BUSINESS DEVELOPMENT - Growing Your Business: A Stage-by-Stage Analysis of Your Company’s Growth & the Challenges it Faces

Are you a tough, decisive leader who gives clear direction and expects compliance? Or are you more the cool facilitator, smoothing out conflicts and helping others get their jobs done? Maybe you’re a supporter, getting down in the trenches and getting dirty yourself? Which leader should you be?

One of the most important things I have ever learned as a CEO is that a good leader is all of these things at different times. Not in one day; that would be horribly confusing and destabilizing to your organization. But you need to lead in different ways depending on the size and stage of your growing organization.

If you’re a parent, this may already be clear to you. My three toddlers responded best to a firm, consistent, and patient parent. As middle schoolers though, I let up on them, giving them the space to make mistakes, but also tucking them in at night. My high schoolers generally shut down if I play the boss card. I seem to do better to parent by example. I am at least three different parents to the same child, depending on their age and stage of development.

Growing a company is, in many ways, similar. Your role changes as your organization goes the through the different stages of growth, each with its own challenges. Navigating the Growth Curve by James Fischer is a manual that was written to help organizations through all the fabulous, exhilarating, heart wrenching, and awkward stages of growing up. This article draws principally from his research, applying it where possible to my own company, Xcelience, a CDMO with 113 employees that has grown 25% throughout the past year, pushing it through one stage and into another in a short timeframe. Using data from 650 companies across 35 industries, Fischer’s book has been an invaluable resource to me over the past year as I diagnose and treat the challenges of a growing company.

GROWTH IS INEVITABLE

If your organization isn’t growing, it’s dying. Lack of growth in today’s market is a state of stagnation and with competition what it is, you have to keep moving forward. You have to grow.

Fischer identifies seven distinct stages of growth. While there are several ways to determine your company’s stage of growth, this model puts forward that the number of employees is the primary determinant of complexity. This makes sense to me. I once met a CFO who made a very smooth transition from a company of 55 employees and $30 million in revenue to a company of 35 employees and $1.5 billion revenue. Both were stage four companies. Here is a quick overview of Fischer’s seven stages of growth, by number of employees:

1. Start-Up (1-10): This stage is about vision. The staff must believe in that vision. In fact, Fischer rates a belief in the company’s vision as more important to the company’s success than an individual’s actual competency. The company’s goal should not be to achieve perfection; it’s to bring in enough revenue to survive to the next stage. Eighty percent won’t make it.

2. Ramp Up (11-19): Still owner-centric. The goal now is less about survival, more about growth. The company absolutely must generate a positive cash flow now.

3. Delegation (20-34): There are too many balls in the air now for one leader to juggle. Here’s where entrepreneurs either change their modus operandi, or burn out. The leader must hire or train up managers and then delegate control to them. Decision-making will slow down in the process; the challenge is to make sure it doesn’t slow down too much.

4. Professional (35-57): The workload is growing. It makes sense on the surface to just keep throwing new hires at the work, but the company mustn’t hire too many too quickly or costs will overtake revenue. It’s time to go professional now, hiring or training up managers and acquiring professional systems and procedures. No more shoe-string solutions. The organization will probably have to pay good salaries for real talent, and that could create its own internal conflicts. There should be independent fiefdoms (divisions or departments) within the company at this stage; each confident of its own processes.

5. Integration (58-95): The company is a growing concern now and getting noticed by the competition. Those fiefdoms that worked well in stage four aren’t working now. It’s no longer about the department and its goals, it’s about the direction of the company as a whole. As a recognized player in the market, the company shouldn’t be reacting to market forces anymore. It should be anticipating and staying ahead of them.

6. Strategic (96-160): The company is a major player now. It’s time to climb a tree and look at the whole board. It is also a critical time to get a grip on those finances. Companies in this stage are spending a lot on processes and people; it’s important to frame those choices in terms of a long-term strategic vision. Then empower key managers to carry out that vision and let them go.

7. Visionary (161-350): The company is so far from its entrepreneurial roots that it’s in danger of losing them. The risk here is becoming too complex, too bureaucratic. The CEO’s over-riding role now is to instill vision, create action plans, and assign resources to them.

ANALYZING YOUR COMPANY’S STAGE OF GROWTH

Once you’ve identified your stage of growth, you can use the templates provided in Fischer’s book to see if you are facing the challenges Fischer expects you to come up against.

The first time I looked over this list of stages, it shocked me to see the exact challenges I was facing at the time. Back then, every challenge I faced felt unique and unexpected. Reading this book, I realized that my situation was not unique at all. Lots of companies go through these same things, and have already developed good strategies to deal with them.

With 113 employees, Xcelience is well into stage six, which Fischer labels “Strategic.” Stage six companies, Fischer prophesies, will need to get their corporate finances in order. He couldn’t have been more right. Until Xcelience reached this stage of development, I was CEO and CFO. In 2012, I realized that I just didn’t have time to get into the kind of detailed projections that the company needed. I took on a CFO, who now develops a detailed annual budget with department breakdowns. Once we could accurately forecast our business, an essential piece of the puzzle fell into place. We could not only see our current business, but we could model the effect of potential changes to our business model, projecting them two or three years out. We could see where to put our resources. It was changes like this that led us to add our Clinical Supply Services (CSS) division in late 2012, and the decision to add distribution, which came early this year.

