A stage five business has 26–100 employees and is usually generating between $3 and $10 million in annual sales. There are only 300,000 of them in the United States, according to our Small Business Market Survey. We call these small businesses growth companies because they are now playing a different game. These companies are not lifestyle businesses. They are on a growth trajectory that brings a whole new set of challenges.
While growth companies are beyond the white-knuckled survival days, their business owners must be aware of these seven deadly sins. If they aren’t, the business will stall, backslide, or even die.
- Hiring leaders who don’t live the purpose, values, and mission. As Scott Martineau, my co-founder says, “Hiring these ‘misfits’ is like taking a jackhammer to the foundation of your business.” It can be tempting to make an exception for a specific role, but don’t do it. Especially if the exception you’re considering is in the leadership team of your company.
- Hiring too much experience. Experience is a good thing, right? Yes. But so is entrepreneurial grit. Sometimes the “professional help” you hire is dripping with experience, but lacks the entrepreneurial spirit you need in stage five. The trick is to build a team that blends the right amount of experience and entrepreneurship. Time and time again, I see the stage five business owner who hires too much experience where the new employee doesn’t understand a stage five business. Don’t make that mistake.
- Poor-boying your payroll. This is the flipside of hiring too much experience. The business owner doesn’t want to pay for the experience the company needs. Leaders and producers with experience in stage five businesses are more expensive than what you’re used to paying. If you don’t mix in a little bit of “been there, done that,” you might save on payroll, but you’ll pay for it in the school of hard knocks. And sometimes those hark knocks put you out of business.
- Unwillingness to invest in systems. To move from $3 million to $10 million, you’ll need to make significant investments in systems. I remember how shocked I was by the price of telephone, software, computer equipment, and furniture as we moved through stage five. I bitterly and regretfully wrote those checks, only doing so once I saw it was absolutely necessary. While that reluctance is probably a good thing (because spending too readily will drive you to the poor house), there were times I stunted our growth because I would not purchase big-ticket items, as a matter of principle. That stubbornness was not helpful.
- Insufficient cash reserves. Growth consumes cash. The faster you move through stage five, the more cash you need. I don’t know how many entrepreneurs I’ve met who are morally opposed to using debt or equity financing to grow their business, yet they expect to grow 100 percent per year through stage five. It won’t happen. You need to either raise capital or slow your growth. If you try to grow fast without having sufficient cash reserves, you will kill the business. To me, this is the saddest form of business failure—I hate seeing it.
- Failure to evolve the sales and marketing function. Many times, the sales and marketing strategy that gets the company to $3 million stagnates, breaks down, or stops working for market reasons. The stage five entrepreneur cannot be a one-trick pony, relying on one strategy, one partner, one advertising source, one star sales leader, or one industry factor. One is a very bad number in customer acquisition. Evolve the marketing machine or run the risk of going back to an earlier stage…or going out of business altogether.
- Lack of a clear strategy plan. Once you move past 25 employees, the lack of a clear strategy plan will have well-meaning employees running in 25 different directions or you’ll have 25-plus employees who are stuck in one place, unwilling to move or innovate for fear of being “out of line.” The type of dysfunction here depends on the leadership style of the company: Autonomous styles lead to the former problem while “command and control” styles lead to the latter problem. Either way, the lack of a clear strategic plan will hamstring the company.
Whew! That was a lot. I allocated more than my normal writing time to get those seven deadly sins on paper. Things are more complex for a stage five business. That’s why many entrepreneurs don’t ever get there or choose not to try. But I salute those of you who get there and push to $10 million and beyond. You are in rare company. And the good you do in your communities is to be celebrated. Review this list frequently, and don’t succumb to these seven deadly sins.
SBS Idea of the Day: Whether you’re at stage five or you aspire to get there, make sure you have a strategy plan to keep your people aligned to the goals. At a minimum, clearly call out the top three to five goals of the company and then articulate your company’s top three to five strengths, or leverage points, you’ll apply to achieve those goals. If you’re feeling weak or light on this, Google “StratLink,” “Verne Harnish Gazelles” or learn about the Elite Forum workshops we do at Infusionsoft.
Read the other posts in Clate’s Seven Deadly Sins series: