Month: February 2016

Freelancing – while keeping your full-time job

Good post on freelancing by Ryan Robinson on Skillcrush.

Skillcrush
Skillcrush

Want to dip your toes in the entrepreneurial waters by freelancing while keeping your full-time job? You’re not alone — countless other people do, too.

But how?

Here’s a guest post from Ryan Robinson, an entrepreneur and marketer who teaches people how to create meaningful self-employed careers. (His online courses “The Launch While Working Formula” and “Writing a Winning Freelance Proposal” can teach you how to start and grow your own business while working a full-time job.)

Here’s Ryan:

Since I began freelancing just over a year ago, I’ve had the opportunity to work with nearly a dozen high-growth startups and world-class experts. What’s more, I’ve never had to negotiate for the premium prices I charge for my content marketing services.

Because I’ve done such an effective job of defining my value propositions. Branding myself as an expert within my field, and getting my content in front of new target audiences. I now have a 3-6 month waiting list for new freelance clients.

However, that certainly didn’t happen overnight. My rapid success in the world of freelancing is the result of a lot of strategic positioning. Hours of hard work, and good timing.

If you’re ready to get serious about freelancing and multiplying your self-employed income. My top twelve tips for earning more during your first year.

But before before you get started, check out something awesome I helped put together, The Ultimate Guide to Going Freelance on Skillcrush. You’ll find tips for learning the tech skills you need to get started. Strategies for adopting “the freelance mindset,” plus tricks for building a “career safety net” before quitting your day job. (Get the guide here.)

Here we go:

1. Choose a niche.

If you’re new to freelancing, you might feel ready to take any paid work you can get your hands on. But as you get deeper into your freelancing career you’ll need to start being more strategic about the types of work you do and the clients you take on.

You might be thinking: How can getting picky about the freelance work I do help me make MORE money?

Because when you specialize, you become an expert in a specific field. And experts can charge more for their specialized services.

In my opinion, the age-old debate of whether you should be a specialist or a generalist when starting your freelancing career isn’t even worth thinking twice about. If you were your client and you needed someone to fix your email marketing so people actually sign up. Write ads that convince people to buy. Or just update your outdated website, would you rather hire someone who’s a jack of all trades. Or a person who’s a pro at doing one thing and doing it extremely well?

I’ll choose the specialist every time.

And when it comes to my own experience, choosing to specialize as a content marketing consultant–as opposed to being a general digital marketer for hire–has been the single best decision I’ve made with my freelancing business. Because I’ve built my reputation with clients as a talented content marketer over the past few years. And frequently engage with content marketing content on various social media channels, I’ve been able to rise to the top of my niche in a relatively short period of time. This is one of my favorite takeaways from Becoming a Successful Freelancer over on CreativeLive.

Aside from my blog and existing client referrals, the next most consistent source of new clients has been from business owners seeking out specific expert help. Through both Google and social searches like the one above from Twitter.

So to expand this example to other fields, imagine you are just starting out as a web developer. You can get into a niche like migrating blogs to WordPress. That means when someone searches for “help with migrating a blog to WordPress,” they can find you.

If you choose the right niche, deciding to specialize and putting some effort into branding yourself as an expert within your niche can really pay off for years to come.

2. Get clear on your service offerings.

One major decision you need to make early on in your freelancing career is what you do and what you don’t do.

The more specific you can be about what services you offer, the better. Not only will it help you brand yourself, it’ll allow you to control how potential clients perceive you and give you the opportunity to continue building your portfolio in the direction you want to move in.

If you want to focus on becoming a sought after, highly paid Ruby on Rails developer, then you shouldn’t even consider contract offers for customizing WordPress themes or designing the user experience for an upcoming app. While the short-term benefits of steady work are tempting (and sometimes necessary), taking on projects that aren’t getting you closer to your ultimate goal of becoming the best in your field will only distract and delay you from making meaningful progress.

3. Define what your ideal client looks like.

Before you can go out and start looking for clients, you’ll need to develop a clear picture of who you’re going to work best with. Do you want to build websites for small business owners? Pitch in on new feature development for high growth technology startups? Take on longer-term contracts with enterprise-sized companies? Making these clear distinctions between who and what type of business you’re targeting will be essential to effectively pitching your services.