People are a major priority in this stage, Fischer warns us, and I see this in Xcelience too. Our people are always a priority, of course, but having expanded our workforce 25% in a year means I really need to empower my managers to show leadership within their departments, giving people the guidance and hands-on leadership they need to motivate them. I need to be free to focus on the company’s overall strategic vision.

THE THREE GATES: PEOPLE, PROCESSES & PROFITS

Every issue in a company comes down to one of three core issues or “gates” (1) people, (2) processes, and (3) profit, says Fischer. You need to work through these gates to smooth the way for the next stage. Which issue dominates depends on your stage of growth.

Let me provide you with an example. When someone comes to you with an issue, you need to put it into the context of one of the three gates. Let’s say an executive has a problem about Juanita, a team leader. Juanita is making mistakes,getting angry with co-workers, and isn’t moving quickly enough on projects. It sounds like a people issue. But when you dig more deeply, you learn that business is growing so quickly that Juanita now spends one quarter of her day filling out detailed projections for prospective clients; something she used to do in 20 minutes. With two hours of her day gone, she can’t give the detail and attention she wants to give to her current full-slate of projects. She’s been dropping the ball on her projects, and snapping at the sales force because she feels her project work is more important than these forms. The sales force argues that both are important. It’s a process issue.

In a new business, profit will be the dominant issue. Without profit, there can be no tomorrow; no people and no processes. But come stage three, the organization is turning a profit. It wouldn’t have been able to hire and made it this far if it weren’t cash positive. The company has been bringing in more people, and while that’s solved problems, it’s also created problems. People problems are paramount now. The focus shifts to creating a happy and productive environment where people want to work.That will reflect well on the company, keep turnover low, and attract the best talent to get the job done.

By 35 or more people (stage 4), the company has worked through its people issues. You’ve really got to look at working more efficiently now. You used to wander down the hallway stopping in various offices to solve a problem. Such vague and ad hoc processes that served the company since start-up are breaking down. Issues like the one with Juanita are constant. It was no problem for a stage one or two company to have project managers spend all that time on complicated forms, and the customers loved the detailed analysis. But not with Juanita’s full case load today. The sales force is correct though – customers do love the detailed project projections. Because many of the questions are rote calculations, the organization should now begin to automate the forms, allowing much of the form to be filled before it arrives on Juanita’s desk. Now she can do them all in 20 minutes again. These types of process innovations will relieve bottlenecks and improve efficiency in an increasingly busy company.

The solution seems obvious in hindsight, but it rarely is when you’re in the middle of the situation. Most management teams will look at the Juanita situation and decide that because the current process worked well in the past, it should work well now. We had a similar issue at Xcelience in the line-up of the quotes were in the queue to be completed because there were only one or two in the line-up at a time. Later, the length of time to complete an RFP grew over five days, which is unacceptable in the CDMO world. Instead of finding a new process, everyone was looking for a way to bandage the old process. Fingers were pointed. Project managers put forward that the process could be shortened if the sales people would just do a better job on the RFPs with the client upfront. The sales people were busier than ever, and didn’t feel this was a good use of their time. We bandied about the idea of throwing more people at the problem, briefly consideringa Technical Definer role. Instead, we changed the process, automating some parts of it, made pricing templates for the standard parts andcreated metrics and transparency. Process improvements solved the problem.

Profit issues hit us right on schedule at stage five. During this phase, the company has been hiring and growing at such a rate that all those salaries begin to eat into profits. We hit this stage right at the beginning of the recession. This was a tough time, but we managed to keep growing market share even as the pie shrunk, simply because our competition was dropping out of the game. I spent a lot of time meeting clients during this period and fretted that I wasn’t spending time setting strategy and planning, which I believed a good CEO should be doing. Now I realize I was doing instinctively what this stage requires – focusing on profits. I blamed the recession, but chances are I would’ve had to be profit-focused even without it.

People became the issue again as we moved into stage six, and so it comes as no surprise that I find myself taking a hard look at organization of late, pinpointing areas where we need to bring in more expertise, and crystallizing roles and functions. The project manager role, for example, has grown and changed. As Xcelience has expanded down the product pipeline, our clients have come to see us as an increasingly important part of their overall success. We need to be ever present and available to clients so they can see that their investment is in good hands. This responsibility falls primarily to the project manager. We’ve put more emphasis on this role and given them the title of Account Manager, to better reflect what they do.

With a strong organization in place, I can get to work on creating a vision for the company as a whole. The need for a strategic vision has been impressed upon me both from within the organization, and without. As we become more integral to our clients’ successes, they are increasingly wanting to take a peek under the hood. Some have even asked to see our long-term strategic plan. Such clients tend to have very extensive multi-year compliance plans, and they include us as part of their internal quality organizations. They want to see our plans to make sure we can grow with them. Xcelience is getting qualified at several vendors. This will greatly reduce the client’s workload. It’s a logical step for us both and shows the confidence they have in our long-term. But it does take different people and skills at Xcelience, and is a strong inducement for us to firm up both our financial and strategic long-term plans.

