Fast growing companies can be exciting – if somewhat risky – places in which to work. Typically they are fairly small (about 20 to 50 employees, but growing quickly), have been around fairly short time (five or six years on average) and are expanding at fast pace (revenue growth often doubling each year).
But stellar performance can, of course, quite often turn into stellar crashes. One corporate collapse specialist describes what he calls “trajectory type 2” crash as being one in which company grows rapidly, even spectacularly, before suddenly crashing down to earth. Often fast-growing companies of this sort are led by larger-than-life, flamboyant personalities with penchant for risk taking.
An early warning sign of trouble ahead is when shortage of working capital emerges. The company’s rapid growth becomes uncontrollable, organisation structure problems become more pronounced and the management and information systems become overloaded, leaving the administration of the company in disarray. It is not long before the former fast-growing company crashes spectacularly.
All growing companies, be it rapid or more moderate growth, face critical transition points in their life cycle which they must recognise, confront and then manage successfully before they can move on to the next phase of growth.
Organisations that have the insight and management capability to recognise that their companies are encountering critical “growth transition” points in their life cycle are better able to manage their way through these “crisis” points successfully and keep their businesses on track for future continuing growth.
1. The “Control” Transition Point
In the early years, small, growing business will more than likely be led by its founder/owner. Relationships in the business are personal; the business has handful of employees and the owner makes all the decisions and knows all the customers. Many businesses will stay this size and are happy to do so. The owner finds the business at this size is controllable and he or she can manage pretty much everything that comes up with the help of an end-of-year accountant and perhaps one or two other advisers.
But for other small businesses their priority is to grow as fast as possible and it is when they get to 12 to 15 employees and turnover of perhaps $1 million to $2 million that the first transition growing pains will start to emerge. At this point it becomes difficult for the founder/owner to control everything directly without having to rely on others.
For the business to move to the next stage in its growth the owner will need to delegate some operational tasks. He or she might have to create one or two middle level management roles. For many business owners this will be personally difficult – being an entrepreneur is different from being professional manager. Each role calls on different skills and mind sets.
It is at this point too that the owner may need to engage specialist financial expertise, even if only at an administrator level. Employment and HR matters too will become more complex in the next growth phase. Administration will take up larger part of the owner’s time, something many entrepreneurs find uncongenial. And here’s the rub – the entrepreneurial skills needed to build business are not the same skills required to manage growing business. The owner has some personally difficult challenges and choices to make at this transition point, but they are unavoidable if the business is to successfully manage this transition point.
2. The “Structure” Transition Point
As the business grows it will eventually reach point where its structure increasingly becomes an issue and challenge for it. It will need to review the way in which it organises and manages itself – this is the organisation structure transition point.
The earlier structure might have suited smaller business emerging from the direct personal control of its original founder owner but as the business has grown in size and complexity the earlier organisation structure will no longer do.
The warning signs will be obvious. Managers will be complaining of work overload and stress. There will be long delays in getting things done. Administration tasks will pile up waiting attention. There will be frequent communication breakdowns. The company will increasingly rely on external contractors and professionals to do core organisation tasks. Financial returns will be increasingly late. Employment and HR processes will be shambles.
The key challenge facing the organisation at this transition point is to form comprehensive, broad-scale view of how it should best be organised, structured and managed for the next phase of growth in its life cycle.
If it has not already done so now may be the time to establish governance advisory board. professionally qualified chief executive supported by professional managers will be needed. specialist finance and accounting manager will be required.
Formal reporting and accountability arrangements will need to be put in place. Proper strategic and business planning processes will need to be adopted. High quality information and communication systems are essential for professionally managed firm.
With these changes in place the growing business can confidently move on to the next phase in its growth life cycle.
3. The “Bureaucracy” Transition Point
At some point in their growth and development all successful organisations reach point where size and complexity slows down their year-on-year growth and they lose their earlier dynamism, nimbleness and innovation.
The hierarchical layers in the organisation begin to stifle new ideas and initiatives. Bureaucracy and administrative compliance become ends in themselves. Doing it “right by the book” becomes more important than responding speedily and innovatively to customer needs.
Frustration sets in and there is discontent in the organisation, staff satisfaction levels drop and the best staff leave. Internal politics becomes problem and there is too much corporate in-fighting taking place.
The key challenge for the business at this transition point is to recognise the warning signs of “bureaucratic inertia” in the organisation and to acknowledge honestly that unless the current malaise in the company is addressed it will slip into decline and most likely failure.
The organisation will need to take good long hard look at its internal systems and culture – especially its culture of form-filling and administrative compliance. Its systems and policies will also inevitably need to be streamlined. Administration support staffing is likely to have grown disproportionately and will need to be cut back.
Perhaps even more radical measures may be needed to set the company on new growth track. It may need to reorganise itself into small head office unit with several nimble, semi-autonomous operational divisions freed to pursue growth. It might even go further and experiment with setting up holding company, freeing several autonomous businesses to grow again.
The business ironically needs to recapture at this transition point the innovation, flexibility and customer focus of the early start-up business it once was.
Using life-cycle model to describe business growth and the challenges organisations face at critical points in their life cycle can provide many useful and helpful insights for the leaders and managers of fast growing businesses as well as those developing at slower and sounder pace.
Recognising the growth transition points and the unique challenge each transition point throws up, can make huge difference to the sound development and growth of successful business. M
Control Growing Pains
• “I’m drowning in paperwork.”
• “I spend all day chasing my tail and fire fighting.”
• “The only way to do anything around here is to do it myself.”
• “I don’t have time for all this bureaucracy – I want to deal with my customers.”
• “Pla
