Intentionally growing your company - The changing role of the CEO: Your business model is a Key Performance Indicator

Recently, I began teaser introductions to the following five topics.  I believe that each topic is a key issue for growing your company from 15 to 50 and then to 150 people or more.  So, here is my take on that Holy Grail, on what companies and my clients need to focus:

Know Thy Self  

Look at Your People 

Culture

Processes/Systems

Business Model

Today we will focus on #5, Business Model.  When asked, almost everyone says they have a business model.  The question should be, does your business model work? 

At 15 employees, most companies take any customer and are delighted with them all.  What most often happens is that many businesses at this level, essentially focus on materials, direct labor and determine profit. 

At this stage most companies business models don’t take in to consideration all of the cost factors that have to be included in operating their company.  This recognition failure means that they become resigned to staying at this level.  The two most overlooked cost factors seem to be administrative and Top Management (owner may be taking a salary or may not; the owner may be doing what will become two or three full time positions). 

The personal costs are failing to pay the owner as an employee of the company.  Often, the owner is both General Manager and Sales force.  If the owner is not separating out their roles and the value brought in to the company from the ownership value, then it becomes very difficult to afford hiring the right people as the need arises and the owner let’s go of some of their roles. 

The administrative costs are especially front and center when a business begins to come up against competitors.  Pricing in small companies almost never takes in to account the costs of having people who don’t directly support the sales and production part of the business.  Initially, this gives the small company an advantage over larger competitors.  As the Company grows and G&A increases in both real dollars and possibly in percentage of G&A to the rest of the company, it will continue to be important to manage/control expenses and it will become more important to understand how to include G&A as a part of your business model. . 

As companies grow towards 50 employees one of the big learns is when a company analyzes its customers and find that some make them lots of money and others don’t.  This is often the beginning of a shift/change in the business model because quite often the early customers (who are loyal and love the company) are not what the company needs in order to further grow and develop.  This quite often means that the tough decision to move on from (get rid of) these customers has to take place.  Also, at about 30 employees on the way to 50, it is often the time that a company has to move to more experienced/skilled managers.  What often happens is the existing key employees dig in their heels around letting go of old/core customers. 

On the way to 150 employees, the business model again needs to morph.  The complexity of the business requires further analysis of who is a target customer, how we profitably address their needs, are we aligned to service that kind of customer and how do we close the gaps as we begin to compete with more sophisticated larger companies? 

At both the 50 and 150 employee stage, one of the largest issues is ROI (Return On Investment).  Companies find that they must re-invest in people and equipment with significant cost tags.  Much of the time, this is when a company that has been profitable, become unprofitable.  Anticipating these growth needs and keeping an eye out toward what the needs will be and when are critical factors in success at these stages. 

At what stage are you?  What is your business model and at what point do you think it may not work anymore?

Intentionally growing your company - The changing role of the CEO: Processes and Systems:

Recently, I began teaser introductions to the following five topics.  I believe that each topic is a key issue for growing your company from 15 to 50 and then to 150 people or more.  So, here is my take on that Holy Grail, on what companies and my clients need to focus:

Know Thy Self  

 Look at Your People 

Culture

Processes/Systems

Business Model

Today, let’s look at #4, Processes/Systems.  I have found three issues recurring so often they feel like rights of passage. 

My experience with companies at the 15 and 50 stage is that systematic anything is pretty rare.  These companies have either started out with a founder who has an exceptional  ability to sell or produce product or create excitement and service relationships (occasionally all three), or there are long standing employees who know the business as it is and keep a great deal in their heads. 

One of the issues that looms largest for a company wanting to grow to the 50 employee level is translating company knowledge to others and making this knowledge replicable (meaning that it can be provided to others without the founder or key employee).  The hurdles to move through this no man’s land are usually: Culture, perceived value of processes/systems and some discipline. 

Culture of smaller companies is usually one of heroics, someone or some few who do things in a n exceptional manner.  Perceived value is either personal or cultural (“I don’t need it, why can’t they just do it too”).  Discipline raises its ugly head when priorities are made.  Getting started on creating replicable processes and systems usually loses out to “We have business that we have to attend to.”

For 50 employee companies, the two issues that most often come up is failing to develop processes that are appropriate for the size and focus of the existing/near term business and second is the issue of making sure that processes, and the people who use them, actually work/serve the goals everyone has for the business. 

At 150 employees companies often come up against issues of complexity vs. the fit of the processes/systems.  All too often there is a disconnect between the people being asked to follow the process and who is developing the process.  Investing time and resources on acceptance, use and implementation of the process/system is all to often overlooked or minimalized. 

So what are the issues you have had to address in adopting/creating and implementing  processes and developing systems?

Intentionally growing your company - The changing role of the CEO: CULTURE

Recently, I began teaser introductions to the following five topics.  I believe that each topic is a key issue for growing your company from 15 to 50 and then to 150 people or more.  So, here is my take on that Holy Grail, on what companies and my clients need to focus:

 Know Thy Self  

 Look at Your People 

 Culture

Processes/Systems

Business Model

Today, we are touching (and I do mean touching... this is a very large topic) on #3, Culture.  My experience with companies at the 15 and 50 stage is that culture is almost never an intentional act.  Most founders, and most of us, stand for beliefs.  In a company you may start with, “We are about unparalleled customer service.” So, you work 24/7 and every customer expectation is met or exceeded. You hire friends or others who are just as excited about cigars, pools/spas, making after market auto products or providing marketing services.  Everyone is in heroic mode (saving the day or making customers ecstatic). 

Then your company gets to $1M in sales (this might start earlier or later by $500K) and you begin hiring people rather than zealots.  In most cases, what happens is that the culture of heroics and zealotry starts falling apart.  I have experienced companies reaching up to $5M before they actually confront the failing culture.  For the ones that survive this first culture stage, three things become paramount: customer focus, developing their first systems and moving from holding knowledge as power (the important stuff is in people’s heads). 

So let’s assume you make it through this first stage, what is culture likely to be?  Most often, I find that the culture focuses on work harder.  The survivors have revisit customer focus again.  This time, they confront and develop a clear idea about who their best customer, who they serve best and what kills their ability to make money.  The culture shifts from personal relationships and anecdotal business practices to systems.  Either outsiders come in and begin this process or the owners find good consultants.  The first formation of a management team happens along the way and often it is populated by survivors (people who did well in the company up to now).  There is still little intention or conscious focus on what culture we live and what culture and values we want to live. 

At this stage, with fifty employees, the culture usually gets murky.  It is one of the signs that the company is, again, in a no man’s land and often G&A costs are rise to a point where the company must confront: whether their business model works anymore; too many mini-cultures often from having brought in more people; and why the owners are in business (asking why you are in business is often met with blank stares at this stage, when at $3M the answer was clear and crisp). 

At 150 employees, there is a need for systemic culture and often CEO’s who’s companies are troubled as they approach 120 million have not focused on two things: spending most of their time on coaching their direct reports and keeping their culture alive and central to all of the business. 

Weigh in here.... agree? Disagree?  What have been your experiences in getting the gap closing?