OBSTACLES TO GROWTH

Fischer identifies several obstacles to growth, but two that have really shaped my perspective on my company are builder/protector ratios and modality.

Builder/Protector Ratios: Everyone in management is a builder or protector. A builder has confidence in the business, in its profits and processes, is eager to grow the business, and risk tolerant. A protector is cautious, slows down in the face of change, and is suspicious of growth. The protector is the guardian of your assets; often a CFO, controller, or quality manager. Every company needs both, but in certain stages of development, you need more of one than the other. If the ratio is off, the company will flounder. Builders are in demand at start up, with very few protectors. Let’s face it, there’s not much to protect yet. A stage one business needs four builders to every one protector. In stage two, you need to begin to cultivate your protectors, with three builders to one protector. Come stage three, the company’s ability to make a profit is reasonably secure, and you are building an organization and establishing systems; this is the stage with the fewest builders at 1:1. From then on, builders will continue to dominate to various degrees, particularly in stage six when builders dominate 3:1 again. At Xcelience, I’m very aware that we’re not where Fischer thinks we should be. We’re close to evenly split, a ratio that according to Fischer we should’ve left  behind in stage 3. We should have three builders to every protector. That said, I’m not entirely certain that we aren’t just where we should be in a cGMP regulated environment like ours. We may always need more protectors than other industries. One wrong step, and we could hurt a client’s clinical program. I’m not going to go out of my way to hire more builders, but I will take care to encourage my staff to recognize the need to give extra weight to builder opinions as we steam through stage six.

Modality: The head of the company has three possible modes of behavior: dominant, facilitative, or supportive. Adapting the wrong mode will slow or stop the company’s growth. In a young company, the CEO is dominant. He or she provides strong direction. It’s not until stage three that this behavior needs to change. This is the stage where the CEO begins to delegate authority. The organization now needs someone who will facilitate – making it easier for the managers to do their jobs. The managers must then become supportive, giving the staff what they need to get the job done. It is the staff that is dominant in this phase, and you’ll hear managers and CEOs cajoling them to “step up,” “take responsibility,” and encouraging them to take more risks. Stage six is where we’ll often see another reversal in these modes. This is a stage where the leader needs to step up to create a vision, lay it out, and allocate resources toward achieving it. If he or she does this, the managers should line up to support that vision, and staff should facilitate it. Fischer also identifies a third obstacle to growth, which he calls the “three faces of the leader,” namely manager, specialist, and visionary. The role of specialist is minimal, primarily required only in stage one. Beyond stage one, his role vacillates between manager and visionary, settling on visionary in the larger company.

A leader who fails to shift perspective as the company grows can become an obstacle to growth. Imagine a specialist in stage three or four, still trying to do the work himself when his company needs him in the boardroom working with his management team to facilitate their challenges as they grow their departments, establishing processes, and supporting their people. This leader may not like the role of manager, but unless he can find a way to wear that hat, his company will stagnate or flounder. We all know small companies in these early stages that do a good job but spend decades in one stage. They stay there either because they want to, or they need to stay there. I find it interesting when a client says that their company chooses not to put all their projects with one service provider in order to reduce risk. What I hear is that they don’t believe that the provider will continue to grow with the client.

The later stages of growth have their own challenges. There are some very serious diseconomies of scale when a company gets larger than 500 employees. R&D work goes slower and the connection between CEO and client almost disappears completely. I want Xcelience to grow to this point, but the challenge I foresee will be to maintain the quality of our work. I know of very few companies that have not seen a decline in quality when they reached this size.

A CRYSTAL BALL?

Growth is necessary, and it’s also good. It can solve a lot of company issues. Growth allows you to move people to the right places and motivate employees with promotions and personal growth opportunities. But it’s important to recognize that companies go through stages and phases, just like growing kids. Wouldn’t it be nice to keep a little crystal ball on your desk to tell you what issues are around the corner and how to prepare for them? Navigating the Growth Curve is three parts technical manual, and one part crystal ball. It helps you understand the issues you face today and prepare you for the ones that lie in the misty future, perhaps just a few hires away.

Special thanks to Renaissance Executive Forums for the workshop that brought this book and many other useful business paradigms to my attention.

Derek G. Hennecke is President and CEO of Xcelience, a CDMO in formulation development and clinical packaging located in Tampa, FL. Mr Hennecke launched Xcelience as a management buyout in 2006, and the company has more than doubled in size. Prior to starting Xcelience, Mr. Hennecke worked for DSM as a turnaround manager in the global drug development community, managing an anti-infectives plant in Egypt, technical and commercial operations in a JV in Mexico, and a biologics facility in Montreal. He developed the formulation and business strategy of several drug compound introductions such as clavulanic acid, erythromycin derivatives and Tiamulin. A Canadian, he covets the Florida sun, but can’t be kept away from the rink for long. He is an avid fan of the Tampa Bay Lightning.