Road Blocks to Growth – Hitting the 5 Million Dollar Wall

By: Bob De Contreras

 

There are several milestones where companies “hit the wall” and start a backward slide of losing clients, dropping revenues, and encountering significant morale issues.  Often companies hit the first wall around five million dollars in revenue.  It happens over and over again.  CEOs read about it, are warned about it, and yet their companies hit the wall and start the downward slide.

What is it and how does it happen?  It’s caused by increased sales, growing staff size, greater customer support demands, and the inability of the entrepreneur to transition control of business operations to the new organizational structure.  The entrepreneur CEO and founding executive team typically make all the decisions and touch all the clients, employees and vendors.  But, as the company grows beyond five million dollars in revenues, that is no longer possible.  Delegation of responsibility and authority to a new layer of management and trusting someone else to make the business decisions is a difficult transition for the executive team.

 THE PITFALLS

The CEO is often trapped into holding control of the decision making because growth issues have probably consumed the time necessary to plan for and make changes.  These missed changes fall into two key areas – process development and delegation.  The short list of issues includes:

  • The company culture was never set to empower managers and employees to take charge and fix situations before they became issues.

  • Building an infrastructure that scaled with company growth was not a priority.

  • Work flow and work processes were never put in place or never documented so employees could follow them.

  • Management was never trained or incented to delegate and the employees were never trained to accept the delegation of authority and responsibility.

  • Company decisions were all based on tactical criteria – seldom if ever based on strategic criteria.

  • Customer support was not a priority.

  • Customer satisfaction was never measured.

  • Employee training was never a priority of the company.

  • Employee development was never a priority of management.

  • Employee satisfaction was never a concern.

  • The hiring managers didn’t have the training to differentiate the good hires from the bad.

  • An organization growth plan was never put in place to address employee growth issues.The company couldn’t afford to pay salaries high enough to attract quality employees. – Delete (I have not personally seen this as a significant contributing factor to this problem)  

 

STRATEGIES TO AVOID THE PITFALLS

The list above should look familiar to you.  You have seen it just as we have.  So, what are you going to do about it?

Go back to first base.  Remember when you were thinking about starting the business?  What did you do?  You sat down and started writing a business plan.  That business plan is more important now than it was when you founded the company.  But, what’s more important now is to have an operational plan that deals with the items in the bullet list above.

Your operational plan now has to consider a more complex organization and how departments interact and coordinate.  The operational plan documents specific roles and responsibilities for management and staff.  If it’s not documented, no one will know what to do or how to do it.  The operational plan documents process and management delegates based on guidelines in the plan.

The sales strategy in the business plan looks totally different now.  In the beginning the CEO was doing all the selling.  Today there is a sales executive and several sales staff.  Now the business plan has to address sales support, shared accounts, territory management, contact management, incentive compensation plans – process, process, process.  Without process control everyone “does their own thing,” which limits the ability to control the sales process and effectively forecast.

The marketing strategy in the business plan is also different.  The original marketing strategy was most likely a marketing communications plan.  Now the marketing strategy has to be more focused on marketing communications, product marketing (product planning), lead generation, and driving the company’s advantages in the market place.

The company culture is decided at the top.  Therefore the CEO must drive the culture by leading the management team to support the culture by leading-by-example.  Start or improve the focus on personnel development and the importance of employee satisfaction.  Things that were never considered when the company was founded are now critical to the company’s success.  This includes employee development, performance management, career development, employee benefits, health care, time off, vacation time, 401K, profit sharing, stock ownership and believe it or not, the window office.

Leadership by example is now more important than ever in the life of the company.  The managers will never delegate to their staff, if the CEO does not delegate to them.  And, the other edge to the double edged sword is that if the staff is not trained you will never be able to delegate to them.  Training is always the first budget to get cut and always the one that should never be cut.  If revenue is the life blood of the company, then the staff is heart that pumps that blood.  The company can’t live without either.

