Posted by: DrAlanRae | January 13, 2009

More about business growth

Businesses don’t grow in a smooth progression – they grow in jumps. Partly this is because there are break points in the development of the company and partly it’s due to attitudes and people (as always). My observation is that companies grow quite quickly to the next barrier and then they get stuck. I think its because in order to go on to the next stage you need to change the way you behave. Because people have usually set their businesses up to control their own space they normally have difficulty with this.

Let’s have a look at the stages they go through. We’ve come to segment businesses by size – because that seems to go by behaviour

  • 1 man Business
  • 2 men and a dog
  • Gangs of independent consultants
  • Tribal life style business
  • Growth Business part 1
  • Growth Business part 2

The 1 man business has to decide whether to get out of the house and become a proper business or just continue earning a living. Or join a number of collaborative gangs which can share the cost of customer acquisition and deliver complementary services. Or get a couple of colleagues or helpers.

Many people don’t want to tangle with the responsibilities and regulatory burden of employing staff and managing payroll etc. In fact most doers can’t stomach administration – something that policy makers and those socialised by working in the Public Sector seem not to grasp. However if the business is going to grow someone at Senior level has got to be into doing process.

Because if they don’t do it they won’t be able to start dealing with the KPIs and procedures necessary to trade with larger organisations. We call this transition the dawn of formality and unless you are planning to run a fairly physical business, a growing business will need to come to terms with these issues at around the 4-6 employee mark.

The next barrier is about getting past the 10 person threshold. This is a natural hunter-gatherer tribe size of business. Personally I’ve spent most of my life in organisations of about this size. What holds you back are the people issues. If it’s just you – or two of you – it’s a real problem. Because each new person that comes into the business adds another factorial layer of relationships and by the time you get up to about 14 or 15 employees, dealing with this is a full time job.

I first noticed this in our first business. We had 3 working directors so we managed to punch through this and ultimately employed about 25. However we went through a period where we had some churn in the sales force and the number of people in the workspace went up and down. There seemed to be a critical number below which everyone sat down and got on with their work while above it, you would get little spontaneous parliaments appearing. And then someone would leave (or be sacked) and they would all be back at their desks again.

As an employer you think “what’s the matter with these people, why aren’t they working” but of course they are. This interpersonal stuff needs dealing with and mediating. But it can become a full time job. If you are on your own it will eat all your strategic planning time. Hence the small number of companies that pass this barrier. Those that do have probably already decided to be growth companies and have an embryonic management team in place.

Mike Southon, in the Beermat entrepreneur, believes that you need an entrepreneur and 4 cornerstones to build a business capable of growing up to about 50 or 60 (at which point it can be cashed out). What this gives you is the ability to punch through this barrier and get on towards the next barrier.

This is all about scalability. By the time the company has expanded to employ 60 or so people it will probably have got a really strong proof of business concept under its belt and the choice is then whether to sell the business or to go for world domination. If you decide to do it yourself you will be looking at developing a middle management structure to run the business, raising finance and putting in a world class, scalable IT Infrastructure. Remember the peak in IT that the IOD found. These are the companies the IT boys are fighting for – and as I hope I’ve made clear – there aren’t really so many of them.

We’ll look at some of the crisis points we meet along the way in the next post.

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