It can be challenging to realize that you are in the midst of a moment of personal growth when it comes to business. As the day-to-day of your professional life moves more quickly, you are likely to evolve in your career. Sometimes you change in your leadership role without even realizing a transformation has occurred. But, you’ll want a leadership guide for every business growth stage.
Through every stage of growth, your business transitions to new knowledge, systems, and management.
As this transition occurs, you and your role within the company changes too. I have found that revenue and headcount together are useful markers for uncovering where you are as a business. These precursors are there to warn you about the leadership role required. Typically, more revenue leads to the need for more employees. And, more employees leads to greater business complexity.
As tangible growth occurs, you will need to adjust your leadership style.
Fewer touchpoints with the expanding employee base alone can drive this need for change. Looking back on how I have evolved as an executive, I’ve come to delineate my transitions to four distinct stages. Each stage has informed and evolved my personal leadership growth as well as the skills and approaches required of those around me.
- Stage 1: This first phase is associated with roughly $0 and $10 million in revenue and typically less than 50 employees. Usually, everyone in the organization knows a lot of the organization’s day-to-day and interactions are very cross-functional; sometimes, a single individual is wearing multiple hats of responsibility.
- Stage 2: The second phase is demarcated somewhere between $10-25 million, and you are likely approaching the 100-employee mark. In this phase, cross-functional responsibilities and “athletes” begin to be replaced with individuals with specific domains of expertise.
- Stage 3: The third phase is far removed from the first phase. ARR is now moving from $25M to over $100M, and your headcount has at least doubled to the north of the 200 million mark.
- Stage 4: In the fourth phase, revenue is moving to the north of $500 million, and headcount is likely expanding rapidly on both an organic and inorganic (M&A) basis. Phase IV begins to mark the transition into a platform business as opposed to a limited product company.
(For the sake of this discussion we will only focus on these first four phases.)
As an entrepreneur looking to become a business leader, you will need to know and anticipate how and when your role within the company will need to evolve. Watch and be aware of what is necessary as your organization matures through these phases.
The Entrepreneurial Spirit
The first phase is often a bit messy because it is the period when the entrepreneurial spirit is strong, and rapid pivots are often critical. A better moniker for this is the “figure it out” phase. To be clear, in this crucial phase long-term planning is not always optimal. This period is often focused merely on survival. The points may also be incremental points of substantiation to the company’s value proposition.
These incremental gains are critical to surviving your way to another investment cycle.
Watch as you move through each investment cycle contained in another quarter, another month, another week, and even another day. The company and all who work in it need to have a survival mentality. All of you must be trying to get the business off the ground with the goal of keeping it in the air. At this phase, your thoughts are not centered on leadership; it is a phase of pure entrepreneurship – pretty or sustainable are less important than good enough and validated.
This phase is often defined by the will of a single individual or a limited number of individuals putting the organization first no matter what.
Sometimes the founder is carrying all the weight on their backs and doing whatever is necessary to get to the $10 million thresholds of sustainable profitability and product validation. As your organization approaches $10 million in ARR, you start to understand better whether or not your concept has a market and is sustainable.
What is the primary value we provide to our customers? Think of the Pony Express.
Why do clients and customers buy from us repeatedly? What distractions or legacy thinking overhangs exist and is our value proposition in the best “package” or could that “package” change or evolve? I like to utilize the tale of two cities to illustrate this latter point best. I use the cities of St. Joseph, MO, and Kansas City, MO. I grew up in Missouri, and for me, the story of the evolution of St. Joseph and Kansas City typifies the potential pitfalls when you fall in love with your “package” vs. your “value.”
St. Joseph, MO was home to the Pony Express; this city was the hub for moving information and resources from the East to West. What the people of St. Joseph and the Pony Express were good at was moving information and goods. The moving of this information and goods was their value proposition.
The business of the Pony Express’ first business iteration was delivering this value (information and goods).
They came up with using a series of cowboys, on horses, creating a relay for the movement of this information and goods (not pretty, but practical enough).
However, a time came when the town of St. Joseph needed to move from its own Phase I and transition into Phase II. As the necessary “package” (the Pony Express business) was about to change. The entrepreneurial business plan was about to be replaced with a repeatable business model — because — it was scalable.
As the steam engine gained popularity and railroads became the next tool (package) for facilitating the value proposition.
The new tool (steam engine) was implemented for the moving of the goods and information. The city of St. Joseph passed on the opportunity to leverage this new technology. The city of St. Joseph erroneously believed their system worked the best (i.e., leveraging horses), and they had fallen in love with their system. The city was sure that what they had been doing in the past was the best, so they didn’t even consider a new idea, a new tool, or a new strategy.
Enter the railroad industry — a new tool.
When the railroad came looking (with their new tool) they looked elsewhere, ultimately discovering a no-name cow town further south to serve as their railway hub between the East and the West — and that town is now Kansas City.
The transition from Phase I to Phase II in business may very well facilitate some key pivots. You have to be laser-focused on your value proposition and to provide and to invest in a few core, repeatable strengths within your business.
Find Your Strengths and Double Down
In the second phase of your business, the focus will shift from survival to how you can hone the bullseye of your business’s core. You’ll focus on key strengths and the repeatability of your business’s solutions.
