Growing a business is a journey. Each step requires a different level of investment and a unique skill set.
Building a business is a journey that we often envision but rarely master. The biggest challenge is that building a business requires various stages, each of which is different from the others. A CEO and her leadership team need to recognize the unique needs of each growth stage and ensure that they have the right skills, resources, and assets to persevere through the journey.
We love the idea of building businesses and we embrace the challenges every day. Whether we are working with a big corporation building an emerging business or an investor group building a business through acquisition, the process tends to follow a similar three-step framework.
Horizon 1: Master the Fundamentals
Building a foundation for rapid growth usually begins with the business team identifying what they see as a huge opportunity. When this occurs, the team typically concludes they need to start doing things differently to capture that opportunity. Their framing of the business changes from, "How do I create 5 to 10 percent growth next year?" to "How do I create 200 to 300 percent growth over the next five years?"
After setting this ambition, the team can then begin to identify the initiatives they need to put in place to achieve rapid growth. The low-hanging fruit or "no-brainer" opportunities start to take shape and the business reorganizes around achieving some near-term goals. These initiatives usually don't require major investment. Instead, they involve focusing the existing team and resources. If done right, the fundamental initiatives get the business 10 to 20 percent of the way toward the end goal, while providing an important foundation for growth.
Horizon 2: Invest Toward Sustainability
At this point, the leadership team understands that in order to create a sustainable competitive advantage in its market, it must commit to a significant investment of capital or a major hiring spree. This might involve a major technology investment, an acquisition of a competitor or new product line, and significant additions to the leadership team. These investments create sustainable barriers by giving the business unique abilities to serve customers and prevent competitors from entering or replicating their market power. This investment horizon expends a significant amount of time and resources, but still only gets the business another 20 to 30 percent toward its goal.
Horizon 3: Scale the Business
The real growth comes in the next phase. The business has grown significantly, and might even be called a high-growth business at this point, but it has not likely achieved its full ambition. It's time to utilize the arsenal of investments and the skills the team has developed to execute growth. The team needs to put the right resources in place to flawlessly deliver on its ambition. The result is typically a doubling of the business from the end of stage 2, while capturing 50 to 70 percent of the total growth that occurs from the outset.
Ironically, most of the work of growing a business comes at the beginning of the journey, while most of the benefit accrues toward the end. Most leadership teams don't have the capabilities or the stamina to build the business beyond the first horizon, and as a result, never achieve truly rapid growth. The best leadership teams find ways to create lasting success.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark