How to Manage Change In Your High-Growth Business
Nearly every small business owner has ambitions to grow their business. Unfortunately, only 43% of new Canadian businesses survive past the 10-year mark. A whopping 65% of American businesses do not last past the 10 year mark. Despite the tremendous amount of entrepreneurial zeal, even the best business idea can fail.
Keep in mind that this does not apply solely to startups. The risks are even greater for companies that are in the midst of growing rapidly. If not managed carefully, their growth can actually be their downfall. Cash flow issues are common as monthly expenses can frequently exceed revenues. With so much focus on pursuing growth, day-to-day processes can easily become unwieldy. Basic systems and manual processes that work for a small company won’t support you the same way as you add more customers, products, sales channels, employees etc.
Something that people often overlook in the midst of undertaking a growth marketing-focused approach is just how easy it is for the existing members of your business to burn out while going through these activities . Higher work loads that arise out of inefficient processes take a toll pretty quickly.
With all of this going on, it is easy to see why it can be so difficult to become a fast-growing company. In the midst of all of these factors, the key challenge becomes building and maintaining a fast-growing business while dealing with the inevitable challenges that arise due to these changing circumstances. That is what this article will examine in greater detail.
The 5 Stages of Business Growth
Small businesses face challenges that are determined by a wide range of variables, including business and industry type, leadership and management capability, business size, technology and infrastructure capability, and market volatility, to name a few.
However, regardless of the type of business you operate, you will experience the same phases as part of your overall growth process. Understanding these phases can give you a roadmap on how to manage the growth stages that you are currently at or will experience with any future small business venture. Most notably, it can also give you an understanding of the various problems that can arise at these different phases.
So with that in mind we well now examine the 5 stages of growth that businesses go through.
What are the 5 Stages of Business Growth
Stage I: Existence. In this stage the main problems of the business are acquiring customers and delivering the product or service contracted for. Among the key challenges businesses face at this stage of their development are:
Can they get enough customers via their products and services they offer to become a viable business?
Can they expand from that one key customer or pilot production process to a much broader customer base?
Is there enough money to cover the considerable cash demands of this start-up phase?
At this stage, the organization is simple and straightforward. The owner does everything and directly supervises subordinates, who should be of at least average competence. Systems and formal planning are practically nonnexistent. The company is simply trying to survive day to day. The owner is the business, performs all the important tasks, and is the major supplier of energy, direction, and, with the help of family and friends, capital.
Many businesses never gain sufficient customer acceptance or product capability to become viable. In these cases, the owners close the business when the start-up capital runs out and, if they’re lucky, sell the business for its asset value. In some cases, the owners cannot accept the demands the business places on their time, finances, and energy, and they quit. Those companies that remain in business become Stage II enterprises.
Stage II: Survival. In reaching this stage, the business has demonstrated that as a business, it is definitely viable. While it has enough customers to be credible, the key problem thus shifts from mere existence to the relationship between revenues and expenses.
The main issues involves being able to generate enough cash to break even. If that is feasible, the question becomes is whether the business is able to stay in business and to generate a sufficiently large return.
The organizational structure is still simple. The company may have a limited number of employees supervised by typically a sales manager, a development manager or an operations manager. None of them makes major decisions independently but instead carries out the rather well-defined orders of the owner as part of a templated way of simplifying day to day decision making.
There is very little in the way of systems implementation, and formal planning is, at best, cash forecasting. The major goal is still survival, and the owner is still overwhelmingly synonymous with the business.
In the Survival Stage, the enterprise may grow in size and profitability and move on to Stage III. Or it may, as many companies do, remain at the Survival Stage for some time, earning marginal returns on invested time and capital (endpoint 2 on Exhibit 4. They may eventually be forced to go out of business when the owner gives up or retires. Some of these businesses may have developed enough economic viability to ultimately be sold, usually at a slight loss. Or they may fail completely and drop from sight.
