Imagine that you’re looking at your company-issued smartphone and you notice an e-mail from LinkedIn: “These companies are looking for candidates like you!” You aren’t necessarily searching for a job, but you’re always open to opportunities, so out of curiosity, you click on the link. A few minutes later your boss appears at your desk. “We’ve noticed that you’re spending more time on LinkedIn lately, so I wanted to talk with you about your career and whether you’re happy here,” she says. Uh-oh.
It’s an awkward and Big Brother–ish scenario—and it’s not so far-fetched. Attrition has always been expensive for companies, but in many industries the cost of losing good workers is rising, owing to tight labor markets and the increasingly collaborative nature of jobs. (As work becomes more team-focused, seamlessly plugging in new players is more challenging.) Thus companies are intensifying their efforts to predict which workers are at high risk of leaving so that managers can try to stop them. Tactics range from garden-variety electronic surveillance to sophisticated analyses of employees’ social media lives.
Some of this analytical work is generating fresh insights about what impels employees to quit. In general, people leave their jobs because they don’t like their boss, don’t see opportunities for promotion or growth, or are offered a better gig (and often higher pay); these reasons have held steady for years. New research conducted by CEB, a Washington-based best-practice insight and technology company, looks not just at why workers quit but also at when. “We’ve learned that what really affects people is their sense of how they’re doing compared with other people in their peer group, or with where they thought they would be at a certain point in life,” says Brian Kropp, who heads CEB’s HR practice. “We’ve learned to focus on moments that allow people to make these comparisons.”
Senior leaders want to believe that delegating a task is as easy as flipping a switch. Simply provide clear instructions and you are instantly relieved of responsibility, giving you more time in your schedule.
That’s the dream. In reality, we all know it almost never works that way. You’re often forced to step in at the last minute to save a botched deliverable. And because you jumped in to save the day, employees don’t have the opportunity to learn. They aren’t left to grapple with the consequences of their actions, and therefore are deprived of the chance to discover creative solutions. What’s more, morale takes a hit — employees begin to believe that no matter what they do, their work isn’t good enough.
Around 11 p.m. one night, you realize there’s a key step your team needs to take on a current project. So, you dash off an email to the team members while you’re thinking about it.
No time like the present, right?
Wrong. As a productivity trainer specializing in attention management, I’ve seen over the past decade how after-hours emails speed up corporate cultures — and that, in turn, chips away at creativity, innovation, and true productivity.
If this is a common behavior for you, you’re missing the opportunity to get some distance from work — distance that’s critical to the fresh perspective you need as the leader. And, when the boss is working, the team feels like they should be working.
Think about the message you’d like to send. Do you intend for your staff to reply to you immediately? Or are you just sending the email because you’re thinking about it at the moment, and want to get it done before you forget? If it’s the former, you’re intentionally chaining your employees to the office 24/7. If it’s the latter, you’re unintentionally chaining your employees to the office 24/7. And this isn’t good for you, your employees, or your company culture. Being connected in off-hours during busy times is the sign of a high-performer. Never disconnecting is a sign of a workaholic. And there is a difference.
Regardless of your intent, I’ve found through my experience with hundreds of companies that there are two reasons late-night email habits spread from the boss to her team:
Ambition. If the boss is emailing late at night or on weekends, most employees think a late night response is required — or that they’ll impress you if they respond immediately. Even if just a couple of your employees share this belief, it could spread through your whole team. A casual mention in a meeting, “When we were emailing last night…” is all it takes. After all, everyone is looking for an edge in their career.
Attention. There are lots of people who have no intention of “working” when they aren’t at work. But they have poor attention management skills. They’re so accustomed to multitasking, and so used to constant distractions, that regardless of what else they’re doing, they find their fingers mindlessly tapping the icons on their smartphones that connect them to their emails, texts, and social media. Your late-night communication feeds that bad habit.
Being “always on” hurts results. When employees are constantly monitoring their email after work hours — whether this is due to a fear of missing something from you, or because they are addicted to their devices — they are missing out on essential down time that brains need. Experiments have shown that to deliver our best at work, we require downtime. Time away produces new ideas and fresh insights. But your employees can never disconnect when they’re always reaching for their devices to see if you’ve emailed. Creativity, inspiration, and motivation are your competitive advantage, but they are also depletable resources that need to be recharged. Incidentally, this is also true for you, so it’s worthwhile to examine your own communication habits.
