Our October, 2003 newsletter is entitled "Managing Growth." Our newsletters feature articles on various aspects of preparing a business plan and over time should lead you through the entire business planning process.  

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Managing Growth
Courtesy of Ralph Brown, Sequus Inc.

As a prospective or real time entrepreneur you have probably given a great deal of thought to the prospects of success and failure. If you have decided to go ahead, you have probably convinced those around you that your idea makes a great deal of sense and satisfies a real need in the market. In fact, you have probably talked about the idea with family, friends and business associates, and by now if your idea is still alive, you must be quite excited about the prospect of getting on with it.

What you may not be aware of, however, is that you are behaving very predictably. In fact, you are at the first stage of the business growth cycle. Whether you succeed or not will partly depend upon how good your business idea is, but there is a lot more to it. Just as important is how effectively you manage your company through each stage of its growth.

The Pitfalls
During the Courtship Stage, the Aborted Idea is a potential hazard. There are two ways to get here. The more obvious is that the idea begins to run out of steam as the founder encounters objections or negative vibes from family, friends and potential business associates. What originally seemed like a good idea begins now to lose status. Enthusiasm wanes and the idea is dropped. Alternatively, the founder retains his or her original zeal for the idea, but is unable to generate the corollary support to keep the idea going, i.e., a venture partner needed for financial support. Whatever the reason, the essential commitment to launch the business disappears.

Appropriate Management Strategies
The Courtship Stage identifies Reality Testing as the treatment or appropriate management strategy at this point. Reality testing can come in many forms. It may be that a professional adviser has been asked to look at the idea and comment. A shortened version of a business plan may be undertaken to either refute or support the value of the business idea. It is difficult to justify the time and monetary cost of developing a full business plan if enthusiasm for the idea is waning. However, if the enthusiasm is still there but the founder needs to be assured that the idea still has merit, then the idea deserves to be researched before it is abandoned.

Infancy - Stage Two
If an idea survives the Courtship Stage, a new business is born. During the Infancy stage, the emphasis now turns to producing sales and cash flow. This is normally a one or two-person show with the founder or founders doing everything from answering the telephone to making on-the-spot decisions that could affect the life of the organization. Infant organizations are typically dramatically under-funded, understaffed and extremely vulnerable. At times, it is only the total and unwavering commitment of the founder to the success of the venture that keeps it moving forward.

The Pitfalls
Infant Mortality is a potential hazard during infancy. The causes of infant mortality are many and seemingly random -- a lost contract, failure to collect an important account receivable, pressure from a supplier to collect an account payable, failure of the bank to maintain a line of credit, an unexpected downturn in sales, a natural disaster, almost anything. The margin for error is often so narrow, there is little room to maneuver.

Appropriate Management Strategies
The recommended treatment or management strategy is Inexpensive Support. This means getting help from others when you can't help yourself. This may mean looking for a venture partner who can offer required inputs that you are incapable of providing, inviting people on the board of directors who have special talents or influence, or taking advantage of support programs in the community that offer resources such as advisory support and funding.

Make arrangements for the above inputs before trouble is encountered. If a proper business plan is in effect, such contingencies will have likely been identified.

Go-Go - Stage Three
The Go-Go organization has survived the infant stage and has likely experienced considerable market success. Sales are expanding, profits are improving dramatically and cash flow is no longer a problem. Confidence is mounting further to the point where there may be feelings of invulnerability.

At this stage, the founder sees opportunities everywhere and may even begin pursuing them with a tremendous appetite. Looked at in the most positive light, the founder can be seen as a successful visionary and high energy entrepreneur. However, the founder still lacks experience and may have trouble making decisions on a priority basis.

The Pitfalls
The Go-Go organization may fall victim to the founder's trap. The same maternal commitment and vision that was essential in Infancy can now smother the organization and cause it to fail. Unless the founder is prepared to depersonalize policies and begin to establish systems that are not dependent on the founder, the rapidly growing business may not have the depth and strength to get to the next stage of development successfully.

Appropriate Management Strategies
A strong board of directors can often provide the leadership necessary to ensure that the organization builds for the future. The perceptive founder will have build a strong board or a solid network of friends, associates or professional advisors such as accountants, consultants and perhaps a lawyer. If the board members or network of contacts have a strong personal track record in business, the entrepreneur will benefit a great deal from their advice. Without sacrificing control the founder may ensure that certain associates have a strong if not controlling interest in the venture, thus promoting the use of good judgment and not ego as it concern the future direction of the company.

Adolescence - Stage Four
The Adolescent organization has survived the Go-Go stage and is now reaping some of the financial benefits. Sales are strong and growing along with profitability. Now, a stronger administrative base to the organization is needed. Accounting and cost control systems are established and improved. Computers begin to emerge at work stations. Personnel and other policies, rules and procedures are established and published internally in manuals. More planning meetings are organized, and professional managers and supervisory personnel are hired to control what happens in various departments or units.

The Pitfalls
In attempting to introduce a stronger administrative base to the business, the company runs the risk of creating two opposing forces that could eventually split the organization and cause its downfall. One may be entirely devoted to creating administrative stability while the other may be just as committed to getting on with the job and tackling new opportunities in the marketplace. The two hazards are aptly named, divorce or premature aging. If the two opposing forces remain uncontrolled and their efforts are not integrated, there is a chance the company may split in two.

Appropriate Management Strategies
The founder must remain above the fray even if there is a natural tendency to side with the entrepreneurial clique. Rekindling the fire is the appropriate management strategy at this point. If the founder does not have the management skills required to do this, it may be necessary to bring in outside professionals. What must emerge is a re-energized company with the two opposing forces integrated and having a vision of the future which allows them to tackle opportunities from a strong administrative base. Some personalities may be sacrificed in the process. However, both sides must emerge as winners.

Prime - Stage Five
The business in Prime is a beautiful sight to behold. It has a results orientation, a well intact vision, and the systems and administrative support necessary to achieve efficiency. The Prime business sets its targets and objectives and meets them with confidence. Results are predictable and standards are high. While in the earlier stages of development, interpersonal conflict produced growth, change and further development, now the business may turn its attention to reducing conflict and creating a better interpersonal climate and improved human relationships.

The Pitfalls
Ideally, a business in Prime should stay in Prime, however, they seldom do unless they plan for it. The more likely result is that over time the aspirations of those in power slowly decline and the focus of the organization turns inward. Weariness sets in and the management principles may now want to enjoy the fruits of yesterday's labour. This is a sign of advancement into maturity and the beginning of organizational decline.

Appropriate Management Strategies
The only prevention appears to be a willingness to decentralize and create new centres of action that can experience the development process from the beginning. That is why in most dynamic organizations as they reach larger size, organizational restructuring seems to be a norm.

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