Stage III (Success) The key decision facing business owners at this stage is whether to exploit the company’s accomplishments and expand or keep the company stable and profitable (providing a base for alternative owner activities including starting up new enterprises, or simply pursuing hobbies and other outside interests while maintaining the business more or less in the status quo).
Organizationally, the company has grown large enough to, in many cases, require functional managers to take over certain duties previously performed by the owner. Cash is plentiful, but a major concern is to avoid a cash drain in prosperous periods to the detriment of the company’s ability to withstand the inevitable rough times.
Basic financial, marketing, and production systems are in place. Planning in the form of operational budgets supports functional delegation. The owner and, to a lesser extent, the company’s managers, should be monitoring a strategy to, essentially, maintain the status quo.
The company can stay at this stage indefinitely, provided any changes in the competitive environment do not significantly shift its market niche, or, ineffective management does not effectively reduce the business’ competitive advantage.
Cash is plentiful and the main concern is to avoid a cash drain in prosperous periods to the detriment of the company’s ability to withstand the inevitable rough times.
Assuming that the business is looking forward to the future and not just looking to manage the present, among the important tasks are to make sure the basic business stays profitable so that it will not outrun its cash reserves. Also of concern at this stage is to develop directors/executives to meet the needs of the growing business. This second task requires hiring managers with an eye to the company’s future rather just than its current position.
Systems should also be installed with attention to forthcoming needs. Operational budgeting is still prevalent, but strategic planning is extensive and should either involves the owner or the owner acting via a professional CEO.
If it is successful, the III-G company proceeds into Stage IV. If not, retrenchment to the Survival Stage may be possible prior to bankruptcy or a distressed sale/acquisition.
Stage IV: Take-Off or Resource/Maturity In this stage the key problems are how to grow as rapidly as possible, as well as how to finance that growth. The most important areas of focus, with that in mind, are in the following areas:
Delegation. Can the owner delegate responsibility to others to improve the managerial effectiveness of a fast-growing and increasingly complex enterprise? Further, will the action be true delegation with controls on performance and a willingness to see mistakes made, Or will the owner struggle with delegation due to an unwillingness to relinquish control.
Cash. Will there be enough to satisfy the great demands growth brings (often requiring a willingness on the owner’s part to tolerate a high debt-equity ratio) Will cash flow be eroded by inadequate expense controls or ill-advised investments brought about by owner impatience?
The organization at this point is highly decentralized and, at least in part, divided into divisions, usually in areas such as sales, marketing or operations. The key managers must be very competent to handle a growing and complex business environment. The systems, strained by growth, are becoming more refined and extensive. Both operational and strategic planning are either being done by or involve specific managers. The owner and the business have become reasonably separate, yet the company is still dominated by both the owner’s presence and stock control.
This is a pivotal period in a business’s evolution. If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold profitably, provided the owner recognizes his or her limitations soon enough. Too often, those who bring the business to the Success Stage are unsuccessful in Stage IV, either because they try to grow too fast and run out of cash. In such situations, the owner often falls victim to the need to be omnipotent. They feel the need to be in on every decision, because they are unable to delegate effectively enough to make the company work (the omniscience syndrome).
It is, of course, possible for the company to traverse this high-growth stage without the original management. Often the entrepreneur who founded the company and brought it to the Success Stage is replaced either voluntarily or involuntarily by the company’s investors or creditors.
If the company fails to make a big-time leap at this stage, it may be able to retrench and continue as a successful and substantial company without much growth. Or it may drop back to Stage III If the problems are too wide-ranging, it may drop all the way back to the Survival Stage or even ultimately close down.
Stage V: Resource Maturity. The greatest concerns for a company entering this stage are twofold. First, the aim is to consolidate the financial gains brought on by rapid growth. Second, they are looking to retain the advantages of their small size, including having the flexibility to adapt and pivot. Essentially, they are looking to retain their entrepreneurial spirt while benefitting from having more in the way of cash resources to try and exert their dominance in the market.
The challenges that businesses at this stage face is that it must expand the management team fast enough to eliminate the inefficiencies that growth can produce, They must further professionalize the company by use of such tools as budgets, strategic planning, management by objectives, and standard cost systems.