Company leaders can help unhealthy assumptions about email and other communication from taking root.
Be clear about expectations for email and other communications, and set up policies to support a healthy culture that recognizes and values single-tasking, focus, and downtime. Vynamic, a successful healthcare consultancy in Philadelphia, created a policy it calls “zmail,” where email is discouraged between 10pm and 7am during the week, and all day on weekends. The policy doesn’t prevent work during these times, nor does it prohibit communication. If an after-hours message seems necessary, the staff is compelled to assess whether it’s important enough to require a phone call. If employees choose to work during off-hours, zmail discourages them from putting their habits onto others by sending emails during this time; they simply save the messages as drafts to be manually sent later, or they program their email client to automatically send the messages during work hours. This policy creates alignment between the stated belief that downtime is important, and the behaviors of the staff that contribute to the culture.
Also, take a hard look at the attitudes of leaders regarding an always-on work environment. The (often unconscious) belief that more work equals more success is difficult to overcome, but the truth is that this is neither beneficial nor sustainable. Long work hours actually decrease both productivity and engagement. I’ve seen that often, leaders believe theoretically in downtime, but they also want to keep company objectives moving forward — which seems like it requires constant communication.
A frantic environment that includes answering emails at all hours doesn’t make your staff more productive. It just makes them busy and distracted. You base your staff hiring decisions on their knowledge, experience, and unique talents, not how many tasks they can seemingly do at once, or how many emails they can answer in a day.
So, demonstrate and encourage an environment where employees can actually apply that brain power in a meaningful way:
Ditch the phrase “time management” for the more relevant “attention management,” and make training on this crucial skill part of your staff development plan.
Refrain from after-hours communication.
Model and discuss the benefits of presence, by putting away your devices when speaking with your staff, and implementing a “no device” policy in meetings to promote single-tasking and full engagement.
Discourage an always-on environment of distraction that inhibits creative flow by emphasizing the importance of focus, balancing an open floor plan with plenty of quiet spaces, and creating part-time remote work options for high concentration roles, tasks, and projects.
These behaviors will contribute to a higher quality output from yourself and your staff, and a more productive corporate culture.
Categorizing the problems and growth patterns of small businesses 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 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 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. We depict each stage in Exhibit 3 and describe each narratively in this article.
About the Research
We started with a concept of 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.
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.
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.
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).
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.
4. Divisional organization. At this stage the company has “arrived” and has the resources and organizational structure that will enable it to remain viable.
C. 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.
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:
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?
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.
Key Management Factors
Several factors, which change in importance as the business grows and develops, are prominent in determining ultimate success or failure.
We identified eight such factors in our research, of which four relate to the enterprise and four to the owner. The four that relate to the company are as follows:
1. Financial resources, including cash and borrowing power.
2. Personnel resources, relating to numbers, depth, and quality of people, particularly at the management and staff levels.
3. Systems resources, in terms of the degree of sophistication of both information and planning and control systems.
4. Business resources, including customer relations, market share, supplier relations, manufacturing and distribution processes, technology and reputation, all of which give the company a position in its industry and market.
The four factors that relate to the owner are as follows:
1. Owner’s goals for himself or herself and for the business.
2. Owner’s operational abilities in doing important jobs such as marketing, inventing, producing, and managing distribution.
3. Owner’s managerial ability and willingness to delegate responsibility and to manage the activities of others.
4. Owner’s strategic abilities for looking beyond the present and matching the strengths and weaknesses of the company with his or her goals.
As a business moves from one stage to another, the importance of the factors changes. We might view the factors as alternating among three levels of importance: first, key variables that are absolutely essential for success and must receive high priority; second, factors that are clearly necessary for the enterprise’s success and must receive some attention; and third, factors of little immediate concern to top management. If we categorize each of the eight factors listed previously, based on its importance at each stage of the company’s development, we get a clear picture of changing management demands. (See Exhibit 5.)
Exhibit 5 Management Factors and the Stages
The changing nature of managerial challenges becomes apparent when one examines Exhibit 5. In the early stages, the owner’s ability to do the job gives life to the business. Small businesses are built on the owner’s talents: the ability to sell, produce, invent, or whatever. This factor is thus of the highest importance. The owner’s ability to delegate, however, is on the bottom of the scale, since there are few if any employees to delegate to.
