The 5 Stages of a Company's Growth

Delegate in steps or your company's foundation could crumble.

Every company starts out small, with one or two people with a vision and the skills and determination to make that vision a reality. Wal-Mart, the world's largest retailer, was the brainchild of Sam Walton, for example. And Microsoft is the result of Bill Gates' belief that every American household would have a personal computer someday.

And as they grew, Wal-Mart and Microsoft went through the same stages of evolution as a successful remodeling firm, says Judith Miller, a financial consultant to remodelers. However, she says that not all firms go through all five steps; some owners make a conscious decision to remain a certain size. Regardless, each stage requires that earlier stages be fully implemented to prevent the company from collapsing like a house of cards. Here are the stages:

Stage 1: The owner does it all. Not only does he take care of sales, job costs, bookkeeping and time management, but he's also likely to be helping out with on-site production. "Stage 1 is exciting," Miller says. "And you have cheap, high-performance labor: the owner."

She warns, though, that as a company grows, it's easy for the owner to put things off. Issues such as marketing, addressing cash-flow problems, determining how (and how much) to pay himself and maintaining a balance between work and a personal life often take a backseat to daily business operations.

Stage 2: The owner begins to delegate. As the day-to-day operation of his company demands more of his time, the owner looks for people who can take over some of his responsibilities. He may hire an accountant or start turning projects over to a lead carpenter. But he needs more knowledge about financial and management issues such as overhead, markup, setting reasonable expectations and defining goals.

Stage 3: The owner delegates everything except sales. Miller says many companies stay at this stage simply because the owner loves sales. Those who want to grow larger need to become more sophisticated about money.

"The owner must have a good grasp of the overall effects of finance," she says. "You have to invest in overhead before you absolutely need it. Otherwise, you pay for it later in lost profits anyway."

Stage 4: The owner delegates everything. By this point, the owner needs to have an organizational chart and methods for measuring results in every department of the company. Miller also advises owners to provide every employee with a job description. "It's impossible to review job performance unless you and the employee really know what you expect."

Dangers at this critical stage are inexperienced managers and changes in the company's market. And overhead control is crucial; employees are less likely to demand the same curbs on expenses as the owner would.

Stage 5: The owner plans an exit strategy. With the average remodeler today in his late 40s, he’s starting to think about what will happen to the company after he leaves it. If he's lucky, he has children who are already involved in the business and want to take over someday. Otherwise, he’ll have to look for other options, such as selling the company to a competitor or to the employees. A board of advisers can help the owner look at his business objectively and determine the best option.

Other considerations for life after retirement include the development of new interests and — perhaps most important — a retirement plan that will provide enough income for the owner to maintain his standard of living. Miller says it's all too easy for remodelers to forget about their own retirement when they're setting long-term goals for their companies.

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