A company in Stage V has the staff and financial resources to engage in detailed operational and strategic planning. Management is decentralized, adequately staffed, and experienced. Systems are extensive and well-developed. The owner and the business are quite separate, both financially and operationally.
The company has now arrived. It has the advantages of size, financial resources, and managerial talent. If it can preserve its entrepreneurial spirit, it will be a formidable force in the market. If not, it may enter a sixth stage of sorts: ossification.
Ossification is characterized by a lack of innovative decision-making and the avoidance of risks. It seems most common in large corporations whose sizable market share, buying power, and financial resources keep them viable until there is a major change in the environment. However many growing businesses reach the ossification stage largely because the owner is unable to adapt to a more hands-off or delegational style. Unfortunately for these businesses, it is usually their rapidly growing competitors that notice the environmental change first and that are able to profit from it.
What are the Key Management Factors that Determine The Level That a Business is Able to Prgress to?
Several factors, which change in importance as the business grows and develops, are crucial in determining whether a business is able to succeed/progress or stagnate/potentially fail. .
There are 8 factors which we have identified, 4 of which four relate to the enterprise and four to the owner. The four that relate to the company are as follows:
Financial resources, including cash and borrowing power.
Personnel resources, relating to numbers, depth, and quality of people, particularly at the upper and middle management levels
Systems resources, in terms of the degree of sophistication of both information and planning and control systems.
Business resources, including customer relations, market share, influence and power related to suppliers, manufacturing and distribution processes, technology, and reputation, all of which give the business credibility within its industry and market.
The four factors that relate to the owner are as follows:
Owner’s goals for himself or herself and for the business.
Owner’functional abilities in doing important jobs such as marketing, inventing, producing, and managing distribution.
Owner’s managerial ability and willingness to delegate responsibility and to manage the activities of others.
Owner’s strategic abilities for looking beyond the present. Key to this is matching the strengths and weaknesses of the company with his or her goals and the will to build up the organization effectively in order to meet up with these goals.
What Are Some Key Principles Needed to Effectively Manage Growth Within Your Business
The first thing to understand about preparing a business for high growth is that there are two main ways in which rapid growth happens within a business. The first occurs because it has always been part of your strategy. If this is the case, you make sure you have everything lined up, you very purposefully work for that high growth and you will have thought about all the things that are about to be discussed.
The second, and this is where most companies fall into, is that you build your company for a period of time and then you have a realisation that you have a great platform for growth. You can see the opportunity. You might have moved into a slightly different, more niche area and realize from the quick inroads that you have made into it that it is ripe for exploitation and development.
Those are the two main scenarios: you have an aggressive plan that you prepare for and want to enact, or you have grown your company organically at a steady rate to the point where you have everything, or at least a lot of it, lined up and ready to go for when you do want to go about preparing for growth.
That means you have a really solid base for high growth already, which just needs a little bit of fine tuning to prepare it for the next stage in the company's development. Either way, the same principles apply, even though in the first scenario everything is very purposeful and deliberate while by contrast in the second scenario some of it will have happened organically. Whichever scenario you are in, the key thing is to ensure that things line up the way you need for them to.
1. Keep your focus on your customers
Small and mid-size businesses tend to be hyper-focused on their customers for good reason . After all, if you lose even one customer, you will definitely feel the financial impact. That’s not to say the reasons for prioritizing customer experience are entirely selfish. For many SMEs, it’s a core part of their brand and how they compete against bigger players. But it’s also easy to lose sight of the customer when you’re scaling quickly.
Customer focus is really important. In fact a study done at the end of 2020 found that customer experience trumps price and customer experience as the key brand differentiator.
Doing things that take away from the experience you’ve worked hard to create will only turn your customers off. So be thoughtful about how and where you introduce automation. If your customers are used to engaging one-on-one with your team, you may not want to move to a fully automated approach. But if your customers have been asking for a portal to view their invoices, for instance, that’s a move worth making.