As the company grows, other people enter sales, production, or engineering and they first support, and then even supplant, the owner’s skills—thus reducing the importance of this factor. At the same time, the owner must spend less time doing and more time managing. He or she must increase the amount of work done through other people, which means delegating. The inability of many founders to let go of doing and to begin managing and delegating explains the demise of many businesses in substage III-G and Stage IV.
The owner contemplating a growth strategy must understand the change in personal activities such a decision entails and examine the managerial needs depicted in Exhibit 5. Similarly, an entrepreneur contemplating starting a business should recognize the need to do all the selling, manufacturing, or engineering from the beginning, along with managing cash and planning the business’s course—requirements that take much energy and commitment.
The importance of cash changes as the business changes. It is an extremely important resource at the start, becomes easily manageable at the Success Stage, and is a main concern again if the organization begins to grow. As growth slows at the end of Stage IV or in Stage V, cash becomes a manageable factor again. The companies in Stage III need to recognize the financial needs and risk entailed in a move to Stage IV.
The issues of people, planning, and systems gradually increase in importance as the company progresses from slow initial growth (substage III-G) to rapid growth (Stage IV). These resources must be acquired somewhat in advance of the growth stage so that they are in place when needed. Matching business and personal goals is crucial in the Existence Stage because the owner must recognize and be reconciled to the heavy financial and time-energy demands of the new business. Some find these demands more than they can handle. In the Survival Stage, however, the owner has achieved the necessary reconciliation and survival is paramount; matching of goals is thus irrelevant in Stage II.
A second serious period for goal matching occurs in the Success Stage. Does the owner wish to commit his or her time and risk the accumulated equity of the business in order to grow or instead prefer to savor some of the benefits of success? All too often the owner wants both, but to expand the business rapidly while planning a new house on Maui for long vacations involves considerable risk. To make a realistic decision on which direction to take, the owner needs to consider the personal and business demands of different strategies and to evaluate his or her managerial ability to meet these challenges.
Finally, business resources are the stuff of which success is made; they involve building market share, customer relations, solid vendor sources, and a technological base, and are very important in the early stages. In later stages the loss of a major customer, supplier, or technical source is more easily compensated for. Thus, the relative importance of this factor is shown to be declining.
The changing role of the factors clearly illustrates the need for owner flexibility. An overwhelming preoccupation with cash is quite important at some stages and less important at others. Delaying tax payments at almost all costs is paramount in Stages I and II but may seriously distort accounting data and use up management time during periods of success and growth. “Doing” versus “delegating” also requires a flexible management. Holding onto old strategies and old ways ill serves a company that is entering the growth stages and can even be fatal.
Avoiding Future Problems
Even a casual look at Exhibit 5 reveals the demands the Take-off Stage makes on the enterprise. Nearly every factor except the owner’s “ability to do” is crucial. This is the stage of action and potentially large rewards. Looking at this exhibit, owners who want such growth must ask themselves:
Do I have the quality and diversity of people needed to manage a growing company?
Do I have now, or will I have shortly, the systems in place to handle the needs of a larger, more diversified company?
Do I have the inclination and ability to delegate decision making to my managers?
Do I have enough cash and borrowing power along with the inclination to risk everything to pursue rapid growth?
Similarly, the potential entrepreneur can see that starting a business requires an ability to do something very well (or a good marketable idea), high energy, and a favorable cash flow forecast (or a large sum of cash on hand). These are less important in Stage V, when well-developed people-management skills, good information systems, and budget controls take priority. Perhaps this is why some experienced people from large companies fail to make good as entrepreneurs or managers in small companies. They are used to delegating and are not good enough at doing.
Applying the Model
This scheme can be used to evaluate all sorts of small business situations, even those that at first glance appear to be exceptions. Take the case of franchises. These enterprises begin the Existence Stage with a number of differences from most start-up situations. They often have the following advantages:
A marketing plan developed from extensive research.
Sophisticated information and control systems in place.
Operating procedures that are standardized and very well developed.
Promotion and other start-up support such as brand identification.
They also require relatively high start-up capital.