To define exactly who your ideal freelance clients should be (and how to start finding them), ask yourself these questions:

  • What type of business has the problems I’m solving with my services?
  • Can the business I want to work with afford to hire me?
  • What demographic trends can I identify about the decision makers in the types of businesses I’m targeting? Think age, gender, geographic location, websites they frequent, and their personal interests.

Because I know that I’ll be more engaged and work most effectively with smaller startup teams who are working on projects I can personally relate to, I’ve proactively chosen to make my scope of potential clients narrow. By working with similar startup teams, new potential clients I target within my niche are able to instantly relate with me, and have confidence that I’ll be able to replicate my results for their business, too.

Picking your niche and making yourself stand out is one of the core principles covered in CreativeLive’s Essential Guide to Launching a Freelance Career.

4. Create a high quality portfolio site.

It goes without saying that one of the best ways to demonstrate your technical skills is by having an amazing portfolio site of your own. If you want to be taken seriously as a new freelancer, you’re going to need a website that:

  • Showcases your expertise.
  • Highlights relevant past experiences.
  • Shows who you are.
  • Includes your contact information so that potential clients can easily find you.

Plus, a stellar portfolio can really help you out if you don’t have a lot of job experience to prove that you know your stuff. (Read more about that here: How to Get Hired in Tech With No Experience.)

The purpose of your portfolio is to educate, spark interest, and convince potential clients that they’ll want to choose you for their technical needs. That’s why it’s worth investing time into deciding what to feature on your portfolio and how it’s being displayed–before you start looking for new projects.

Once your portfolio site is up, start including a link to the site within your email signature and on your social profiles.

(Get more inspiration on awesome portfolios here: 25 Portfolio Dos and Don’ts)

5. Start freelancing before your quit your day job.

I’m a huge proponent of starting your freelance career as a side business, as opposed to leaving your day job to immediately pursue self-employment.

In addition to the fact that creating a high quality portfolio website, building your personal brand, and adding to your portfolio naturally takes a good amount of time, it’s a good idea to have a few steady freelance clients on your roster before axing your sole source of income.

I recommend growing your side income to at least 50-75% of your total current income before leaving your full-time job, depending on your risk tolerance.

Managing a tight schedule, heavy workload (including demanding freelance projects), and being responsible for client deliverables with limited time resources will teach you quickly what it’s like to run your own business.

The other awesome benefit of picking up freelance clients while you’re still working full-time is that you can be selective. You likely don’t absolutely need the money. This puts you in a position to turn down work that either doesn’t pay enough to justify your time investment, or that you’re not genuinely interested in.

These are two points you’ll need to be a stickler about if you want to be happy once you’re freelancing full-time. Check out my list of the 101 best business ideas if you need more inspiration.

6. Level up your skills.

The best way to justify higher rates? Make sure you have impressive skills that are in high demand.

Practice using your new skills by building the types of projects that you want to eventually be paid to work on. Whether that’s WordPress websites, mobile apps, or something else entirely, the more you can differentiate yourself among a sea of competition with cool side projects and examples that’ll attract potential customers, the better.

And remember that while highly trained freelancers can get paid much more for their work, you don’t have to head back to school for a B.S. in computer science to get on the train. Taking online classes like a Skillcrush Blueprint can get you on the right track and put you in charge of your education.

7. Build your credibility.

There are many ways to build your credibility within your industry. Aside from creating high quality blog content and collaborating with notable influencers in your industry, you can write an ebook, create an online course, and line up speaking engagements to start increasing your visibility within your niche.

These credibility-boosters can help you add your list of accomplishments that you can highlight on your portfolio and simultaneously demonstrate your knowledge for more potential clients to see. The wider you can broadcast your message, the more influence you’ll build within your niche.

8. Determine your pricing.

While deciding how much to charge for your freelance services is a major step toward determining your perceived value, you need to make sure you’re charging enough to make a sustainable, comfortable living. Most clients won’t hesitate to pay higher rates for a freelancer that gives them an incredible first impression. And sells them on the ability to deliver high quality results.

