Growth and stall trends occur regardless of the size of your business, what industry or sector you operate in or your location.
All businesses go through predictable stall points. We call these black holes due to the fact that businesses can disappear into them for many years.
For SMEs that delay can be catastrophic. Understanding these black holes, and what happens in between, helps founders to see why they get stuck and what to do to jump into far bigger growth.
We also know there are four trend cycles that occur between each black hole. If it takes two years on average to transition a cycle – and there are four cycles between black holes – you’ve added eight years to growing a business. Understanding these cycles earlier will mean you can move the business forward faster, or perhaps sell it eight years earlier.
Why do these black holes occur?
Most are due to inadequacies in the underlying organisational structure, but there are other factors such as neglecting to expand infrastructure and services, like training, accounting and legal, in parallel with core growth that can also tip businesses into a black hole.
Where do they occur?
Black hole No.1: 80k
The first black hole occurs at 80k, usually when you recruit your first employee. Given the size of the change, some people decide to stay within the 80k self-employed bracket rather than tip into 80k+ and start building their business. This black hole is the first point at which many businesses end up spiralling round and round.
Black hole No.2: 750k
750k is the point at which people have typically built up to seven employees, each reporting to the founder.
There’s no business leverage without reporting lines, yet this idea often puts owners into a quandary. ‘I need someone who can sell/manage staff/service clients like me. But I don’t think anyone is else is quite good enough!’
If the ‘someone else’ is good enough, then as the owner you will have to consider releasing equity. It’s another big structural change and not everyone wants to make it. A business can grow quite nicely year-on-year until it hits 750k, only to spiral round this black hole for several years.
Black hole No.3: 17m
At 17m a business is moving from an enterprise to a corporatised company, which is another massive shift. Managers in this size of business might consider creating a board with a non-exec director, and implementing structural changes to release the founder from day-to-day management. The organisation will usually develop corporate-styled systems such as diligence, compliance and governance. It also formalises its processes, procedures and documentation.
At 750k the business couldn’t grow further without taking on more people. Now it can’t get bigger without corporatising.
Black hole No.4: 170m
At 170m the business’s markets will shift from small deals because the only way to reach the big numbers is to go global and/or partner with other corporations.
Everything has to up-scale and by 170m the corporation is dealing with banks at a very senior level. It now needs effective supply chains and channels to market. Some people will resist this move and say things like, ‘Our client base has changed completely in the last 10 years. We used to have a lot of small stuff on the books and now it’s all big deals. I liked it better before.’
Big deals differ significantly from small deals and require a different skill set to move into major corporations or operate on a global stage. Businesses at this size need far more infrastructure investment such as improved technology, enhanced HR provision and so on.
170m is a critical point because there’s no turning back from becoming a corporate once you’ve pressed the button. At this stage, the CEO owner/founder can’t be running the business day-to-day because their role is on the global stage. Instead they should let the heads of business lines run their businesses. And now that there are senior non-exec directors on the board, they can sack the CEO if they want.
If this period is handled well the business will hit 220m and continue to fly.
Black hole No.5: 700m
A 700m business is transitioning one of the biggest business chasms because the next important number is 1.2bn. Adding 500m to a 700m business is an immense step requiring major structural changes.
While the CEO of a 300m turnover business is still close to that business, the CEO of a 1.2bn or 3bn business is no longer managing downstream personnel. Instead of the usual CEO-business interaction this CEO will be managing many other CEOs – a different job entirely.
Find out how to manage your business’ black holes
It doesn’t matter whether you’re just starting out, can already see a black hole looming or you’re currently in the depths of one, Shirlaws IP, frameworks and proven methodologies can guide you and your business through to accelerated growth. Join us at a Discovery Session or get in touch to discuss your business and its requirements further.