This week we’ll look at the rapid growth stage of the small business growth cycle.  I haven’t spent much time on this stage of the growth cycle because it represents the opposite of what most small businesses want in their professional life – big corporate structure.

While many small business owners say they want to grow their business.  Many of them don’t really understand what that means.  In order to have rapid growth a company needs to create everything that caused many small business owners to leave corporate America in the first place.

This stage is based on an owner’s goal to grow the business set in the self-sustainability stage.  In the rapid growth stage large sums of capital are needed as the business takes on more and more customers thus needing more equipment and materials.  Also, the number of employees to service these new customers seems ever expanding.  Properly executed it is in this stage that a small business becomes big company.  If not managed properly, this stage can be the death of a company.

The goal in the rapid growth stage is to effectively manage finances so that growth does not outpace the financial resources of the business.  The objectives that go along with this goal are as follows:

  • Financing rapid growth is critical to this stage.
  • Owner delegation to improve managerial effectiveness.
  • Decentralized organizational managers must be extremely competent.
  • Talented managers and key employees are critical to success
  • Company systems must be tested, altered & delegated, with strong strategic leadership from top management
  • Marketing focuses on moving into new markets
  • Partner with businesses complementing existing experience & capabilities
  • New products or services are added to existing markets
  • Existing business expands into new markets & customer types

Additionally, this stage brings a number of different challenges and risks.  An owner must rise to the occasion in this stage.  If not any one of these things can consume and destroy the company.

  • High demand of cash creates a high debt-equity ratio
  • If unsuccessful, business can fall back and find equilibrium in earlier stages.
  • Moving into unrelated businesses is disastrous
  • CEO risks losing firm by saving money on talent

Taking a look at the leadership and management factors of this stage in the table that follows you begin to see the very corporate aspects of this stage.  For those small business owners not familiar with the small business growth cycle entering this stage begin to experience stress, frustration, confusion, and begin getting sick of their business.

Leadership Factors:

Owner goals
  • Committed to a growth strategy
  • Founding owner may opt out with an advisory role
Operational Skills
  • The owner should be completely removed at this point from the operation.
Managerial Abilities
  • If owner can rise to the financial & managerial challenges company can become a big business.
Strategic Thinking
  • Operational and strategic planning include managers

Management Factors:

Financial Assets
  • Adequate financing
  • Establish expense & budget controls for strong cash flow.
  • Profitability planning systems

$$$ Sources:

  • Joint ventures
  • Banks
  • Licensing
  • new investors
  • partners
Personnel Resources
  • Skilled, experienced & competent mgmt structure
  • Systems become more refined and extensive.
  • Performance control systems develop enterprise complexity
  • Effective financial planning, forecasting, modeling strategy
Business Assets
  • Strong potential for business sale premium
  • Capacity for a big business

You can see where this can quickly become an albatross for someone without a love for business.  This is one of the reasons our business growth matrix is such a great learning tool for small business owners.  It shows you what to expect at each stage allowing you to make an informed decision on where they would like to take your business and what to expect as a result of your decision.

For those readers that have entered this stage of the cycle what has been your experience?  Is it more difficult that you thought? Would you make the same decision based on what you know now?