If the franchisor has done sound market analysis and has a solid, differentiated product, the new venture can move rapidly through the Existence and Survival Stages—where many new ventures founder—and into the early stages of Success. The costs to the franchisee for these beginning advantages are usually as follows:
Limited growth due to territory restrictions.
Heavy dependence on the franchisor for continued economic health.
Potential for later failure as the entity enters Stage III without the maturing experiences of Stages I and II.
One way to grow with franchising is to acquire multiple units or territories. Managing several of these, of course, takes a different set of skills than managing one and it is here that the lack of survival experience can become damaging.
Another seeming exception is high-technology start-ups. These are highly visible companies—such as computer software businesses, genetic-engineering enterprises, or laser-development companies—that attract much interest from the investment community. Entrepreneurs and investors who start them often intend that they grow quite rapidly and then go public or be sold to other corporations. This strategy requires them to acquire a permanent source of outside capital almost from the beginning. The providers of this cash, usually venture capitalists, may bring planning and operating systems of a Stage III or a Stage IV company to the organization along with an outside board of directors to oversee the investment.
The resources provided enable this entity to jump through Stage I, last out Stage II until the product comes to market, and attain Stage III. At this point, the planned strategy for growth is often beyond the managerial capabilities of the founding owner and the outside capital interests may dictate a management change. In such cases, the company moves rapidly into Stage IV and, depending on the competence of the development, marketing, and production people, the company becomes a big success or an expensive failure. The problems that beset both franchises and high-technology companies stem from a mismatch of the founders’ problem-solving skills and the demands that “forced evolution” brings to the company.
Besides the extreme examples of franchises and high-technology companies, we found that while a number of other companies appeared to be at a given stage of development, they were, on closer examination, actually at one stage with regard to a particular factor and at another stage with regard to the others. For example, one company had an abundance of cash from a period of controlled growth (substage III-G) and was ready to accelerate its expansion, while at the same time the owner was trying to supervise everybody (Stages I or II). In another, the owner was planning to run for mayor of a city (substage III-D) but was impatient with the company’s slow growth (substage III-G).
Although rarely is a factor more than one stage ahead of or behind the company as a whole, an imbalance of factors can create serious problems for the entrepreneur. Indeed, one of the major challenges in a small company is the fact that both the problems faced and the skills necessary to deal with them change as the company grows. Thus, owners must anticipate and manage the factors as they become important to the company.
A company’s development stage determines the managerial factors that must be dealt with. Its plans help determine which factors will eventually have to be faced. Knowing its development stage and future plans enables managers, consultants, and investors to make more informed choices and to prepare themselves and their companies for later challenges. While each enterprise is unique in many ways, all face similar problems and all are subject to great changes. That may well be why being an owner is so much fun and such a challenge.
A version of this article appeared in the May 1983 issue of Harvard Business Review.
Neil C. Churchill is a visiting professor at the Anderson School at UCLA and a professor emeritus of entrepreneurship at INSEAD in Fontainebleau, France.
Virginia L. Lewis is a senior research associate of the Caruth Institute at SMU.
Holidays are over and it’s back-to-work time. Not feeling inspired in the dreary month of January? No worries – I especially appreciated artist Chuck Close’s observation that “Inspiration is for amateurs. The rest of us just show up and get to work.”
There’s that project you’ve left on the backburner – the one with the deadline that’s growing uncomfortably near. And there’s the client whose phone call you really should return – the one that does nothing but complain and eat up your valuable time. Wait, weren’t you going to try to go to the gym more often this year?
Can you imagine how much less guilt, stress, and frustration you would feel if you could somehow just make yourself do the things you don’t want to do when you are actually supposed to do them? Not to mention how much happier and more effective you would be?
The good news (and its very good news) is that you can get better about not putting things off, if you use the right strategy. Figuring out which strategy to use depends on why you are procrastinating in the first place:
Reason #1 You are putting something off because you are afraid you will screw it up.
Solution: Adopt a “prevention focus.”
There are two ways to look at any task. You can do something because you see it as a way to end up better off than you are now – as an achievement or accomplishment. As in, if I complete this project successfully I will impress my boss, or if I work out regularly I will look amazing. Psychologists call this a promotion focus – and research shows that when you have one, you are motivated by the thought of making gains, and work best when you feel eager and optimistic. Sounds good, doesn’t it? Well, if you are afraid you will screw up on the task in question, this is not the focus for you. Anxiety and doubt undermine promotion motivation, leaving you less likely to take any action at all.