Priorities have changed now.  The CEO can no longer run the business and make business decisions “by the seat of the pants.”  Decisions are more complex and the input and advice of the senior management team is critical to successful CEO decision making.  In the beginning the CEO was the expert because it was a new business and the CEO was shaping the business.  Now the business is shaped, the market chosen, the customer base built and the person closest to the client, the market and most knowledgeable to make a decision is most likely one of the senior managers – NOT THE CEO.  “Group think,” brainstorming, team work, market research, competitive analysis are all required to make a sound decision where before “gut feel” was good enough.  Did Lee Iacocca turn Chrysler around?  No, he led his team to make some better decisions and bring a higher quality product to the American public.  It took hundreds of people from design, engineering, manufacturing, marketing, sales and advertising working together to make it happen. 

In summary, to avoid “hitting the wall,” you need to go back to basics. Create processes that support and encourage your ability to scale the business, hire quality employees, provide training, foster team work, encourage delegation, and support the employees’ needs.  Something to remember is that the CEO and founding executive team pushed the company to the first $5 million and the employees push it forward to the $20 million level.  Start working now, because the next wall you are going to hit is just around the corner at a hundred million dollars in revenue.

 

 

 Road Blocks to Growth – Hitting the 5 Million Dollar Wall Case Study

 By: Bob De Contreras

 

I once worked with a twenty million dollar company.  The company was US based but looking to expand to international sales.  The company developed and sold software for the banking industry and had grown to the twenty million dollar mark in just three years.  The CEO made “every” decision in the company.  He chose the colors on the next marketing brochure; he made the decision on sales strategy; he prioritized the product enhancement plan; he negotiated sales contracts; he chose the office furniture; and the list goes on and on.  The company had over 200 employees, 5 senior executives and a score of middle managers in offices around the country. 

Funding growth from revenues had not been a problem in the past, but now this CEO wanted to take the business worldwide.  This was going to take significant investment dollars.  It meant opening offices and hiring many new employees in other countries.  The company management was concerned about organization and how to manage or coordinate worldwide operations.  The CEO was worried about how he was going to be able to continue to make all the decisions in a company with worldwide operations.

Fortunately this CEO was a forward thinking entrepreneur who constantly read business books to learn better management techniques.  This prepared him to listen to our advice and the advice of other business advisors he used.  First he decided that if he was going to lead his company to future growth and success as they opened operations around the world, he would have to delegate management authority.  He decided to hire two general managers – one for Europe and one for Asia.  He decided to bite the bullet and hire high caliber talent and delegate local operations totally to the general managers.  That meant that they would have their own sales, marketing, and administration executives in their territories.  The three geographies (US, Europe and Asia) would run as independent organizations with the three general managers reporting to the CEO.

This was a bold move for this CEO to take.  It was not an easy decision for him to make, nor to live with.  The general managers were hired and put in place with their staff.  The CEO then quickly changed his focus to how he would manage and coordinate the operations of these three entities.  He then made several more decisions that were difficult to make because of the cost but critical to the success of the company transition.  Training was kept as a central corporate function so that the entire worldwide organization would be “singing out of the same book.”  Sales and consulting processes were developed and decided centrally in the corporate organization.  Then a single, consistent sales and consulting training program was rolled out to the world.  It took over a year to complete the training as the employee base grew to over 400 employees. 

The CEO implemented a consistent worldwide management reporting system that was also developed centrally out of the corporate office.  Company wide measurements, reporting, strategies, and incentives were all consistent worldwide even though all management had been delegated to the three general managers. 

The CEO also implemented a centralized support organization in the corporate office for the coordination of sales, consulting, marketing and advertising programs.  This corporate function was responsible for documenting all processes, procedures, measurements and reporting.

At this point the CEO had come full circle and had at his disposal the tools to keep informed and restart his ability to make worldwide, company wide decisions based on up to date information and a strong support organization staff.

This company did not hit the twenty million dollar wall.  They didn’t hit the twenty million dollar wall because this CEO was forward thinking and willing to set his personal need behind the needs of the business.  The reward was a company that grew from zero to $117 million in five years with over 800 employees around the world and products installed in every major bank in the world.

With trust, quality employees, and solid management techniques you can do it too.

 

Brought to you by:                                                         [BACK]

            Bob De Contreras                                                  
            Rich Kramarik                                                     

 

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