knowing where the 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 that Companies go through  defined growth stages.  Theses stages and the critical areas of concern are listed below:

Stages                  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 demonstrated need. It is then necessary to find the appropriate start-up staff and the most effective way to market the product/service.

          In the expansion stage, a new set of developmental problems and challenges appear.  Resources are stretched to the limit. There are endless increases in the need for people, financing equipment and space. Products are sold that are not in inventory and invoices are paid 2 or 3 times and some are not paid.  There is a lack of focus and everyone is putting out fires.  Management by crisis is the order of the day. 

          In the adolescence stage, there is a need for professional management.  Up to this point everyone reported to the founder and there was no delegation of duties.  The compensation system was a patchwork of special deals.  There are not enough well trained people.  People were assigned tasks by availability, not competence.  The companies experience turnover and lose organizational memory.  Systems are overwhelmed.  There are no meaningful metrics.  Planning is usually wishful thinking.

          In the controlled growth phase the company needs to install functional systems and establish a formal organization chart with roles, responsibilities and accountabilities.  The company needs to establish formal plans and budgets.  Training programs need to be instituted. 

5/19/08     JOHN THRASHER   THE SWISS ARMY KNIFE