A Stage 1 company has 1-10 employees, and at this stage of growth, it’s all about survival. A Stage 1 company is CEO-centric — meaning the CEO is likely the ‘specialist’ who has created a product or service and is now getting his/her idea to take shape. It’s the energy, passion and vision of the CEO that is the driving force behind the company’s success today. The CEO also makes all the decisions and brings in all the sales. Therefore, 50% of the CEO’s time should be spent as the technician, or the specialist, while only 10% of his/her time should be spent as a manager. The other 40% of the leader’s time should be in creating and fine-tuning the vision of the company.

A Stage 1 company is really designed to innovate very quickly; it is not designed to be locked into any one specific focus at the beginning. It is meant to quickly discover, explore, experiment and find the right product or service that the leader intends to bring out into the world. A Stage 1 leader shouldn’t worry about hitting the precise target, just close enough to continue to move forward. The leader has to figure out how to generate income because cash flow generally is the number one challenge. At this stage of growth, trial and error should be expected. The risk is high because of so many unknowns.

The top five challenges in Stage 1 are as follows:

1. Cash Flow
2. Destabilized by Chaos
3. Slow Product Development and Getting to Market
4. Limited Capital to Grow
5. Improving Sales

The Non-Negotiable Leadership Rules for a Stage 1 Company:

• Generate, track and preserve cash.
• Focus 80% of the company’s resources on selling the two to three offerings with the best margins.
• Hire first for how the person fits in with the team and second for competence.
• Waste no time trying to stabilize the company – embrace chaos. Command the team and inspire the employees.
• Establish a company-wide performance mindset, feedback loop and employee development with regular one-on-one meetings.

A Stage 2 company has 11 – 19 employees. CEOs of Stage 2 companies are still the center of the business. They need to stay calm and thoughtful, and before they react to the increases in activity and workload, CEOs should ask themselves these questions:

1. Am I still focused on driving profits and revenue?
2. Am I beginning to let go of critical aspects of the company to capable people?
3. Am I watching the key indicators of success every day?

A Stage 2 company is CEO-centric — meaning the CEO is likely the specialist who has created a product or service and is now getting his/her idea to take shape. Therefore, 40% of the CEO’s time should be spent as Specialist, while only 20% of the time will be spent as Manager. The other 40% of the CEO’s time should be in creating and fine-tuning the vision of the company. The leader is still the center of the business, and all decisions run past him/her. A Stage 2 leader must provide the vision — spending 40% of his/her time creating, articulating and getting the team on board with the path and movement of the company. A Stage 2 company will start seeing the beginning of diversification within its organizational infrastructure. In Stage 1 everyone will need to fill multiple roles at the same time.

In Stage 2 the business will begin differentiating tasks and having people become specialists within the organization. This is a critical stage for leaders because they must begin to delegate both authority and responsibility, and this can be difficult for many entrepreneurs. Leaders, filling the leader role, within a Stage 2 company will try to hold on to all the control and make all the decisions, but the reality is they simply cannot. This is why leaders begin to feel stretched too thin, frustrated that people aren’t doing their jobs and worried that things are getting too out of control. The leader, leader or otherwise, still needs to manage sales and must have the ability to motivate a small staff to achieve extraordinary results, keeping an eye on quality and customer service.

A Stage 2 company must start focusing on cost issues and recognize the need to consciously manage the growth of the enterprise. Growth, not survival, is paramount. The company needs to support a higher sales level and generate positive cash flow.

The top five challenges in Stage 2:

1. Hiring Quality Staff
2. Improving Sales
3. Cash Flow
4. Leadership/Staff Gap
5. Limited Capital to Grow

The Non-Negotiable Leadership Rules for a Stage 2 Company:

• Sell absolutely everyday.
• Develop, without fail, three employee leaders to be responsible, accountable and proactive.
• Create a daily, weekly and monthly “key indicator” instrument panel/flash sheet.
• Communicate any and all directions in writing.
• Drive small action teams to hit goals.

A Stage 3 company has 20-34 employees. At this stage of growth, it’s typical to experience a staff revolution. The first indicator that a company has hit Stage 3 is the certainty that the leader can no longer hold all the strings and be in control of the organization entirely on his/her own. When a company is in Stage 1 and Stage 2, it is CEO-centric – meaning the CEO is likely the specialist who created the product or service that the company provides. It’s the CEO’s energy and passion that moves the company forward. Stage 3 is the first time the company becomes enterprise-centric – meaning the leader must pass off a certain amount of authority and responsibility, and this is probably one of the most difficult challenges for a typical entrepreneur to be able to do.