As an executive, you’ve evolved from being a startup entrepreneur to leading and initiating the creation of a system. Why something happens becomes more important than the fact that something happens.
You will need to begin to think and act for the long-term. Scalable thinking begins to replace survival thinking.
While you may have had an array of product offerings as you tried to find a market in the entrepreneurial phase by throwing a lot of spaghetti against the wall. By now, you will have discovered one or two individuals who are the main drivers of your business and value proposition.
As a leader in the growth stage, you will have taken the time to define the core areas of focus, and you begin to transition from a “get it done” mentality. You find your group of generalists and move to repeatable, systematic behaviors, approaches, and domain experts.
The entire business must become more systematic so that you can tweak and hone your processes for scalability.
In this business stage, you aren’t just using individual efforts to simply overcome or drive the outcomes for survival. The worry of day-to-day existence and the urge to simply intervene and “make it happen” must now be replaced with systemic learnings.
The stage of letting go of a few things can be a tough transition for many founders/entrepreneurs. For example, you’ll have to resist the urge to jump in and take over the sales meeting and allowing a new sales rep to fumble their way through.
Here is where your leadership has to move forward. You can’t stay in the “fumbles” approach.
You have to move to informing your team with a systemic approach to training, coaching, and onboarding key individuals. This can be accomplished even better with technology. I often refer to this stage with my colleagues as allowing ourselves to blow off digits (creating incremental learning lessons) vs. severing limbs (losing the sale, in this example).
It is a dangerous journey finding this balance and can be very difficult for managers. This stage is critical to making it through Phase II successfully.
While you’re identifying the vital aspects of the business and improving the system — something else — potentially dangerous happens if you don’t pay attention. You’ve added a large number of new employees, and the day-to-day decision-making moves further away from the leadership team.
The “central nervous system” of the organization has migrated. The effectiveness of the systems and processes that are created throughout Phase II — will now become exposed in Phase III.
Crossing the Founder’s Chasm: Entrepreneurship vs. Leadership
Phase II has been about leading the team to establish systems. You have removed the emotional tendencies to allow learning moments. Your system improvement observations have taken place. If you were effective in Phase II, you would have felt yourself begin to slide back, empowering the domain experts and allowing the business disciplines to take over.
Phase III is about the transition from the front of the line leadership to what I like to call dog-sled leadership.
In Phase III, the team and disciplines (processes, systems, cultural tendencies) must now guide the business. Your role is to support the identified needs of the team. Phase III is a natural transition to simply guiding the team vs. pulling the team. Leadership vs. Entrepreneurship is now in full effect.
In Phase III, you know what the company can do well. You have faced what the market actually wants. The question now becomes at what velocity can you execute.
As the leader of the business, you need to develop new abilities.
You are no longer an entrepreneur focused on what the market is telling you. You need to step away from your emotions and pride of ownership and move into systems that empower others to be excellent in their roles.
You need systems and processes for almost everything your organization now effectuates.
- evaluating market/user feedback
- onboarding the team
- aligning the team’s objectives
- assessing performance
- consistent sales, servicing models and escalations
- Standardization of the back-office. By now, mistakes can’t repeatedly be happening, as you shouldn’t be making the same mistakes twice.
Through the prior two phases, you have been the lead dog on the team. But as you cross the founder’s chasm to real leadership, you are now sitting in the musher’s chair.
As a musher, your job isn’t pulling in a single direction – you need to be focused on aligning the entire team, feeding and nurturing the team and letting the crew pull the sled. You are now merely setting the direction of the company, and the team is doing the pulling.
You must now focus on making sure they are happy, healthy, and pulling in the same direction. At this point, you and the leadership team have moved out of specialty roles where you know all aspects of the processes and operations to hire and round out teams of highly-specialized experts.
Show Me Your Friends, and I’ll Show You Your Future
The final stage of leadership is a bit more challenging to break down. The one key factor I’ve discovered that leads to success at this stage is the processes and systems that were key to leadership in the evolution of the business through the prior three stages.
At this point, you need to be critical of who you surround yourself with. Honestly, this is the key to ultimate success as you’ve grown into a substantial organization.
Placing your trust in your leadership team is crucial to ensuring that your business continues to be successful.
- You will need to trust them to understand the importance of having difficult conversations.
- Speaking up when something is going wrong
- Passing on to your team the ability to take a critical eye to the business and the rest of the organization.
- Ensuring the people who are going to take over your previous roles have the skills and confidence to run the company.
If you are traveling at an excessively high speed, even a small wobble can cause the wheels to come off.
To avoid having any part of the business come apart, you need to surround yourself with people you trust to be willing, to tell the truth, and surface the difficult but necessary topics. It requires a high degree of confidence to believe that people will stand up and speak out when something is not optimal.
When you are responsible for running a business at scale, you need to be able to rely on a great leadership team who can avoid potentially harmful mistakes when something needs to be fixed.
As your business grows, the level of your day-to-day involvement will inevitably change. Hopefully, my own experiences serve as a rough guide to help you navigate your role during each step of your company’s journey.