2. Pay close attention to the bottom line
Managing cash is critical for any business, but especially for high growth companies. Start by doing a growth diagnosis to understand your cash inflow and outflow. Pinpoint areas where you could tighten up your financial controls. Dig into each area in detail. Look at ways you can improve receivables by reducing collection time, freezing substantially overdue accounts or offering additional payment methods that make it easier for customers to pay. On the payables side, look at reducing interest payments on overdue invoices or negotiating better credit terms with key suppliers.
Think about what questions you need to answer on a daily, weekly, monthly and quarterly basis, then create reports and dashboards so you have easy access to the information. This will give you the ongoing snapshot that you need to understand your financial health at any given point in time.
3. Build the right team to support your growth
When you hit a growth phase, it’s tempting to hire fast so you can keep things moving. But this increases your chance of making bad hires that just aren’t vetted as carefully. In such scenarios, you’re focused on what you need right now, not what you need in six months or a year. When you consider that it costs $4,000 on average to onboard a new employee, making quick hiring decisions often are counterproductive in the long run.
Building a senior team ahead of the high growth stage is also really important. What you don’t want to do is go into the growth stage with a bare bones team and then have to scramble around trying to find the right people. In fact, by the time you’ve found someone, it’s probably going to be between one and six months time before they can even start working for you, once you allow for notice periods and all the rest of it. If you only have the bare bones of a team, you won’t be able to generate the growth that’s available to you.
Thinking about your senior team carefully is essential. You need to decide who has the right mindset, who’s with you and ready for this next stage in your company’s development, as well as who needs to be brought in form the outside and in what area. It’s easy for ongoing skills development to fall by the wayside but creating a strategic plan for leadership growth and development can yield big results.
It is important to understand that sometimes people are suitable for different stages of a company’s development. Allowing them to move on will also be the right decision for your company long term.
One thing that cannot be emphasized enough is making sure that as you try to maintain sales while preparing for future growth, that you protect your reputation. You have to maintain quality throughout a growth period because if you don’t, you damage your quality and you will lose clients, probably for good.
To do all of this as a CEO, you’ll need some help. If this is your first company, you especially want some help from people who have been there and done it before.
This is where a change management consultant can be invaluable. Bringing on an external expert in ahead of a high growth phase, someone who has got experience of what you are about to get into or has helped other companies in similar situations, is extremely prudent. They can bring their experience to the table to help you avoid making the mistakes that they may have made, or that they saw their bosses make.
4. Be diligent about change management
Studies have shown that most issues with business transformation center around people. This applies to any major growth phase and the projects that go alongside it. Supporting your team is arguably the most important strategy to manage a high growth business. You can do everything else right, but your people are the ones who make the dream a reality.
Here is a quick checklist that will help you be intentional with your change management strategy,
Do employees understand the changes and how they will be impacted?
Are you communicating consistently throughout the change?
How and when can employees provide input?
Have you tagged champions throughout the organization to voice their support and encourage buy-in from others?
Where do employees go if they have questions?
Perhaps one of the most essential principles is integrating change management in your organization through systems and processes. Managing change shouldn’t be seen as a luxury or afterthought or something that will happen organically.
Change management is the engine that propels effective adaptation and successful organizational change. It enables workers to comprehend and commit to the shift, as well as to perform efficiently throughout it.
If strong attention is not paid towards the change management process, business turnarounds may be bumpy and costly in terms of both time and resources, impeding the company’s ability to achieve fast development and success in the long run.”
A mentorship program or an open-door approach with management to raise issues as they emerge can help staff adjust to changes.”
5. Put the right systems in place
High growth companies tend to operate in firefighting mode, de-emphasizing operational improvements and investments because they take time to implement. But eventually, they all reach the same conclusion, which is to continue growing, they need to simplify, automate and increase efficiency. The improvements you see on the operational side have a trickle-down effect, helping you lower costs, keeping your headcount down and improving your customer experience. It’s an essential foundational piece that will support each of the other strategies we’ve discussed here.