When it becomes apparent to CEOs, particularly Leader/CEO, that they can no longer do what they have done in the past, it will likely cause frustration. In the awakening process CEOs either adapt to new changes, or if they don’t, they eventually may suffer the trauma from having enormous leadership inefficiency and what is called “entrepreneurial burnout.” In Stage 3, CEOs must be able to assign work. This includes both the authority and the responsibility of the work to managers. It is also necessary to manage, orchestrate and empower the managers.

The top five challenges in Stage 3:

1. Staff Buy In
2. Communication Gap
3. Business/Profit Design
4. Unclear Values
5. Resistant to change

The Non-Negotiable Leadership Rules for a Stage 3 Company:

• Release control to capable supervisors and lead them.
• Create an advanced financial reporting and projection system.
• Instill a team-based mindset.
• Overhaul the business model.
• Strengthen all communication.

Stage 4 is all about internal focus and internal processes, whereas Stage 3 was all about delegation and the CEO letting go. The necessity of that lesson will become painfully clear if the leader heads into Stage 4 still micromanaging — he/she has to let go. Why is one of the challenges in Stage 4 employee turnover? If the company hasn’t begun advancing strong, experienced managers, employees will leave. People stay at a company because they respect their manager. If a leader can begin to provide employees with managers who know how to manage the work of the company, as well as manage the people, employees will feel less frustrated, more productive and receive solid input on their performance on a regular basis. Stage 4 is also about helping all managers feel confident about their team, their work and their identity as individual teams.

The leader’s job is to help the managers gain that confidence. Don’t worry about integrating these managers across the company just yet. Help them find their own way with their own team and work with them to be accountable as their team evolves and matures. The organization will avoid a lot of blaming others and department disputes if the CEO lets each manager build a stronghold and develop his/her own sense of commitment and team synergy.

This isn’t just about training qualified people to move up in the organization. Yes, that can be done; however, experience proves that it’s generally just an easy way for CEOs to avoid doing the harder work — finding experienced, already trained people hardwired to help them grow their business. Successful CEOs surround themselves with knowledgeable, experienced people — they want to be challenged on decisions, knowing that the more diversity of ideas and even attitudes they bring on board, the more depth they create in their organization

The top five challenges for Stage 4:

1. Weak Project Management
2. Difficulty Diagnosing Problems
3. Employee Turnover
4. Not Getting Systems in Place
5. Organization Uninformed About Company Growth

The Non-Negotiable Leadership Rules for a Stage 4 Company:

• Hire or effectively train professional managers for each department who have demonstrated the ability to be responsible, accountable and proactive.
• Create strong performance driven departments that compete with each other.
• Allocate 5 -10% of gross revenue to identification, acquisition and implementation of new systems.
• Identify and set in place, with management team, the company’s master processes.
• Establish a strict company project management template

Stage 5 has the CEO focus back on profit as the Gate of Focus for one simple reason. The company has many more moving parts and requires a consistent source of fuel — sales! In Stage 5, the company must start integrating teams and processes — it’s important that the divisions have their own budgets. With upwards of 95 employees, the CEO has to rely on key managers to help direct the business. The company has entered a larger, more competitive arena and subtle changes can mask bigger problems. For instance, managers hired and trained back in Stage 4 are much more confident, asserting themselves daily and fundamentally making changes to all aspects of the company.

It’s critical in Stage 5 that the managers help develop their own budgets — they are held responsible for the strategic implementation of that budget and should understand the impact of not meeting their forecasts or expenses. By Stage 5, a company should also have started to develop stronger financial reporting systems that go along with supporting divisional working budgets. The need for a qualified controller or CFO becomes more urgent. The CEO, if he/she is the one controlling the budget, will have a hard time being a builder one day and the protector the next day.

The divisions or departments, because of the work done in Stage 4, are now working well together. Marketing and sales, if separate divisions, share information regularly and compare notes to make sure marketing messages align with sales promises. Product development meets regularly with sales and engineering to make sure products meet demand and more importantly, drive the customers to want more.

The top five challenges in Stage 5:

1. Improving Sales
2. Difficulty Forecasting Problems 3. Cost of Lost Expertise
3. Weak Profit Design
4. Staff Training

The Non-Negotiable Leadership Rules for a Stage 5 Company:

• Integrate management team into an inter-dependent execution-focused leadership unit – focused on company goals.
• Overhaul the profit design.
• Establish a one-year operational business plan.
• Establish a fully integrated “living budget” by revenue group and by department.
• Allocate 3% of the employee salaries for training.

There’s a rhythm now. Patterns of behavior have been established, processes are in place,and the morning walk through the company has an air of familiarity that feels good. It feels comfortable. The CEO’s confidence in his/her staff is strong. If the CEO has captured the imagination of the managers, they now provide the stability of making good decisions, connecting with their direct reports and providing sound input that keeps the leader updated on critical issues. This level of engagement is critical in Stage 6 because it’s time for the leader to, once again, shift his/her view, attention and energy. The company must pay strong attention to its strategic orientation in the marketplace.