As long as I continue to deliver consistent value to my clients (beyond their expectations), I have no trouble setting and maintaining high prices for the services I’m providing.

Before setting your prices at the bare minimum you need to charge in order to hit your financial needs, consider the actual value you’d be creating for your potential clients and make sure you’re not leaving money on the table. You can always increase your rates in the future and hope your client stays on board. But if you start at a price point you’re already excited about, you’ll be that much more likely to over-deliver. And continue increasing your value moving forward.

9. Leverage your network for introductions.

One of the most effective ways to land higher quality and better paying freelance work is through leveraging your existing networks. Whether it’s pitching your actual friends and former co-workers on freelance help. Or using their connections to make warm introductions to companies you do want to work with. This is a great alternative to cold contacting potential clients.

Whenever I discover a freelance opportunity I want to pursue on Angel.co,CloudPeeps, or elsewhere, I give myself 10-15 minutes to research the company. Find my ideal point of contact, and do a little homework on if I have a mutual connection on LinkedIn, Twitter, or Facebook before reaching out with a cold email.

If I do have a mutual contact, I’ll reach out to my friend (only if I’m actually friends with them) and ask if they’d mind sending an email introduction on my behalf.

This approach, where my first impression is being endorsed by a recommendation from someone my potential client already knows, has consistently netted me higher response and close rates.

10. Perfect your pitching.

There’s an art and science to pitching your freelance services to new clients. Because it’s such an important part of running a profitable freelance business, I created an entire online course on the topic of writing freelance proposals that convert, and I even give away my freelance proposal template for free.

Landing new clients isn’t just a matter of crafting an awesome freelance proposal. Your success depends on how you’re selecting new jobs, how you position your value propositions, and how much research you do ahead of time.

I’ve won new gigs simply because I clearly put in more time and effort into researching the company. Determining their needs, and providing immense up front value in the form of insightful recommendations before I even discuss payment. In the world of freelancing, much of your success will depend upon the strength of your client relationships, and how well you’re able to forge meaningful partnerships.

11. Blog frequently.

The goal of having a website showcasing your skills is to attract and convert new clients. What better way to increase the number of potential new clients coming across your website than by creating high quality blog content that positions you as a stand out expert within your field?

At the beginning, aim for creating one or two in-depth blog posts per month, geared toward providing truly helpful solutions that your potential clients may be searching for. Note: That means you’ll be writing for an audience of your clients, not other people in your field.

Once they discover your content and get some free value from you, you’ll naturally be top-of-mind if they’re ready to hire out for more in-depth help.

I initiated the majority of the freelance contracts I’ve landed over the last year by mentioning a company in a successful blog post on my website. After publishing my in-depth post chronicling all of the best side business ideas, I spent a lot of time reaching out to a carefully chosen person at each brand or online tool I mentioned. I asked if I cited them correctly within the post. The majority of them wrote back either confirming or offering a suggestion. Which then gave me an opportunity to either pitch a guest post. Ask them to share my content with their audience on social. Or open the door to a potential marketing contract.

My blog has been by far my highest return marketing channel for my freelance business.

12. Guest post on relevant industry blogs and publications.

Once you have a website that highlights your abilities and clearly communicates that you offer freelance services. One of the most effective ways to increase your online visibility is by getting content published on the blogs and publications where your potential customers spend the most time. Marketing guru and consultant Neil Patel frequently shares about the huge contracts he lands for his business. By publishing over 100 guest posts per year.

While you’ll be starting on a much smaller scale, don’t underestimate the immediate benefit of getting your content featured on blogs and publications. That can drive hundreds or even thousands of new visitors to your website. In the span of less than one year, I’ve been able to get my posts published on Entrepreneur, Inc, Business Insider, HubSpot, and dozens more publications by creating extremely high quality content and leveraging my pitching abilities.

This increased visibility has had a direct, positive impact on my business.

Original POST 

The Five Stages of Small Business Growth

HBR
HBR
Categorizing the problems and small business growth patterns in a systematic way that is useful to entrepreneurs

seems at first glance a hopeless task. Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles.