What you need is a way of looking at what you need to do that isn’t undermined by doubt – ideally, one that thrives on it. When you have a prevention focus, instead of thinking about how you can end up better off, you see the task as a way to hang on to what you’ve already got – to avoid loss. For the prevention-focused, successfully completing a project is a way to keep your boss from being angry or thinking less of you. Working out regularly is a way to not “let yourself go.” Decades of research, which I describe in my book Focus, shows that prevention motivation is actually enhanced by anxiety about what might go wrong. When you are focused on avoiding loss, it becomes clear that the only way to get out of danger is to take immediate action. The more worried you are, the faster you are out of the gate.
I know this doesn’t sound like a barrel of laughs, particularly if you are usually more the promotion-minded type, but there is probably no better way to get over your anxiety about screwing up than to give some serious thought to all the dire consequences of doing nothing at all. Go on, scare the pants off yourself. It feels awful, but it works.
Reason #2 You are putting something off because you don’t “feel” like doing it.
Solution: Make like Spock and ignore your feelings. They’re getting in your way.
In his excellent book The Antidote: Happiness for People Who Can’t Stand Positive Thinking, Oliver Burkeman points out that much of the time, when we say things like “I just can’t get out of bed early in the morning, ” or “I just can’t get myself to exercise,” what we really mean is that we can’t get ourselves to feel like doing these things. After all, no one is tying you to your bed every morning. Intimidating bouncers aren’t blocking the entrance to your gym. Physically, nothing is stopping you – you just don’t feel like it. But as Burkeman asks, “Who says you need to wait until you ‘feel like’ doing something in order to start doing it?”
Think about that for a minute, because it’s really important. Somewhere along the way, we’ve all bought into the idea – without consciously realizing it – that to be motivated and effective we need to feel like we want to take action. We need to be eager to do so. I really don’t know why we believe this, because it is 100% nonsense. Yes, on some level you need to be committed to what you are doing – you need to want to see the project finished, or get healthier, or get an earlier start to your day. But you don’t need to feel like doing it.
In fact, as Burkeman points out, many of the most prolific artists, writers, and innovators have become so in part because of their reliance on work routines that forced them to put in a certain number of hours a day, no matter how uninspired (or, in many instances, hungover) they might have felt. Burkeman reminds us of renowned artist Chuck Close’s observation that “Inspiration is for amateurs. The rest of us just show up and get to work.”
So if you are sitting there, putting something off because you don’t feel like it, remember that you don’t actually need to feel like it. There is nothing stopping you.
Reason #3 You are putting something off because it’s hard, boring, or otherwise unpleasant.
Solution: Use if-then planning.
Too often, we try to solve this particular problem with sheer will: Next time, I will make myself start working on this sooner. Of course, if we actually had the willpower to do that, we would never put it off in the first place. Studies show that people routinely overestimate their capacity for self-control, and rely on it too often to keep them out of hot water.
Do yourself a favor, and embrace the fact that your willpower is limited, and that it may not always be up to the challenge of getting you to do things you find difficult, tedious, or otherwise awful. Instead, use if-then planning to get the job done.
Making an if-then plan is more than just deciding what specific steps you need to take to complete a project – it’s also deciding where and when you will take them.
If it is 2pm, then I will stop what I’m doing and start work on the report Bob asked for.
If my boss doesn’t mention my request for a raise at our meeting, then I will bring it up again before the meeting ends.
By deciding in advance exactly what you’re going to do, and when and where you’re going to do it, there’s no deliberating when the time comes. No do I really have to do this now?, or can this wait till later? or maybe I should do something else instead. It’s when we deliberate that willpower becomes necessary to make the tough choice. But if-then plans dramatically reduce the demands placed on your willpower, by ensuring that you’ve made the right decision way ahead of the critical moment. In fact, if-then planning has been shown in over 200 studies to increase rates of goal attainment and productivity by 200%-300% on average.
I realize that the three strategies I’m offering you – thinking about the consequences of failure, ignoring your feelings, and engaging in detailed planning – don’t sound as fun as advice like “Follow your passion!” or “Stay positive!” But they have the decided advantage of actually being effective – which, as it happens, is exactly what you’ll be if you use them.