For instance, An ERP solution is a sound investment that helps you eliminate bottlenecks in your processes and do more with fewer resources. Project Management Software (Asana, Trello, Monday.com) can help you to visualize progress of key initiatives, manage tasks, and enable seamless collaboration across teams during implementation. Communication Platforms (Slack, Microsoft Teams, Zoom) in turn, help to facilitate real-time communication, information sharing, and address employee concerns throughout the change process.
6. Creating a Plan Is Key:
As mentioned previously, whether you recognize the various stages of growth and craft a plan around what is needed and you do this right from the outset or if you do this as you go along, creating a plan to manage this change is key either way.
A change management plan is a process a business follows to implement changes across the organization. Change management plans are typically used for significant or complex organizational changes that require a more strategic approach because of their impact on someone’s job.
Let’s face it. We all react differently to change. Some are eager to engage with the new processes, while others will be reluctant. Some of your employees may love the changes, others may not be so excited. One group will take to the changes immediately, but others may not want to change at all. No matter their mindset, a change management plan should provide the complete roadmap and tools to successfully support your employees as they transition to the new way of doing things.
Your plan will differ based on your organization’s needs, but each change management plan should include some form of the following:
i) Well-defined goals
The goals of your change management plan should be simple:
Tell your organization about the change.
Help those who are directly affected by the change to adapt.
Your organization might, for instance, start an entirely new department to handle expanded business offerings. Regardless of the type of change involved, each of these changes come with their own set of goals. Whatever those goals may be, the core goals of your change management plan should be to inform everyone about the changes and to guide those who will be directly affected by them.
Clear communication
On a related note, communication is key in any interaction, but especially when it comes to organizational change. Change often includes multiple moving parts that must be clearly communicated so no one gets left in the dark.
In addition to establishing goals and expectations, your communication should allow space for feedback from your team to respond to and offer suggestions about the changes. Not all of this feedback may be positive, however, knowing how your team feels about the transition and allowing them to feel heard are vital to addressing and calming their concerns.
Training
An organizational change significant enough to warrant a change management plan probably includes new features or procedures that your employees will need to learn. Formal training sessions are great opportunities for your team to get hands-on experience with the changes and ask questions in a safe environment where everyone learns together.
Training as a one off, however, generally speaking, is not sufficient. Providing helpful reference sheets, such as FAQ documents or videos, that your team can access if they have simple questions can do much to lower the cost of ongoing training.
It is worth noting that a well defined plan for change is effective because it allows for a number of deliverables, including:
Minimizing disruptions and confusion, and ensuring a smoother transition to new processes or technologies.
Getting employees on board with changes. By preparing them and explaining the reasons behind the shift, it increases adoption and reduces resistance.
Boosting overall performance. Successful change leads to increased efficiency and productivity, ultimately improving the company's bottom line.
Improving Employee Morale: When employees understand the reasons for change and more importantly, feel supported during the transition, it can boost morale and make them feel valued. This can lead to a more engaged and motivated workforce.
Increasing Adaptability: The business world is constantly changing. By having a strong change management process in place, companies become more adaptable and can react more effectively to future challenges and opportunities.
Managing Change Within a High Growth Business Is an Ongoing Challenge
Managing change within a high growth business can be a significant challenge for even those organizations that anticipate such change . By embracing strategic planning, leveraging modern tools, and developing as well as nurturing a supportive and communicative company culture, you can enhance your business’s capacity for growth and ensure long-term success.
Following an articulated change management plan can help your organization navigate through any changes they need to adopt or decisions you need to make today for the opportunities you'll find tomorrow.
If your business is at a point where it is feeling overwhelmed by the growth that is occurring, why not reach out to us for a change management consultation? Our experts will examine your business, help you identify your various pain points, potential change initiatives and help create a plan to guide you through the changes that are a necessary part of growth. Moreover, in addition to creating the plan, that they will work in tandem with you to put them into effect.
With everything that is currently on your plate as a CEO/business operator (a list which almost certainly is continuously growing), there is no reason to wait any longer to tackle the change you need to make within your fast growing business.