With 96 – 160 employees, it’s time to look beyond the arena the leader has built and prepare to take the company into a more challenging competitive environment. The leader must set in motion the longer view, move from an annual planning perspective into a multi-year strategic perspective and drive the organizational culture as a visible leader. Emphasis is once again on people as the top gate with profit second.

A leader of a Stage 6 company must engage a unique blend of Manager and Visionary modalities. Orchestrating a company’s move into Stage 6 requires a leader who believes strongly in the power of effective and consistent communication. His/her leadership style must help create synergy by connecting people to each other, be able to heal rifts in a team, and motivate during stressful times. It’s also time to revisit some areas that he/she might assume are okay:

• How’s the vision? Is it still clear? The leader should revisit this with the management team to make sure there has not been any erosion. This doesn’t happen because people don’t believe in the stated vision, it happens because the leader has trained and developed a strong-minded staff — they will be testing and questioning the direction of the company.
• Are values still driving behavior? Again, the leader should check in frequently with how these are being adhered to in the company. Are the values still a part of determining who gets hired? Are people making decisions based on those values?

If the vision and values have survived the complexity level the business has grown to, then the culture should be well defined. Any erosion of the culture the leader wanted to create will manifest itself clearly at this stage of the company’s growth. Is there a powerful strategic plan in place? More critical than ever is the leader’s ability to put a strategic plan in place that focuses the company’s resources on opening up new markets, refreshing products and/or services and directing the company’s future growth.

In Stage 6, it’s critical to strategically rethink the company’s positioning in the market. It is no longer a big fish in a small pond, but a small fish in the ocean, and its ability to survive just took on a different focus. But, there are also new opportunities available because of the size of the business. Challenging all assumptions as they relate to the vision, mission, customer needs and products/services is crucial. Don’t allow managers to simply rehash old issues.

During Stage 6, leaders need to work especially hard at helping their management team see the bigger picture and how they fit into it. A strategic focus will not work without the buy-in of the leadership team and the entire staff.

The top five challenges for Stage 6:

1. Staff Buy In
2. Staff Satisfaction
3. New Staff Orientation
4. Weak Profit Design
5. Hiring Quality Staff

The Non-Negotiable Leadership Rules for a Stage 6 Company:

• Without fail, establish a two-to-three day new staff orientation program.
• Generate a three-year living business plan (should address strategic, operational, and people considerations) with detailed budgets for each department and revenue group.
• Implement an organizational health survey once a year and establish two company-wide one-day unifying events a year.
• Push financial reporting to another level throughout the company.
• Without fail, secure regular one-on-one manager/employee meetings.

A CEO’s challenge in Stage 7 is all about transitioning into a large organization without losing what made it such a successful entrepreneurial business. Management’s efforts to professionalize the company often crush the entrepreneurial spirit that is so necessary in order to not to be left behind by newer entrepreneurial firms. A Stage 7 company has between 161– 500 employees. Because of its size, the company has started to form layers of bureaucracy that quickly impede performance and growth. Stage 7, called the visionary stage, is a very different world than what’s been encountered in the first six stages.

 As the CEO listens to his/her direct reports as well as what other employees are saying to each other, is he/she hearing any of the following:

• “That’s the way it’s always been done; I don’t know why they want us to change.”
• “We really don’t have the right people on board to make that change.”
• “No one cares about what I’m doing, so why should I care?”
• “I don’t know what’s going on — they never tell us anything anymore.”

If the CEO isn’t telling employees what’s going on, they are making it up on their own. The employees’ verbiage is much different than the leader’s. Theirs is more than likely full of fear, uncertainty, negative speak and attitude. The primary role of the leader is to spend 75% of his/her time as the Visionary. The leader needs to engage, excite and empower employees to think about and see the new vision of where the company is going from here. The CEO should spend time communicating the vision, the strategic plan and his/her desire to maintain the entrepreneurial spirit of the company that got it where it is today. The CEO needs to make sure he/she is walking the talk. Don’t let the company fall prey to the invisible employee syndrome.

There are now enough employees in the company that the mediocre ones can simply disappear from the day-to-day operations. There may be employees in the company that just aren’t performing at the level they should. It’s sometimes easy to overlook them, allowing these employees to become invisible, and if the leaders do, they are making a mistake. Don’t let them become an invisible negative force in the company — either focus on raising their performance level or part ways.

The top five challenges in Stage 7:

1. Products Not Differentiated
2. Inadequate Profits
3. Slow Getting Offering to Market
4. Weak Profit Design
5. Marketplace Changes Too Quickly

The Non-Negotiable Leadership Rules for a Stage 7 Company:

• Overhaul business model.
• Get to know a little something about every employee.
• Sell everyday.
• Create a company-wide leadership succession plan.
• Generate, track and preserve cash.