Yet on closer scrutiny, it becomes apparent that they experience common problems arising at similar stages in their development. These points of similarity can be organized into a framework that increases our understanding of the nature, characteristics, and problems of businesses. Ranging from a corner dry cleaning establishment with two or three minimum-wage employees to a $20-million-a-year computer software company experiencing a 40% annual rate of growth.

For owners and managers of small businesses, such an understanding can aid in assessing current challenges. For example, the need to upgrade an existing computer system or to hire and train second-level managers to maintain planned business growth.

It can help in anticipating the key requirements at various points—e.g., the inordinate time commitment for owners during the start-up period and the need for delegation and changes in their managerial roles when companies become larger and more complex.

The framework

also provides a basis for evaluating the impact of present and proposed governmental regulations and policies on one’s business. A case in point is the exclusion of dividends from double taxation, which could be of great help to a profitable, mature, and stable business like a funeral home but of no help at all to a new, rapidly growing, high-technology enterprise.

Finally, the framework aids accountants and consultants in diagnosing problems and matching solutions to smaller enterprises. The problems of a 6-month-old, 20-person business are rarely addressed by advice based on a 30-year-old, 100-person manufacturing company. For the former, cash-flow planning is paramount; for the latter, strategic planning and budgeting to achieve coordination and operating control are most important.

Developing a Small Business Framework

Various researchers over the years have developed models for examining businesses (see Exhibit 1). Each uses business size as one dimension and company maturity or the stage of growth as a second dimension. While useful in many respects, these frameworks are inappropriate for small businesses on at least three counts.

Exhibit 1 Growth Phases

First

they assume that a company must grow and pass through all stages of development or die in the attempt. Second, the models fail to capture the important early stages in a company’s origin and business growth. Third, these frameworks characterize company size largely in terms of annual sales (although some mention number of employees) and ignore other factors such as value added, number of locations, complexity of product line, and rate of change in products or production technology.

To develop a framework relevant to small and growing businesses, we used a combination of experience, a search of the literature, and empirical research. (See the second insert.) The framework that evolved from this effort delineates the five stages of development shown in Exhibit 2. Each stage is characterized by an index of size, diversity, and complexity and described by five management factors: managerial style, organizational structure, extent of formal systems, major strategic goals, and the owner’s involvement in the business growth. We depict each stage in Exhibit 3 and describe each narratively in this article.

About the Research

We started with a concept of business growth stages emanating from the work of Steinmetz and Greiner. We made two initial changes based on our experiences with small companies.

The first modification was an extension of the independent (vertical) variable of size as it is used in the other stage models—see Exhibit I to include a composite of value-added (sales less outside purchases), geographical diversity, and complexity; the complexity variable involved the number of product lines sold, the extent to which different technologies are involved in the products and the processes that produce them, and the rate of change in these technologies.

Thus

a manufacturer with $10 million in sales, whose products are based in a fast-changing technical environment, is farther up the vertical scale (“bigger” in terms of the other models) than a liquor wholesaler with $20 million annual sales. Similarly, a company with two or three operating locations faces more complex management problems, and hence is farther up the scale than an otherwise comparable company with one operating unit.

The second change was in the stages or horizontal component of the framework. From present research we knew that, at the beginning, the entrepreneur is totally absorbed in the business’s survival and if the business survives it tends to evolve toward a decentralized line and staff organization characterized as a “big business” and the subject of most studies.* The result was a four-stage model: (1) Survival, (2) Break-out, (3) Take-off, (4) Big company.

To test the model, we obtained 83 responses to a questionnaire distributed to 110 owners and managers of successful small companies in the $1 million to $35 million sales range. These respondents participated in a small company management program and had read Greiner’s article. They were asked to identify as best they could the phases or stages their companies had passed through, to characterize the major changes that took place In each stage, and to describe the events that led up to or caused these changes.

A preliminary analysis of the questionnaire data revealed three deficiencies in our initial model:

First

the grow-or-fail hypothesis implicit in the model, and those of others, was invalid. Some of the enterprises had passed through the survival period and then plateaued—remaining essentially the same size. with some marginally profitable and others very profitable, over a period of between 5 and 80 years.

