Congratulations to Stage 3 of your
Organization Growth Journey
You have progressed to a Stage 3 Company. In Stage 1, you have developed a successful business model that works. In Stage 2, you ramped up your sales and production and increased your staff using your proven business model. Now, in Stage 3, you will be challenged with exciting change. Fasten your Seat Belt!! You might have to come across a Wind Tunnel. You have to let go of methodologies that don't work and acquire new ones that do in the Wind Tunnel Stage.
Stage 3 is all about the transition of the organization from CEO-centric to Enterprise-centric. It is the most astute stages of growth and can make all kinds of growth fracas. This stage is very critical and can use external assistance and hope (what you are experiencing is not unusual). This information provides you with some pointers on what you can do to move to the next level of success.
This information is based on our proprietary and highly effective EGOS – Stages of Growth business model, developed by James Fischer. Fischer created the 7 Stages of Growth business model based on extensive research of entrepreneurial companies.
His research demonstrates that as companies add more people, the complexity level of the organization increases. You are reading critical information from the research that will help you:
Predict how growth will impact you
Adapt your leadership skills, knowledge, and insights to your specific stage of growth
Every business is unique, and this report may have some information that may not suit you and your business,
but most of them it will. We hope this information is helpful to your business growth.
After you read this information, feel free to set up a complimentary call with our advisor to discuss your
unique situation. Our advisors have over 30+ years of experience and have worked with over
110+ small and medium businesses in the past few years.
Few important facts about Small businesses (defined as less than 500 employees)
“50% of small businesses fail and close within one year.”
“80% of small businesses fail and close within five years.”
Continue to read and learn how to navigate Stage 3 and grow your organization successfully.
What does a Stage 3 company look like?
A Stage 3 company has 20-34 employees. At this stage of growth, it is typical to experience a staff revolution. The first indicator that a company has hit Stage 3 is the certainty that the leader can no longer hold all the strings and be in control of the organization entirely on his/her own.
When a company is in Stage 1 and Stage 2, it is CEO-centric – meaning the CEO is likely the Specialist who created the product or service that the company provides. It's the CEO's energy and passion that moves the company forward. Stage 3 is the first time the company becomes enterprise-centric – meaning the leader must pass off a certain amount of authority and responsibility, and this is probably one of
A Stage 2 leader must provide the vision — spending 40% of his/her time creating,
articulating, and getting the team on board with the path and movement of the company. the most difficult challenges for a typical entrepreneur to be able to do.
When it becomes apparent to CEOs, particularly the Leader/CEO, that they can no longer do what they have done in the past, it will likely cause frustration. In the awakening process, CEOs either adapt to new changes, or if they don't, they eventually may suffer the trauma from having enormous leadership inefficiency and what is called “entrepreneurial burnout." In Stage 3, CEOs must be able to assign work. This includes both the authority and the responsibility of the work to managers. It is also necessary to manage, orchestrate, and empower managers.
Required Leadership Skill Base:
The awareness to assign enough managers
The ability to delegate authority and train for that authority
The ability to manage, orchestrate, and empower the managers
The ability to address cost issues
The ability to see the need and manage growth
In Stage 1, team selection is all about how a staff member ‘fits’ the culture and the ability to do whatever it takes to get the job done (specialized skills and experience are secondary.) The CEO’s staff needs to help facilitate how work gets done and how quickly it gets done.
The staff also needs to be flexible and willing to embrace change because there are so many unknowns, and things can change quickly as the leader frequently makes adjustments to find what works best. Of the three Gates of Focus, The People Gate, The Process Gate, and The Profit/Revenue Gate, the latter is the main gate of focus for Stage 1. It’s all about proving the business concept and getting traction by generating revenue.
The second gate of focus is The People Gate because the company has experienced adding new people, bringing with them a whole new set of challenges for the leader.
