According to Sue Hansen in “The 7 Stages of Business Growth,” a concept developed by James Fischer who founded the Origin Institute, the growth stages of a company can and often dramatically change the dynamics of the business. Ms. Hansen summarizes the seven stages according to key challenges and by number of employees.
The key challenges noted in this phase may be obvious, but include managing cash flow, obtaining capital to start and grow, unstable finances, few customers, managing of expanding sales, getting products/services to market and work/life balance. In Stage 1, “sales have been great and you begin to hire your first employees, get ready. . . Your company will be CEO centric until you get to Stage 2. You are the key here, you are the star! That means that 50% of your time should be spent as the technician or specialist while only 10% of your time will be spent as a manager.” To get to Stage 2, the entrepreneur will need to start envisioning who the next hires will be and who will begin to manage various company functions.
The key challenges in Stage 2 include limited capital to grow, continued tight cash flow, hiring the right and qualified staff, leadership to staff communications, leadership letting go of former job responsibilities and expanding sales. Hansen notes in Stage 2, “generating cash is important but at the same time, managing expenses and cash flow is crucial.” Businesses are hiring more staff, which requires sales to increase to maintain positive cash flow. As roles begin to shift with a growing staff, internal communications becomes increasingly critical as well to ensure everyone is on the same page and moving in the same direction with the company.
Key challenges include a weak business design, getting staff buy-in, internal communications, having and sharing company core values and managing a staff that may become resistant to changes.Beware, Stage 3 brings significant changes within the company to the point where this stage sees the highest occurrence of CEO burnout. “When you add employee 20, a shift occurs. You are just a few months away from a staff revolution. You’ve felt the subtle change – your employees are a bit harder to manage, they push back more often, their attitude hits you in the face when you least expect it…When you move into Stage 3, it becomes Enterprise-centric.”
Stage 4’s key challenges include project management, employee turnover, projecting problems, implementing “systems” and keeping the company abreast of growth information.Ms. Hansen notes that Stage 4 is about internal focus and processes. By now the CEO should have let go of the day to day control to managers so that the focus can now go towards keeping the right managers in place and providing the tools needed to assist the managers. “Successful CEOs surround themselves with knowledgeable, experienced people – they want to be challenged on decisions, knowing that the more diversity of ideas and even attitude they bring on board, the more depth they create in their organization.”
Improving sales, forecasting problems, cost of lost expertise and staff training are the key challenges in this stage.This stage ushers in a time of being proactive within the business rather than reactive or scattered. Now is the time for the CEO move from growth management to visionary as the company moves into a more competitive environment. Now is the time to focus on developing new opportunities or markets while converting initial customers into brand loyalists for the business.
The key challenges in Stage 6 include staff satisfaction, staff buy-in, new staff orientation and hiring or maintaining quality staff.The ground work conducted in Stage 5 to envision the future of the company now demands strategic planning to bring the company into an even larger competitive environment. Annual plans are tied in to multi-year strategic plans to lead the company both in growth and in finances.
This final growth stage for the young company includes the challenges of differentiating products/services, slower processes (especially in moving new products to market), marketplace changes too quickly and balancing revenues with profits. While the CEO should be proud of such a high growth company, the growing number of employees also means less of an entrepreneurial spirit within the company. This can affect the strength of the company with new innovations and product introductions. In this stage, the CEO will need visionary skills to engage and energize the company to maintain its competitive advantage.
This is the simplest way to start a business by yourself. There are no forms other than obtaining a Federal Employee Identification Number, a local privilege license and opening a business bank account. However, there are no personal legal protections from your business nor are there any tax benefits.
Similar to sole proprietorship, except the partnership involves more than one person.
According to Nolo.com, a LLC is a business that offers the legal protection of a corporation with the pass-through taxation of a partnership. While the business owners continue to process the business taxes on their personal returns, the owners receive limited personal legal protection from running the business.
The corporation business structure is more complicated to start than other forms of business, but the main benefits include a limited legal liability from the business and different tax filing options for the business from the founder’s personal taxes. Starting a corporation can be complex, therefore advice and assistance from an accountant or legal advisor is suggested.
Starting a nonprofit requires the same steps in starting a corporation with the additional step of applying for a nonprofit tax status with the IRS. The most known tax exempt status is the 501(c)3. Additional information about becoming a nonprofit can be found at on the IRS website under Tax Information for Charities & Other Non-Profits.