Second

there existed an early stage in the survival period in which the entrepreneur worked hard just to exist- to obtain enough customers to become a true business or to move the product from a pilot stage into quantity production at an adequate level of quality.

Finally

several responses dealt with companies that were not started from scratch but purchased while in a steady-state survival or success stage (and were either being mismanaged or managed for profit and not for growth), and then moved into a growth mode.

Revision

We used the results of this research to revise our preliminary framework. The resulting framework is shown in Exhibit II. We then applied this revised framework to the questionnaire responses and obtained results which encouraged us to work with the revised model:

* John A. Welsh and Jerry F. White, “Recognizing and Dealing With the Entrepreneur,” Advanced Management Journal, Summer 1978.

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Exhibit 2 Growth Stages

Exhibit 3 Characteristics of Small Business at Each Stage of Development

Stage I: Existence

In this stage the main problems of the business are obtaining customers and delivering the product or service contracted for. Among the key questions are the following:

Can we get enough customers, deliver our products, and provide services well enough to become a viable business?

Can we expand from that one key customer or pilot production process to a much broader sales base?

Do we have enough money to cover the considerable cash demands of this start-up phase?

The organization is a simple one

The owner does everything and directly supervises subordinates, who should be of at least average competence. Systems and formal planning are minimal to nonexistent. The company’s strategy is simply to remain alive. The owner is the business, performs all the important tasks, and is the major supplier of energy, direction, and, with relatives and friends, capital.

Companies in the Existence Stage range from newly started restaurants and retail stores to high-technology manufacturers that have yet to stabilize either production or product quality. Many such companies never gain sufficient customer acceptance or product capability to become viable. In these cases, the owners close the business when the start-up capital runs out and, if they’re lucky, sell the business for its asset value. (See endpoint 1 on Exhibit 4). In some cases, the owners cannot accept the demands the business places on their time, finances, and energy, and they quit. Those companies that remain in business become Stage II enterprises.

Exhibit 4 Evolution of Small Companies

Stage II: Survival

In reaching this stage, the business has demonstrated that it is a workable business entity. It has enough customers and satisfies them sufficiently with its products or services to keep them. The key problem thus shifts from mere existence to the relationship between revenues and expenses. The main issues are as follows:

  • In the short run, can we generate enough cash to break even and to cover the repair or replacement of our capital assets as they wear out?
  • Can we, at a minimum, generate enough cash flow to stay in business and to finance growth to a size that is sufficiently large, given our industry and market niche, to earn an economic return on our assets and labor?
The organization is still simple.

The company may have a limited number of employees supervised by a sales manager or a general foreman. Neither of them makes major decisions independently, but instead carries out the rather well-defined orders of the owner.

Systems development is minimal. Formal planning is, at best, cash forecasting. The major goal is still survival, and the owner is still synonymous with the business.

In the Survival Stage, the enterprise may grow in size and profitability and move on to Stage III. Or it may, as many companies do, remain at the Survival Stage for some time, earning marginal returns on invested time and capital (endpoint 2 on Exhibit 4), and eventually go out of business when the owner gives up or retires. The “mom and pop” stores are in this category, as are manufacturing businesses that cannot get their product or process sold as planned. Some of these marginal businesses have developed enough economic viability to ultimately be sold, usually at a slight loss. Or they may fail completely and drop from sight.

Stage III: Success

The decision facing owners at this stage is whether to exploit the company’s accomplishments and expand or keep the company stable and profitable, providing a base for alternative owner activities. Thus, a key issue is whether to use the company as a platform for growth—a substage III-G company—or as a means of support for the owners as they completely or partially disengage from the company—making it a substage III-D company. (See Exhibit 3.) Behind the disengagement might be a wish to start up new enterprises, run for political office, or simply to pursue hobbies and other outside interests while maintaining the business more or less in the status quo.

Substage III-D.

In the Success-Disengagement substage, the company has attained true economic health, has sufficient size and product-market penetration to ensure economic success, and earns average or above-average profits. The company can stay at this stage indefinitely, provided environmental change does not destroy its market niche or ineffective management reduce its competitive abilities.

