Businesses are usually started because of the founder’s belief in the “product”. The founders are innovators in a technology, a physical product, a service, or a process. These entrepreneurs know their “product”. They may or may not know how to do business.
Some of these entrepreneurs will experience success in their businesses including revenues, profits, cash, a growing infrastructure and employee base. Others struggle from day one to pay the bills, bootstrap the business, and advance the technology.
Companies which experience early success fall into several categories:
The “lucky” companies are those which get to market with the product at a time when the need is recognized or the founders have a reputation that gets them in the door. The success is built through a mechanism which frequently has little or nothing to do with business expertise. The early success can camouflage a lack of robust business processes and management capability. When these “lucky” companies reach revenue and operational capacity – the point where the business must be able to generate additional growth through competitive competence versus “luck” – then the business must be capable of “doing business” from generating leads to pursuing opportunities to closing the deal and collecting the cash.
The “capable” companies are those that know business. They understand the process of “doing” business from marketing to managing costs to hiring the right people. These businesses have innate knowledge of not just the product, but the how, what, when, where, and all of the other processes of establishing and growing revenues, profits, and operations. These businesses are capable and able to pull together product, systems, and processes because they “just know” or because they have previous experience.
The final category of businesses – those who are “experienced” – have learned lessons the hard way. They have lived it. These are the road warriors who have started and run other companies. They may have worked in another entrepreneurial venture or they may have worked within entrepreneurial groups in large, successful corporations.
Frequently, businesses learn the hard way which category they fall into. As the business continues to grow, it experiences “growing pains”. The collective knowledge, experience, skills, systems, and processes which worked previously start to fray at the edges. Growth places pressure on the infrastructure, leadership, and cash flow. To continue to grow, be profitable, and have cash to fund growth, operational expansion and skills have to stay just ahead of demand.
The ability to anticipate the need for improvements in processes and systems is part science, part art. The organization must recognize the signs and symptoms of too rapid expansion and the potential consequences. A business can grow too fast and find itself losing market share and reputation. The temptation to say “yes” to every opportunity can cause the business to actually fall back to levels of capacity that preceded “expansion”.
One of the contributing factors to the contraction of business is the reluctance to “sacrifice” the innovative atmosphere of entrepreneurship for the confines of “corporate structure”. For founders there is a perception that a trade-off must be made between the innovative atmosphere which fostered early success and the need for more structured operations and discipline.
Growth challenges the existing capacity of leadership, managers, systems, and processes to keep the same culture. The “four wall visibility” of the early stage company – where everyone can see what is happening, who is doing what, and everyone pitches in based on what needs to be done – gives way to functional roles, delegation of authority, and (hopefully) deliverables and structured accountability.
Growth puts pressure on the organization to expand every aspect of what it does. The methods previously used to “get product out the door” are no longer sufficient. The ability of managers and key personnel to know everything that is going on in the organization or their particular functional area gives way to a need to manage resources and rely on others in the organization to get the right things done at the right time.
If your business is experiencing the growing pains of success, if it has been “organically grown”, if top-line revenues are growing and bottom-line profits aren’t, then the time has probably come to transition to “professional management”. This doesn’t mean leaving behind the innovative atmosphere of entrepreneurship. It doesn’t mean bogging down operations with superfluous rules and micromanaging practices.
What it does mean is enabling the business with sound practices, robust processes, appropriate systems and tools, qualified people, clear objectives, and measurable deliverables. Think of it as focusing your resources toward results.
Copyright ©2006 Lea A. Strickland, F.O.C.U.S. Resource, Inc.