Is Your Company Ready for Growth?

Contributed by Jurgen Ringer. To reach Jurgen, please contact: jurgenringer@iib.ws

The beginning stages of any entrepreneurial concern are usually built around the product or service expertise (let’s call it the “PSE”) of the owners and organizers, which they offer to the market. They must be good at what they do, or the company will not survive at all. If it does survive and grow, though, more than this PSE is needed. Sooner or later, a transition point is reached, where the company must be transformed from primary emphasis on the PSE to the more structured format of a professionally managed concern. That is, management know how must be added to the PSE of the original owners.

The first challenge for the growing company comes when the owners must recognize that such a transition is necessary at all. Having survived the heavy demands and very hard work of the start-up phase (while watching others fail, perhaps), and being accustomed to constant striving to keep one’s PSE ahead of competitors, there is bound to be a tendency to believe that PSE is all that is really needed, that managing is just common sense.

But many of us have seen – and worked on – major turn arounds that happened solely because a strong team of management pros was brought on board a floundering concern, without any change in the PSE. There is just no  doubt about the need to add management expertise to the PSE to keep a good company healthy ands growing.

A company which does not pass this transition stage successfully, either because it does not recognize the need, or because it does not have access to the needed expertise, will not grow, or  will encounter more and more trouble trying to cope with greater volumes.

Some typical examples of such troubles, which are symptoms of greater problems: The CEO has to approve every little thing, is the only one with initiative, feels harrassed, and thinks he has to do everything himself; there are more and more errors, internal conflicts, morale problems; the most qualified employees leave and good people can not be attracted to replace them; there is poor or no cost control; unexpected cash shortages occur; some people exceed their authority, but most dodge responsibility; there is a general feeling of aimlessness and confusion; sales and profit performance are erratic; and so on and so on.

Eventually, the company must shrink back to a manageable size (“Mom and Pop”?),  be sold, or simply fails alltogether.

To determine if your company is in danger of reaching this stage, or is already there, see how many of these questions you  must answer ‘no” or “maybe”:

• Are there written descriptions that tell people what their job is, how to do it, relationships with other positions in the company? Such as an organization chart, job descriptions, statements of responsibility, delegated authority, measures of accountability? No, everybody does not know what their job is – I have seen confusion and conflict in companies with fewer than 15 employees!
• Does your compensation system recognize performance? Structured bonus programs (the discretionary Christmas bonus does not count!), properly designed individual or group incentives for hourly employees, gross profit based sales commissions, meaningful stock options or profit participation?
• Does your cost accounting system let you make aggressive pricing decisions if you need to? Variable and semi variable costs clearly identified so your incremental profit rate is accurate? How does your true gross profit compare to your competitors?
• Is cost control as tight as it needs to be? Monthly performance numbers? Detailed budgets and budget performance reports by department and areas of responsibility? Do department managers understand their budgets and how to control them?
• Do you have a written Business Plan, short and long term? Do your department managers understand it, and their part in it? Does your company have a Mission Statement, and longer term goals, which the management team understands and supports? 
• Is your management information system as good and as prompt as it needs to be for timely decision making by your managers? Have you and your managers identified your Key Performance Indicators (KPI’s), and are they being tracked routinely?
•  Is the company’s sales management program reasonably complete, including sales targets, gross profit based commission programs, specific programs to gain major accounts, analysis of lost sales, comparisons against competitors? Is there a clear understanding of what sales people are supposed to do, with training programs to help them do it? What is the difference between your top and your bottom performers in terms of skills, motivation, expertise, effort put forth?
• Do you know  your penetration  of your market segment, and whether it is growing or shrinking? An  approximation is fine if necessary, but be sure you are realistic, so you know what additional effort is needed for a strategy to make gains.
• Is there a program and strategy for protecting and improving your market position? Is it supported by your advertising, sales promotion, a functioning web site?
• Does the company have a program to develop a management team for the longer term? Top management succession? Supervisory training? Personnel appraisals aimed at improving supervision and personnel selection?

These questions are still far from a complete Management Audit; still, if you have to answer “no” to as many as half of them, your company is not only unready for growth, it has already outgrown its management expertise. You will need part time or permanent help to correct the problem. You might get a little of that help by keeping up with this blog.