A number of our clients have come to us when they have already been running for over 10 years. This may seem odd – why would a successful business like that need consulting, right? What’s happening is that they are following the 10/5 rule for continued business success, and are not quite sure at what stage they have become stuck.
What the 10/5 says is that if you have been in business for 10 years or more and the business is not making more than £5 million, you may need to rethink your organisational structure and practices if you want to ensure that your business continues to grow in the following 10 years.
At this point, successful businesses have often become a victim of their own success: being good at what they do has meant they have gotten used to a certain way of running things. However, almost all practices that have taken entrepreneurs from start-up to success are simply unviable for growing to a larger size – and many business owners refuse to acknowledge that they have hit this point, which we often call a “complexity ceiling”.
However, it is critical here that you, as a business owner, recognise that “what got you here, won’t get you there” – your practices need to be adjusted if you want to take your business to the next level. With small businesses coming in all shapes and sizes, there is no single playbook that has all the answers to business success. However, most SMEs do experience a common set of road-blocks and hurdles during specific stages of their development, so it is important to recognise what stage your business is at.
Here I explain the 5 stages which small businesses and business-owners go through in their development, as well as showcase the key characteristics and warnings at each of these stages. You can then use this as a guide to figure out what level you are at, and thus address the correct issues to grow and move your business – and yourself – forward.
At this start-up stage, the organisation is a simple one whereby the key focus is to stay alive – which is easier said than done as half of UK start-ups fail within five years. Furthermore, the owner of the business is usually the whole operation, performing all of the most important tasks themselves.
The key points that these businesses have to focus on are attracting new customers, fulfilling demand as it comes in, and providing a product or service of a higher quality than their competitors.
Once a business breaks through from the existence stage, they will be evolving into an organisation which focuses on revenue and cost management, rather than just staying afloat. The owner is also still in a hands-on role as the organisational structure remains very simple. Many business management consultants agree that the major change between the first 2 stages is the business’ mind-set, which has moved from asking if it can stay afloat to how it will look to grow.
The main pressure point that arises at this stage is usually a lack of revenue management strategy, which could lead to the deterioration of the business’ profits and its ability to grow. Ask yourself how you will get the necessary cash flow for your business goals, and once you achieve it, how will you use it to maximise your business’ potential?
If a business is able to manage the second stage well by generating and managing their income in a profitable manner, it will progress to stage 5 – Success. This is a counter-intuitively dangerous stage for a business owner and this is the stage that most business owners get stuck at – and where they need to think about applying the 10/5 rule.
At this point the business is healthy in its ability to generate cash flow and is beginning to integrate efficient processes within the organisation. The organisational structure at this point is becoming slightly more decentralised with the introduction of managers and junior level employees – meaning that owners should be able to occupy a more supervisory role. During the Success stage, the main concern is that there are 2 directions in which the business can go:
Firstly, when experiencing success in a venture, an owner could decide to disengage from the business. This means that their major focus is to set a strategy to maintain the business’ performance and revenue stream. In this direction, the owner will use the company as a source of support for external ventures, rather than looking to develop it. The second option for an owner at the Success stage is growth.
In this case, they will look to grow the company by consolidating its resources and risking it in their bid to realise the business’ greater potential. Either of these directions require that the business owner steps up and out of the hands-on daily operations and learns how to work on the business, rather than in it.
This means they need to learn how to change their practices since, up until this stage, their own personal work was what kept the company going. At this point, it is time to create systems that allow it to run and/or grow without their constant supervision.
During this stage, the organisation is even more decentralised, with an increased hierarchical structure. Furthermore, the company’s systems and processes have become more efficient, allowing managers to focus more on operational and strategic planning activities. Additionally, the owner’s participation in the everyday working of the business is very minor, but they are still pivotal in setting its future direction.
There are 2 key potential problem areas for a business in this stage. Firstly, is the owner able to delegate tasks effectively to his managers? And secondly, are the revenue and expense controls in place, adequate enough to ensure that the business has the resources to satisfy the demands which growth brings?
It is absolutely critical that the correct systems and processes have been implemented before getting to this stage. Without that, the business quickly slides back from take-off into a position where the business owner has to dive in and fight fires. The worst possible scenario, and I have seen it happen before, a business can go from success up into take off and then descend right back down to survival because the organisational infrastructure just was not there to support the rapid growth.
5. Resource Maturity
At the fifth stage, the business is highly decentralised, and has the resources, as well as the expertise, to undertake detailed planning in an operational and strategic sense – which is something we do with our clients at a Strategic Planning Day once every quarter.
Furthermore, the processes and systems in place have been well integrated into the organisation, which allows the owner to fully separate him or herself from the business. However, the business should not rest on its laurels here. At any point, the business could slide back into an earlier stage, so entrepreneurial spirit must be retained in order to build on its success.
The main concern of the business in stage 5 is that it needs to ensure it remains flexible and can pivot easily as a small business, while also expanding its management force in order to meet the rigorous demands of the growing customer base. It is about creating systems and processes that flow efficiently, without creating unnecessary bureaucracy.
The rate at which small businesses grow is dependent on a multitude of factors; from the industry you operate in, to the kind of managers you hire (which really depends on how you’ve gone about hiring them, and the quality of the products and services you offer. However, more often than not, successful ventures go through the 5 stages above in some way shape or form. If you do not fulfil the 10/5 Rule, you are probably stuck at one of these stages – most often, stage three.
You need to identify which stage your business has gotten stuck at, understand what your next developmental stage is, and then take steps in changing your organisation to allow for you access the next stage. You need to understand that what got you to where you are today will not get you to where you want to be in the future – it is time to adapt.
If you would like to hear more about this please feel free to get in touch below.