Stage Right Make smarter management decisions by knowing what stage your company's in.

For Darlene Pinkowski, all the business world's a stage.When she's mulling over strategies for Actoras Consulting GroupInc., the 20-person Schaumburg, Illinois, management consultingfirm she co-founded, a key question is: What stage of growth isthis business in?

At the start-up stage in 1993, Actoras consisted of twoemployees and an idea. At that point, Pinkowski's goal was togive the company a reason for existence. "The first importantstage was picking our strategy," she says, "who we are,where we want to be, how we are going to get there."

The next two years, the goal was to fine-tune marketing andgenerate sales. After that, with revenues growing consistently, thecompany was ready to move into a new phase aimed at increasingcapacity.

"In 1996, we spent money internally, bringing in moreskilled people and setting up practice areas so we could provideservices across industries," says Pinkowski. "Now in1997, we're back to marketing and sales and, more specifically,recruiting."

Experts in small-business growth say Pinkowski is on the righttrack in trying to relate her management decisions to herbusiness's position in the cycle of growth. The idea is that ittakes different tools to succeed when you're starting out thanit does after you've become more established. Fitting the cycleof a business's life into sequential stages of growth can helpentrepreneurs be alert to problems they're likely to encounter,prepare with the proper skills and resources for each stage, andrealize when old ways of doing things are no longerappropriate.

Growth-Stage Models

The best-known business growth model is L.E. Greiner'sfive-stage model, first publicly described by him in a 1972Harvard Business Review article. Greiner views growth as aseries of changes forced by crises.

In Phase 1, called Growth Through Creativity, Greiner describesa Crisis of Leadership. At this stage, a youthfulorganization's founder must begin to delegate authority andaccept nonfounder managers. Surviving the first crisis propels theorganization into Phase 2, Growth Through Direction, where thecrisis is one of autonomy. Phases 3, 4 and 5 describe growththrough delegation, coordination and collaboration,respectively.

The main problem with Greiner's model from anentrepreneur's viewpoint is that it is designed for largeorganizations. Entrepreneurial stage-watchers prefer to use a modeldeveloped in 1983 by N.C. Churchill and V.L. Lewis, also publishedin the Harvard Business Review.

"This model specifically pays attention to smallbusiness," says Kelin Gersick, co-author of Generation toGeneration: Life Cycles of the Family Business (HarvardBusiness School Press). "It's not just looking back athuge corporations and how they got there."

Churchill and Lewis base their model on Greiner's and, likehim, describe five stages: existence, survival, success, takeoffand, finally, resource maturity. But they concentrate on the early,perilous days when problems of raising cash and delivering productthreaten the company regularly. Their theory is aimed athigh-growth companies with the idea that rapid expansion oftencreates a mismatch between a company's capabilities and itsneeds.

Other models focus on different issues. In 1990, E.G. Flamholzmodeled the process of delegating authority in the book GrowingPains: How to Make the Transition From an Entrepreneurial to aProfessionally Managed Firm (Jossey-Bass). Around the sametime, R.K. Kazanjian identified problems specific to four stages:conception and development, commercialization, growth andstability.

Kazanjian says, for instance, that resource acquisition andtechnology development are critical at first, while internalcontrols are central to the final, stable stage.

The Churchill and Lewis model seems to work best forentrepreneurs. "The thing I like about that model is that theynot only identify five stages but very clearly articulate thecrises that accompany that growth," says Charles Matthews,director of the University of Cincinnati's Small BusinessInstitute. Matthews also finds the model easy for entrepreneurs tograsp.

Matthews teaches students to use the model for analyzing othersmall businesses as well as running their own enterprises. It helpsmainly by suggesting what problems are likely to arise and whereaction may be needed.

An early-stage entrepreneur who had studied Greiner's andChurchill and Lewis' models would not worry much about problemswith internal controls and red tape. Instead, attention would focuson delivering product and raising cash because these are problemscommon to early stages. Indicators like this can make all thedifference to a harried entrepreneur, Matthews says.

"Growing a business is one of the hardest thingsentrepreneurs do," Matthews says. "Things change, and youhave scarce resources, including time. So any tool that helps youprioritize your commitments is valuable."

Model Mapping

Of course, models are only representations of the real world, sothey have their limits. For one thing, the growth path of an actualbusiness is unlikely to exactly follow the graphs used in thesemodels.

"It's not going to be a nice, smooth curve,"Matthews says. And some models, Churchill and Lewis' inparticular, don't even define growth.

Deciding where you are is crucial because many businesses spendextended periods of time in the critical existence and survivalstages, Matthews says. Some never move on, and if a manager in oneof these companies tries to make decisions based on later-stageconsiderations, it could prove disastrous.

The biggest complaint about growth-stage models is that they aretoo general and don't take into account factors important tospecific companies. For instance, the intricacies of family-ownedbusinesses are largely ignored by these models. "Issues offamily dynamics and communication and relationships will shape thebusiness life cycle dramatically," contends Gersick, "andgenerally are not considered in these models."

One key question in older family businesses is whether the nextgeneration of family members has the skills necessary to run agrowing company. The answer to this question may be more importantin deciding whether to bring in professional management thanwhether the enterprise is in the right phase as determined by agrowth-stage model.

Maybe the biggest obstacle to business-growth models forentrepreneurs is they generally don't like them. After all, ifthey'd followed the conventional wisdom, many entrepreneurswould never have created their own ventures in the first place.That's exactly Pinkowski's major reservation.

"I don't think you're going to be able to apply anymodel to a true entrepreneur," Pinkowski says. "We'reall visionaries."

Growth Curve

Models of business growth are taught in most college-levelentrepreneurial courses and are frequently referred to bymanagement consultants when deciding on courses of action torecommend to their clients. Even with all their limits, however,business-growth models can be helpful in providing snapshots of theproblems likely to fill an entrepreneur's viewfinder.

Pinkowski doesn't feel her business fits any modelparticularly well, but she still uses the image of a businessgrowing through stages to help her strategize. For instance, afterdealing with marketing and sales in 1995 and capacity issues in1996, she's now facing marketing once again as a criticalconcern. And she welcomes the growth, whether it fits a model ornot: "Hopefully," she says, "in 1998 we can keepthat going."

Mark Henricks is an Austin, Texas, writer specializing inbusiness topics.

Contact Sources

Actoras Consulting Group Inc., 935 N. Plum Grove Rd.,Ste. A, Schaumburg, IL 60173, (847) 517-4448;

Kelin Gersick, c/o Lansberg, Gersick & Associates,100 Whitney Ave., New Haven, CT 06510, (203) 497-8855.