The Next Business Stage Requires Aggressive Growth

Early-stage entrepreneurs rightly keep their focus on creating an innovative product or service. After celebrating success at that level, they often find themselves ill-prepared to move to the next stage, for scaling their business into a high-performing enterprise. That’s where I see too much entrepreneur burnout, growth plateaus, and Founders being replaced, to their chagrin.

By definition, second-stage ventures generally have 10 to 99 employees and/or $750,000 to $50 million in revenue, and see that as just the beginning. Of course, not every entrepreneur wants to tackle this challenge. According to one study, only 45% of Founders plan to exit after stage one, and my guess is that less than half the remainder survive the next stage in their own company.

If you are one of the many entrepreneurs who aspire to get beyond the “art of the start,” there are some proven principles to follow. I just finished a new book, “Second Stage Entrepreneurship,” by Daniel J. Weinfurter, who has made the leap a couple of times himself, and spent many years consulting with other companies who have done the same. I like the ten steps he defines, which I can summarize here as follows:

1. Seek major capital infusion. Very few startups are cash-rich enough to self-finance aggressive second-stage growth. They need a large infusion from venture capitalists, private equity, bank loans, or mezzanine financing. Of course, that means a new level of risk, giving up some control, and a new business plan. There is no free lunch.

2. Install a real board of directors. Most entrepreneurs are mavericks, and their passion drove their new business. But to scale the business, they need the complementary expertise, experience, connections, oversight, and new capital connections of a formal board of directors. Recruiting, compensating, and engaging the board is a critical priority.

3. Focus on creativity more than smashing competitors. To achieve second-stage growth you need to stay at the top of your creative game, more than a focus on beating competitors. Growth is more than simply repackaging existing products, and adding bells and whistles or slick incentives. Keep delivering something new and fresh.

4. Hire more help than helpers. Smart staffing is a key step to ensure your success at the second stage. In addition to fresh products, you need people smarter than you for real help, with the right combination of skills, experience, and passion to foster and manage new growth. You don’t have the bandwidth to keep filling positions with more helpers.

5. Switch your attention from product development to sales. Second-stage growth usually requires a formal sales model, an experienced and disciplined sales team, and a well-defined process to meet your new goals and demands. These only come with the proper training, investment in tools, and focus on customer relationships.

6. Managing business growth is more than metrics. You can hire the best salespeople, have great products and define good metrics, but without decisive and innovative managers, the sales organization will not reach its full potential. Leaders are needed to coach each salesperson, keep the team on message, and spur new growth and goals.

7. Separate marketing from sales for further leverage. In the second stage, marketing and sales are highly specialized functions. Marketing shapes the concept, branding, packaging, pricing, and positioning. Sales builds relationships, translates needs, makes proposals, and closes the deal. The skills required are complementary, but not the same.

8. Optimize the total customer experience. Successful second-stage companies often create an entire organization devoted to one-on-one relationships with their customers, not just customer service for exceptions. Delivering a superlative experience is the only way to get truly loyal clients, repeat business, and expansion through social networks.

9. Build a winning culture and make it pervasive. In these rapidly changing times, in your own rapidly evolving company, culture will be the rudder that guides your path in a fashion that is consistent with your vision and values. Reinforce the values and operating principles with clear behaviors and guidelines to keep the culture healthy and thriving.

10. Separate management from leadership, and provide both. Leadership is the quality that inspires people to do their best every day. Management guides people in what needs to be done, by creating sustainable and repeatable systems, with education and guidance to make sure all efforts are productive. Neither is effective without the other.

Many startups are family businesses, and these don’t need to be grown into large enterprises. Yet the steps outlined here still have value in building a business that lets you enjoy the entrepreneur lifestyle, and lets you work “on the business” once in a while, rather than “in the business” 24 hours a day, 7 days a week.