The many small business owners and entrepreneurs I’ve worked with over the years have different reasons for being in business. Some are looking for aggressive small business growth to enable an exit strategy in the not-too-distant future. Others want to create a lifestyle business, allowing them to work independently without the hassles of employees or overly complex operations. Still others want to create an asset that they can pass on to their kids or grandchildren.
Since there are a multitude of reasons why entrepreneurs start businesses (I’ve only listed a handful of them above), there is no one-size-fits all strategy for managing growth. Academics, self-proclaimed small business experts, and even the US Small Business Administration often prescribe generic solutions that aren’t good fits for all organizations. These ill-advised strategies can often create more harm than good, much like fitting a square peg into a round hole.
For example, academics and business media love to tout the benefits of democratic, collaborative, team-based work environments. We would all love to create environments like this – as would our employees – but this approach isn’t always appropriate for small business owners. In times of crisis or aggressive growth, a more autocratic, command-and-control leadership approach is often required for periods of time. It may not be pretty or consistent with what people want to hear, but it’s the reality of owning and growing a small business.
The bottom line? We can defer to as many small business books, magazines, and academics as we want, but the barrage of theoretical concepts is not going to be appropriate in any given moment in time. We need to adjust the various aspects of our business based on where we are in our Growth Dial.
What are the stages of growth on a Growth Dial?
But what is a Growth Dial? In short, it is a framework that defines how we need to manage our small business based on how fast our company is growing. When our business is growing very quickly, we will manage our finances, operations, marketing, and other aspects of our business very differently than if we are flat are experiencing a decline in sales. In other words, it defines which plays from our Small Business Playbook are most appropriate for stages in our growth cycle.
Growth can be generically described in five stages, which can be summarized via five main “notches” on the Growth Dial:
- Stage #1: Negative growth
- Stage #2: Flat growth, or annual revenue increases of less than 3%
- Stage #3: Incremental growth, or annual revenue increases of 3-10%
- Stage #4: Fast growth, or annual revenue increases of 10-50%
- Stage #5: Hockey stick growth, or annual revenue increases of greater than 50%
Some of us may move frequently between the different stages of growth, while others will stay in one or two stages for most of its lifespan. Regardless of how often your business moves through these various stages of growth, the Growth Dial will provide the appropriate framework to manage your business based on where it is at any given moment in time.
Case Studies in Small Business Growth
Let’s look at two case studies for illustrative purposes. One of our clients – which we’ll call Steady Eddie Accounting Services – is in Stage #3 of incremental growth. Business growth is funded with internal cashflow and retained earnings. Marketing is focused primarily on selling to existing customers and referrals from those existing customers. Employees are rewarded for add-on sales and customer referrals. The owner is able to consistently take money out of the business and leads a very comfortable lifestyle.
In our second case study – which we’ll call Hockey Stick Fitness and Wellness – the business is in stage #5, with very large annual revenue increases. In contrast to Steady Eddie, business growth is draining cash from the business and is constantly requiring outside sources of funding through bank loans and lines of credit. Marketing and business development is focused primarily on creating partnerships with complementary firms that can fuel the company’s exponential growth. Employees are rewarded for bringing in new customers and partnerships. Even though his business is larger and more successful by many counts, the owner does not take home nearly as much money on a day-to-day basis as the owner in our first case study.
Understanding these nuances of building and growing a small business is extremely critical, yet most professors, business schools, authors, and magazines don’t touch the topic. As small business owners and entrepreneurs, we have to be prepared to adjust our toolset based on where we are in the various stages of growth. And if we find that we aren’t comfortable with the stage we are in, we have the flexibility to adjust the Growth Dial and our business model accordingly.
Learn More and Share Your Ideas
I will cover more specific examples in future blog posts. In the meantime, learn more about how to leverage our Growth Dial, Small Business Playbook, and other practical tools for your small business.
Where are you in the Growth Dial? What have been some of your biggest challenges as a result? Feel free to share your thoughts below.