Organizationally, the company has grown large enough to, in many cases, require functional managers to take over certain duties performed by the owner. The managers should be competent but need not be of the highest caliber, since their upward potential is limited by the corporate goals. Cash is plentiful and the main concern is to avoid a cash drain in prosperous periods to the detriment of the company’s ability to withstand the inevitable rough times.

In addition

the first professional staff members come on board, usually a controller in the office and perhaps a production scheduler in the plant. Basic financial, marketing, and production systems are in place. Planning in the form of operational budgets supports functional delegation. The owner and, to a lesser extent, the company’s managers, should be monitoring a strategy to, essentially, maintain the status quo.

As the business matures, it and the owner increasingly move apart, to some extent because of the owner’s activities elsewhere and to some extent because of the presence of other managers. Many companies continue for long periods in the Success-Disengagement substage. The product-market niche of some does not permit growth; this is the case for many service businesses in small or medium-sized, slowly growing communities and for franchise holders with limited territories.

Other owners actually choose this route

If the company can continue to adapt to environmental changes, it can continue as is, be sold or merged at a profit, or subsequently be stimulated into growth (endpoint 3 on Exhibit 4). For franchise holders, this last option would necessitate the purchase of other franchises.

If the company cannot adapt to changing circumstances, as was the case with many automobile dealers in the late 1970s and early 1980s, it will either fold or drop back to a marginally surviving company (endpoint 4 on Exhibit 4).

Substage III-G.

In the Success-Growth substage, the owner consolidates the company and marshals resources for growth. The owner takes the cash and the established borrowing power of the company and risks it all in financing growth.

Looking Back on Business Development Models

Business researchers have developed a number of models over the last 20 years that seek to delineate stages of corporate growth.

Joseph W. McGuire

Building on the work of W.W. Rostow in economics,* formulated a model that saw companies moving through five stages of economic development:†

  1. Traditional small company.
  2. Planning for growth.
  3. Take-off or departure from existing conditions.
  4. Drive to professional management.
  5. Mass production marked by a “diffusion of objectives and an interest in the welfare of society.”
Lawrence L. Steinmetz

Theorized that to survive, small businesses must move through four stages of growth. Steinmetz envisioned each stage ending with a critical phase that must be dealt with before the company could enter the next stage.§ His stages and phases are as follows:

  1. Direct supervision. The simplest stage, at the end of which the owner must become a manager by learning to delegate to others.
  2. Supervised supervision. To move on, the manager must devote attention to growth and expansion, manage increased overhead and complex finances, and learn to become an administrator.
  3. Indirect control. To grow and survive, the company must learn to delegate tasks to key managers and to deal with diminishing absolute rate of return and overstaffing at the middle levels.
Roland Christensen and Bruce R. Scott

focused on development of organizational complexity in a business as it evolves in its product-market relationships. They formulated three stages that a company moves through as it grows in overall size, number of products, and market coverage:‡

  1. One-unit management with no specialized organizational parts.
  2. One-unit management with functional parts such as marketing and finance.
  3. Multiple operating units, such as divisions, that act in their own behalf in the marketplace.
Finally

Larry E. Greiner proposed a model of corporate evolution in which business organizations move through five phases of growth as they make the transition from small to large (in sales and employees) and from young to mature.|| Each phase is distinguished by an evolution from the prior phase and then by a revolution or crisis, which precipitates a jump into the next phase. Each evolutionary phase is characterized by a particular managerial style and each revolutionary period by a dominant management problem faced by the company. These phases and crises are shown in Exhibit 1.

*W.W. Rostow, The Stages of Economic Growth(Cambridge, England: Cambridge University Press, 1960).

†Joseph W. McGuire, Factors Affecting the Growth of Manufacturing Firms (Seattle: Bureau of Business Research, University of Washington, 1963).

§Lawrence L. Steinmetz, “Critical Stages of Small Business Growth: When They Occur and How to Survive Them,” Business Horizons, February 1969, p. 29.