Profit / Revenue
Required Leadership Skill Base:
The ability to identify one or more market opportunities
The ability to construct a skeletal business plan
The ability to raise sufficient capital
The ability to provide a product or service
The ability to see what needs to be done and then do it
Stage 3 leaders have outgrown their original spans of control. The CEO must start to build trust among his/her management staff to support the challenge of having them take on more responsibility and authority. CEOs will have to start delegating and letting go of that control they have held for some time because staff buy-in is now the number one challenge.
The staff will look to the leader for direction, and even though the leader expects people to be capable of pulling their weight, it doesn’t mean expectations or performance plans aren’t important in this early stage of growth.
The Top Five Challenges in Stage 3
Resistant to change
Without a robust business model (big picture strategy and plan), the leader’s efforts to bring in capital, find markets for products /services, and add new staff needed to help deliver the products/services can destabilize the work environment. The leader’s influence in the business must be dominant. Without a dominant influence (direct or indirect), the business will not move forward.
( 10% of the time)
( 30% of the time)
( 60% of the time )
The CEO should primarily wear the hat of Visionary (50% of the time) and Specialist (40% of the time). As the Visionary, it is the CEO’s passion, energy, and vision that will keep the business moving forward.
As the Specialist, it is the leader’s expertise that creates and improves the new or better products/services and their delivery to the market. With a self-motivated team that is able to get things done, managing should not be a time-consuming task, taking up only 10% of the CEO’s time.
At this stage of growth, the risk is in the bustle of rapid growth. If the leaders fail to check critical indicators, cash flow gets thin, and disaster is imminent. With the business now growing, it is time to begin building organizational infrastructure and preparing for Stage 3.
Builder / Protector Ratio
The Builder/Protector Ratio (BPR) is a measurement of “confidence vs. caution.” It is critical tool to gauge the business’ ability to accept change, respond with confidence to change, and successfully navigate the change.
Thrive on risk
Are always looking for new opportunities
Don’t back down from the everyday challenges
Thrive on caution
Prefer to apply the brakes (and should be encouraged to do so when appropriate)
In Stages 1 and 2, the BPRs are 4:1 and 3:1, respectively — the company should have been very aggressive, creating a business model and ramping up its volume. But, in Stage 3, as the company shifts from a CEO-centric to enterprise-centric, the BPR should be 1:1. With all the change required to achieve an enterprise-centric status, now is the time to be equally aggressive and cautious. Becoming less aggressive might be a challenge for the CEO, but this is critical for the team to become confident in their roles, responsibilities, and ability to make decisions.
Foundation Building Blocks for Stage 2
MARKETING AND SALES
Develop a well-defined sales and marketing system that all salespeople use.
Institute a quality control review and feedback form (work review template) to keep the team accountable and on track.
Develop a system and template for delegation to ensure the leader is maintaining control and supporting his/her managers.
The hiring system should help identify the skills that are needed and then help the company find, recruit, select, and hire great employees. There should also be a plan for each employee, describing expectations, performance measurements, and actions that will be taken to help him/ her succeed.
It is time to get outsourced part-time support such as COO, CFO, and HR consultant. The actual living entity of the business becomes much more tangible and measurable. This is the first time the leader must begin to rely on his/her leadership skills to run the company instead of technical skills. And it is the first time the leader is not involved in the day-to-day sales of the company.
The financial system should include a simple:
One-year profit plan (budget) projecting revenues and expenses
A financial model
Cash flow forecasting
The Non-Negotiable Leadership Rules
Release control to capable supervisors and lead them
Create an advanced financial reporting and projection system
Instill a team-based mindset
Overhaul the business model
Strengthen all communication
VRT Management Group LLC created a custom program called Entrepreneur Growth Operating System™ (EGOS™) to help companies just like yours navigate the challenges that are typical for a Stage 3 organization. We have designed programs, services, and tools that are directly tied to the issues faced by Stage 3 leaders and their businesses.
We always welcome an opportunity to have a 45-minute conversation with CEOs, Entrepreneurs, and Business owners to understand their current challenges and share a couple of best practices to help them navigate through their challenges.
We strongly encourage you to avail of this complimentary opportunity. Over 151 of your peers have received tremendous value through these Zoom sessions.