The Predictable Phases and Common Mistakes of Business Growth
by Jacob Aldridge, International Business Advisor
Over the past few months, we have discussed the importance of planning for “Controlled Growth” in your privately-owned business. But are you aware of the predictable mathematical phases that sit behind your growth plans, naturally accelerating or stalling your intentions?
Over 15 years and more than 1,000 business owners, I have seen these known phases help owners make the investments they need to burst through to a new level of success.
Phase 1 | Doing Phase | 2-12 Staff
The median business in Australia has just 1 team member – you. And the vast majority of small businesses never grow beyond this first, “Doing Phase”. Most founders are familiar with this phase of business – when you know every client personally, and are aware of all the tasks being completed by your team.
Such businesses are most at risk with about 7 staff – that’s the sticking point where future growth will require both an additional administration employee and a second sales or management team member. Many businesses get stuck at this point, because both of those roles are investments without immediate revenue return – it’s only after they are on board that you can employ additional revenue-generating staff.
Importantly, many business owners in this Phase are given the wrong advice by their advisors (or podcast hosts). Systems that work for larger businesses fall down when you are the one “Doing” it all, so you need a strategic approach tailored to this small business, 2-12 employee structure.
Phase 2 | Process Phase | 12-35 Staff
The “Process Phase” represents the move away from you, as the owner, doing everything and knowing everyone. This shift is more of an emotional hurdle than anything – you know nobody can do the work or love your clients as well as you do, but it’s time to let go to grow.
Nobody – and this includes your clients – wants Richard Branson flying the spaceship. It’s OK to put someone else in charge of key tasks, as long as you build the necessary processes to support your whole team to complete the work to your standard.
Increasingly, I’m working with businesses in this size who see the value in a “Done for You” approach, recognising that their time is too valuable to produce all those processes themselves. And it’s incredible to see how rapidly these companies grow when they are implementing a strategy that’s tailored to this specific medium-size business.
The biggest risk at this size is having the right people on the journey. Some employees are best suited to a “Doing Phase” organisation – they are often the lynchpin of your admin and operations when you are small, but when they are forced to handover tasks and work as a team they don’t have those skills. You may need to farewell these people – once essential, now a roadblock.
Also be very careful employing people with experience in larger organisations – as we will see, they may have the insight required to lead a team but wholly lack the ability to implement their own ideas. You are neither large enough nor profitable enough to have a layer of middle management!
Phase 3 | Capability Phase | 35-120 Staff
This transition is where we begin to identify the business owners who are truly willing to surround themselves with people who are smarter than them. In the “Capability Phase”, you move beyond processes for key business functions (like marketing, HR, sales, culture) and employ or promote key resources who bring the strategic capability to take that area of your business to a whole new level.
Often, this will mean recruiting experienced individuals to work over the top of your long-serving staff. Be prepared for some cultural blowback from that decision – and use this 5 Phases Framework to normalise and explain what it means, for the business (faster growth) and the team member (an opportunity to learn from the best).
Businesses can grow quite rapidly through this phase, from $5 million to $17 million in gross profit, as long as they are willing to reinvent all the processes that helped them to the starting line. If you always do what you’ve always done, you won’t get a different growth result.
Profitability Sweet Spots up to 24 Staff
Phase 4 | Strategy Phase | 120 – 1,000 Staff
You will see how the range of staff numbers expands as the Phases progress. This reflects the underpinning mathematical model of private enterprise – you have a core team of doers (“Technicians”, “Blue Staff”, call them what you will) that can be replicated and scaled up. The phases and sticking points reflect the Capacity Planning needs that sit around that core team – the administrative support, the marketing and sales engine, the strategy and culture.
Better systems in those other functions allows a business to more rapidly replicate their core doers. The “Strategy Phase” represents the next step from Capability, where one person in a core function (like HR) becomes a strategic team managing that function.
By this phase, the business owner has either found themselves a key niche role in the organisation where they can be leveraged for maximum value … or they are practicing pigeon management, flying into each of those teams and leaving a hug mess behind!
Phase 5 | Corporate Phase | 1,000+ Staff
There is research that adds additional phases beyond this one, but my experience at this level is limited to a few multi-nationals – most of whom were actually structured more like a dozen separate “Capability Phase” organisations.
Corporatisation occurs internally and externally. Internally, some fundamental structural changes need to occur – developing more systems around compliance and governance, and further evolving the owner and CEO roles away from the daily operations of the business.
Externally, the size of clients, partners, and supply chains also makes some huge leaps. Done well, this means a year of 20% growth can add $20,000,000 to your top line … or even your bottom line! A far cry from when you had that team of 7 people, and you were up late reviewing invoices.
But you must commit to those changes. If you miss the “good old days”, you will self-sabotage your stated strategy and also start losing all the capable resources you recruited and trained.
Even with the best intentions and wonderful capacity plans, businesses get stuck at predictable points when they don’t make the structural and emotional changes required. Similarly, some businesses will accelerate rapidly from a seemingly minor change, because it was the final piece in the mathematical puzzle.
- What phase are you in today? And how far along have you taken the business – are you growing fast, or seemingly stuck for no reason?
- What phase are you aiming for? Not every business needs to grow to 1,000 staff – as we noted, most don’t grow to two! But if you think “40 staff” is a good target, realise you may spend heavily on a restructure but not get the benefit from the new phase.
- Are you copying the wrong homework? Great ideas for a Capability Phase business will crush a Doing Phase organisation. Before you implement ideas from your trusted network, ask yourself – “What Phase is that advice designed for?”
On the topic of “the wrong homework”, next month I will dive deeper into the emotional journey of the business lifecycle. Just as there are predictable structural sticking points based on employee numbers, so too the emotional journey of the entrepreneur is predictable – managing and communicating that journey helps enormously.
By the way – if you’ve read this far, you may be interested in the Amazon sale for my latest book “Remote Working 2”. Written in conjunction with a host of international experts, it’s the latest wisdom on leading and managing a remote workforce, or working remotely yourself.