Entrepreneurs often talk about getting their businesses to the next level. What does that mean?
Before you can understand what the next level is, you have to know what the levels are. We define the first three levels of businesses as micro, small and midsize. In defining these three types of businesses, we do not use the typical measures of business size (i.e., dollars of revenue or number of employees). Rather, we look at management structure. This is important because the role of the entrepreneur changes dramatically as the company moves from micro to small and from small to midsize. In fact, at each transition, the principal has to do something counterintuitive. He or she has to let go of doing the very thing that made the company successful at the prior step.
The defining characteristic of a micro business is that the principal is doing the primary work of the business. He or she may have some helpers, but the preponderance of the revenue comes directly from the work of the principal. Obviously, the key to the success of a micro business is how well he or she does the primary work of the business.
When the business transitions to a small structure, the primary work of the business has been delegated to others. The owner may keep her or his hand in it, but others do most of the work. At this point, how well the principal does the primary work of the business is not nearly as important. Success now depends on how well the principal hires and manages workers.
The business has transitioned from small to midsize when at least one layer of management has been inserted between the principal and those doing the primary work of the business. The principal has gone from managing workers to managing managers. This may sound like a small change, but it is not. To effectively utilize managers, the principal must delegate decision-making authority to them. This means giving up a measure of control, which is often difficult for entrepreneurs who are used to making every significant decision in the company.
To enable effective delegation, the principal will need to ensure that the appropriate infrastructure is in place. This means making certain that the business has the right managers, that processes are well documented, and that appropriate metrics are in place. The right managers are well trained and carry out the mission and vision of the founder. Well-documented processes are how the principal communicates the way that he or she wants things done. Robust metrics ensure that the principal knows what is going on in the business without having to be there personally.