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Charting Your Business Timeline

Unsure where you should be focusing your energies? Our business timeline series will help you keep your eyes on the prize, no matter what stage you're in.
July 28, 2009
URL: http://www.entrepreneur.com/article/202774

Years 2 to 5: Time to Grow
After your first year, re-read the business plan you started with. One reason to review it now is to update and, if necessary, revise your goals or schedules. Re-reading your business plan also re-acquaints you with the goals you had in the beginning but may have lost touch with during the hectic startup days. Fix these goals in mind as you enter years two through five.

Now is the time to begin formalizing the processes and procedures you've developed during your first year. The basic goal is to get information out of people's heads and onto paper. Writing down operations procedures in a manual also helps you think through the elements of critical tasks in the company. Having a system that's rational and repeatable is invaluable as you plan for your first sustained growth phase.

As you enter this first growth phase, you may hire your first employees or begin bringing on new people in greater numbers than before. Foolproof this process by writing job descriptions for all positions new and old. Well thought-out job descriptions help you hire the right people for the right jobs. They'll also guide you in developing training that provides additional skills to people already hired.

Sales and marketing processes also cry out for standardization. Carefully consider the face you want to present to customers. Codify the messages, images and other marketing materials used to present it. Look at everything--from the way service reps answer your phones to the color of your company trucks. A standardized marketing message is vital for differentiating yourself from your competitors and establishing brand identity.

At some point, your company is likely to grow too large to manage in the hands-on way you may have used successfully in the beginning. It's time to hire a management team, which may mean anyone from a supervisor who will oversee the night shift to a COO responsible for a wide array of day-to-day decisions. Either way, you'll have to let go and delegate some authority, and that's often difficult for entrepreneurs used to signing every check and approving every expense. Make it easier by asking yourself what kind of person you can work with and creating highly specific job descriptions for managers you can truly have faith in.

Personal savings, friends-and-family money and bootstrapping suffice to start many a new enterprise, but as your company grows, its needs for capital are likely to outstrip those initial funding sources. The good news is that now you have a track record, you'll be much more attractive to banks, angel investors and other financing sources.

And while you may have been able to borrow from a family member with nothing more than a handshake, it's important to know that institutional financial sources require more documentation. Prepare for near-future financing needs by moving as soon as possible to institute solid bookkeeping procedures. Generate regular and accurate accounting reports including income statements, cash flow projections and balance sheets.

Bear in mind that banks are most concerned with feeling certain their loan will be repaid, while venture investors are willing to gamble with a higher risk of failure in return for the chance to earn annual rates of return of 35 percent or more through a sale or merger within three to five years. Angel investors, another source of capital for firms at this stage, may be motivated by any combination of those two, along with the simple desire to help an entrepreneur like you to succeed.

Years 5 to 10: Growing to the Next Level

Years 5 to 10: Growing to the Next Level
After several years in business, it's not uncommon to find sales slowing, demand slackening and growth stalling as you extract potential from the products, services, customers and markets you began with. One option at this point is to abandon these tiring horses and go in search of fresher mounts in the form of completely new products, services and markets.

It makes more sense, however, for many firms to consider incremental expansion in the form of extensions of existing products and services. Developing a different size, color or packaging is much less risky than coming up with an entirely new product. And slight changes can allow you to sell to significant numbers of new customers in old markets, as well as sell more to existing customers.

Companies sometimes change locations to follow markets, customers and even suppliers, but the biggest reason for relocationis the simple requirement for more room. Employees need space to work, inventory needs space to be stored and, at some point, no amount of shoehorning can hide that it's time to get a bigger place. If you're considering a new facility, carefully analyze the labor force, transportation, communication, customer markets and other infrastructure issues that will affect the move's success.

These middle years are also a good time to turn the focus away from merely increasing sales and start spending more time and energy reducing costs. Larger organizations contain larger amounts of waste, so the bigger you are, the more you can benefit from improving your productivity. Pencil and paper are your biggest allies here, as you create flow charts, step-by-step instructions and systems diagrams to find out where the bottlenecks are, how you can cut waste and which processes may be eliminated entirely. And unlike sales increases, which only turn into profits after the costs of those sales are subtracted, cost cuts go directly to the bottom line.

Only after you really understand your business's systems should you consider turning to technology as a productivity booster. New computers and more sophisticated software laid over a dysfunctional business system will result in higher costs rather than higher productivity. Once you thoroughly analyze your systems and select technology that will help make them run more smoothly, don't forget the training. Much of the cost of new technology comes from having to train employees in its use, but so does much of the benefit.

Who's going to pay for these new facilities, new technology and product development efforts? As a relatively mature company with a lengthy track record, you're now squarely in the sweet spot of banks and private investors. You can negotiate better terms than before, and you may well find financiers competing to do business with your solid, well-established firm. The public markets also open up around this time. While up-front costs are high, initial public offeringsgive you access to the lowest-cost capital source of all, the stock and bond markets.

Years 10 to Retirement: Managing Maturity

Years 10 to Retirement: Managing Maturity
With the maturity of becoming a decade-old company comes stability. That's the good news. The bad news is that while your company stabilizes, markets continue to change, competitors arise, technologies disrupt and the world otherwise evolves. So the primary growth challenge in this era is to keep innovating.

You've spent years building systems to formalize the way your company is run. Now take a look at what you've made with an eye to tearing at least some of it down. Channels of communication that worked well for years will be found to leave important constituencies out of the loop. Department leaders will be seen as more concerned with turf wars than growing the company. Policies that once promoted growth will be recognized as growth-retardants. Markets that once seemed they would expand forever suddenly mature themselves and become slow- or no-growth ventures.

This is often a hard phase for entrepreneurs to endure because everything they've built is now being re-evaluated. But the way you've always done it may no longer be good enough. Given that, it's fortunate that now is the time for entrepreneurs to begin grooming a potential successor and initiate the process of stepping back from day-to-day operations. With new leadership coming on board and the founding entrepreneur taking a smaller role, it will be easier and more natural for the organization to embrace new ways of being.

The tendency of many entrepreneurs is to select a successor who will do things just the way the entrepreneur would have done them. If the organization is having trouble adjusting to change, however, this is usually the wrong approach. The question is not what kind of person the founder is. The question is what kind of person the company needs. A visionary entrepreneur who can grasp the whole picture but isn't good with specifics may have founded a company that is now in a mature industry and needs a detail-minded manager to squeeze all possible efficiency from the enterprise. Often the entrepreneur can't properly ask or answer the question of what the company needs now and should assemble a group of people from inside and outside the company to research it.

Even the perfect successor can rarely step into a company and run it as well as someone who has spent time learning how the company does things, what the problems with its products and markets may be, and what solutions have been tried. Of course, sometimes a complete new perspective unclouded by past events is beneficial. But usually a successor performs better if they're trained in a broad spectrum of jobs within the company in various departments and at various levels over a period of years before he or she is ready to step into the lead role.

Identifying and grooming a new successor is the first and most critical step to allowing an entrepreneur to step back from day-to-day company affairs. But it's not the only one and, in many ways, it's not the most difficult either. Many an heir apparent has turned out to be more apparent than heir because, when the moment arrived, the entrepreneur had not prepared either herself or the organization by moving toward the change in stages. One way to do this is to start taking vacations--real vacations--of increasing length, during which the successor is left in charge and the entrepreneur is only contacted if absolutely necessary.