‡C. Roland Christensen and Bruce R. Scott, Review of Course Activities (Lausanne: IMEDE, 1964).

||Larry E. Greiner, “Evolution and Revolution as Organizations Growth,” HBR July–August 1972, p. 37.

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Among the important tasks are to make sure the basic business stays profitable so that it will not outrun its source of cash and to develop managers to meet the needs of the growing business. This second task requires hiring managers with an eye to the company’s future rather than its current condition.

Systems should also be installed with attention to forthcoming needs. Operational planning is, as in substage III-D, in the form of budgets, but strategic planning is extensive and deeply involves the owner. The owner is thus far more active in all phases of the company’s affairs than in the disengagement aspect of this phase.

If it is successful, the III-G company proceeds into Stage IV. Indeed, III-G is often the first attempt at growing before commitment to a growth strategy. If the III-G company is unsuccessful, the causes may be detected in time for the company to shift to III-D. If not, retrenchment to the Survival Stage may be possible prior to bankruptcy or a distress sale.

Stage IV: Take-off

In this stage the key problems are how to grow rapidly and how to finance that growth. The most important questions, then, are in the following areas:

Delegation.

Can the owner delegate responsibility to others to improve the managerial effectiveness of a fast growing and increasingly complex enterprise? Further, will the action be true delegation with controls on performance and a willingness to see mistakes made, or will it be abdication, as is so often the case?

Cash.

Will there be enough to satisfy the great demands growth brings (often requiring a willingness on the owner’s part to tolerate a high debt-equity ratio) and a cash flow that is not eroded by inadequate expense controls or ill-advised investments brought about by owner impatience?

The organization is decentralized and, at least in part, divisionalized—usually in either sales or production. The key managers must be very competent to handle a growing and complex business environment. The systems, strained by growth, are becoming more refined and extensive. Both operational and strategicplanning are being done and involve specific managers. The owner and the business have become reasonably separate, yet the company is still dominated by both the owner’s presence and stock control.

This is a pivotal period in a company’s life.

If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold—at a profit—provided the owner recognizes his or her limitations soon enough. Too often, those who bring the business to the Success Stage are unsuccessful in Stage IV. Either because they try to grow too fast and run out of cash (the owner falls victim to the omnipotence syndrome). Or are unable to delegate effectively enough to make the company work (the omniscience syndrome).

It is, of course, possible for the company to traverse this high-growth stage without the original management. Often the entrepreneur who founded the company and brought it to the Success Stage is replaced. Either voluntarily or involuntarily by the company’s investors or creditors.

If the company fails to make the big time, it may be able to retrench and continue as a successful and substantial company at a state of equilibrium (endpoint 7 on Exhibit 4). Or it may drop back to Stage III (endpoint 6). Or, if the problems are too extensive, it may drop all the way back to the Survival Stage (endpoint 5) or even fail. (High interest rates and uneven economic conditions have made the latter two possibilities all too real in the early 1980s.)

Stage V: Resource Maturity

The greatest concerns of a company entering this stage are, first, to consolidate and control the financial gains brought on by rapid growth. And, second, to retain the advantages of small size, including flexibility of response and the entrepreneurial spirit. The corporation must expand the management force fast enough to eliminate the inefficiencies that growth can produce and professionalize the company by use of such tools as budgets, strategic planning, management by objectives, and standard cost systems—and do this without stifling its entrepreneurial qualities.

A company in Stage V has the staff and financial resources to engage in detailed operational and strategic planning. The management is decentralized, adequately staffed, and experienced. And systems are extensive and well developed. The owner and the business are quite separate, both financially and operationally.

The company has now arrived.

It has the advantages of size, financial resources, and managerial talent. If it can preserve its entrepreneurial spirit, it will be a formidable force in the market. If not, it may enter a sixth stage of sorts: ossification.

Ossification is characterized by a lack of innovative decision making and the avoidance of risks. It seems most common in large corporations whose sizable market share, buying power, and financial resources keep them viable. Until there is a major change in the environment. Unfortunately for these businesses, it is usually their rapidly growing competitors that notice the environmental change first.

 

Read the rest of the HBR POST here.