As businesses grow, entrepreneurs and the companies they’ve started must cope with changes in their business model and adapt their management style. In addition, they must confront the change in objectives, strategy, measurements and control.
Businesses at Stage One Growth
Stage One companies are typified by an entrepreneur who launched the company to promote an idea, product or service. The company’s main goal is survival and growth.
Likewise, the objectives are personal or subjective and strategy is implicit with exploitation of immediate opportunities. Measurement and control are accomplished by simple accounting and daily observation and communication.
Companies at Stage Two Growth
Companies have gotten larger and resources have expanded providing much needed help. One of the biggest changes, and challenges for stage two companies, is that the entrepreneur has hired functional managers. This transformation can be very difficult for some entrepreneurs, since they typically need to and should (with well-formed guidelines) relinquish decision making responsibilities (but many times do not).
At this stage objectives are focused on profits, meeting budgets and basic performance targets. The strategy typically is on one product or one service. Here, control grows beyond the solopreneur and structured control systems are developed.
Stage Three Companies
A Stage Three business has changed significantly from the early days. It is typically much larger in sales, personnel and products. The change in size also creates a challenge to increase profitability.
There is now a trusted management team as the company’s diversity and complexion has increased significantly. It is necessary to manage the overall business at the strategic and operational levels.
Growth has created the opportunity to be in more than one type of industry and geographical area. This means multiple divisions, product lines and product mixes.
Objectives have changed and take the form of Return on Investment, profits, and earnings per share. Control is performance measurement.
The strategy also changes as the company wants to increase sales of its product lines, both organic or non-organic in nature. This enables the company to exploit more business opportunities.
The Bottom Line. As companies are successful, their businesses grow and must adapt to changes in objectives, strategy, measurement and control. Early stage entrepreneurs make all the decisions and their objectives are personal and subjective. However, as companies grow changes take place. At the other end of the spectrum are larger stage three companies. Growth has taken off and products are diverse and complex. There is a need to have a management team overseeing a much larger organization that focuses on the Return on Investment, profits and earnings. The strategy is to grow the company’s sales, and this can take the form of organic growth or acquisitions.