I was hosting my radio show, Scale Your Business, when the subject of the life-cycle of a successful business came up, and what the predictable needs were at each stage to scale it were.
Here is a quick summary of the answer I gave on air. Use this level-by-level, stage-by-stage progression to help you accelerate your growth and build a business you can one day sell, scale, or even own passively.
To be clear, in the early years of your business, you’re naturally the main engine driving your business forward.
You’ll wear all the hats at various times, and you’ll have few formal structures and systems within your organization upon which you can truly rely.
But as it matures, you’ll face a crucial decision point at which you can settle for owning a Level Two job or instead choosing to raise your business to be a strong and independent entity that benefits from your involvement but is ultimately independent of it.
Just like your goal as a parent is raising kids who can eventually stand on their own–independent and self-supporting–so your goal is to create an organization with the systems, team, and controls that allow it to stand on its own.
The traditional Level Two approach is for you the owner to work harder, to do more–to work at the job of your business.
The Level Three solution is for you to do less and get your business to do more.
Okay, here is a deeper look at the Level Three Road Map:
Level One: Start Up Business: Planning Your Business and Proving It’s Viable
At Level One, you’re designing and planning your new start-up. You’re gathering your initial team, raising any required start-up capital, and executing your launch plan. Your focus at Level One is to plan your new business and get immediate market feedback to learn if your business concept and model is economically viable. This is a fancy way to say you’ll be testing your product or service to see if you can sell it at a price that allows your business to be profitable.
Level Two Early Stage: Making Your Business Sustainable
Focus: Securing your early clients and becoming profitable.
Leverage Points: Your ability to change and adapt, keeping costs low and your business lean.
Fresh in the marketplace, an Early Stage Level Two business has just started actively marketing and selling its products/services. This is the time to learn your business and market, and if needed, discover and cure any fatal flaws in your business model or in the way your targeted customers perceive the value you’re creating.
Your early focus while launching a business isn’t on building the perfect product or service, but rather on figuring out how you can get people to buy. Too many entrepreneurs get caught in the trap of making the perfect gizmo, but never actually sell that gizmo in large enough numbers to ensure a profit.
Know that at this stage in your business’s growth, you’ll be wearing just about every hat in the business. That’s okay for now, but as you move toward Middle Stage Level Two, you’ll need to find ways to leverage your personal production for the business by hiring staff and building basic business systems.
Remember, an Early Stage Level Two business is working to generate sales, establish a market position, and become a sustainable business.
Level Two Middle Stage: An “Owner Reliant” Company
Focus: Establishing your business’s foundation; building your business’s core systems and structure
Key Leverage Point: Leveraging your time so you can invest at least 20 percent (one day a week) to building your business’s core
Characteristics of a Typical Middle Stage Level Two Business:
- Business revolves around the owner.
- Owner must show up each day or the business suffers from the absence.
- Owner hits a revenue plateau; can’t work any harder or put in any more hours.
- Outside world–especially customers–identify the business with only the owner.
Why do most businesses never make it past Middle Stage Level Two? Because the owners are entrenched in the traditional way of building a business for control and active cash flow based primarily on their personal production. Not only do they quickly max out on personal production, but what’s worse is that every day, more and more of the know-how to run the business gets buried deeper in one person’s head–instead of being captured in processes, procedures, and systems.
Sadly, these typical Middle Stage Level Two business owners stay stuck at the tactical level of doing the job the business requires instead of creating the time and space to step back and build the business itself.
Middle Stage Level Two requires building your core systems, controls, and scalable solutions. The challenge is doing that while balancing the business’s need for you to continue to lead its daily operation. This is a delicate balance between what your business needs today and what it will need tomorrow. Thankfully, you don’t have to figure all this out yourself.
Now that your business is profitable and you’re confident it will survive, it’s time to build your four core systems:
These four systems–for finding leads, closing sales, producing your product or service, and collecting on your receivables–are the four minimum requirements to have a sustainable business.
Level Two Advanced Stage: A “Rapid Growth” Business
Focus: Increasing your capacity and scaling your business
Key Leverage Point: Your key team members’ time, talent, skills, and focus
Characteristics of a Typical Advanced Stage Level Two Business:
- It’s becoming more and more systems driven. (At least one or two of the five main areas of your business are managed by people other than you.)
- Your revenue is starting to climb.
- Your business may feel like it’s bursting at the seams.
One of the key steps at this point in your business’s development is to enroll your team in building the systems, controls, and scalable solutions with you. Rather than regarding the team around you as a form of leverage that magnifies your personal reach and production, instead see them as partners in taking the business to the next level. As management guru Peter Drucker once said, “The founder has to learn to become the leader of a team rather than a ‘star’ with ‘helpers.’”
Reaching Level Three requires finding and enlisting key members to “own” parts of your business. More important, it requires you to let go of control so your business can thrive without you.
Rather than have all roads lead back to and through you like a hub in the middle of a wheel, encourage your team to work with each other directly. Grow their capacity to make their own decisions and take the initiative within the company. Remember, a business dependent on its owner–you–for its success becomes a prison that traps you. Plan for your great prison escape now by building your management team. Before long, you’ll have key leaders in each of the five core pillars of your business: sales/marketing, operations, team, finance, and executive leadership.
In addition, make sure that your leaders and team members have a unified vision of what the business is, where it’s heading, and how you plan to get there. This lets you set clear priorities, assign responsibilities, and hold each other accountable for results.
Level Three: An “Exit Stage” Business: Owning a Business that Gives You Freedom and Control
Focus: To determine your desired exit strategy and clarify your personal role
Characteristics of a Typical Level Three Business:
- The business is run by a competent and winning management team independent of the owner (who may still fill one of the roles, but who has a replacement groomed and ready to step in).
- The business runs smoothly whether the owner is there or not over an extended period of time (based on sound systems, intelligent controls, and scalable solutions).
- Its clients look to the business, not the owner, to fulfill promises.
The 3 Exit Strategies for You and Your Level Three Business:
Exit Strategy 1: Sell
Once you’ve built a Level Three business, you’ve created a valuable asset with clear market value. Selling your company is your way to harvest the equity you’ve built.
Exit Strategy 2: Scale
In the context of exiting, scaling means that you, the business owner, firmly decide to stay actively involved in the business and grow it magnitudes bigger.
It may seem strange to call scaling an exit strategy, but many entrepreneurs who’ve built a Level Three business don’t want to leave or sell it. Rather, they want to grow it to the next level, which we call scaling your business. This means you take a $15 million company and grow it to $150 million or $1.5 billion. This option gives you the greatest financial reward, but it also requires your continued commitment, often over five or ten years or even longer after your business has reached Level Three.
Exit Strategy 3: Own Passively
Once you’ve taken your business to Level Three, you can transition to a more passive role–owning the company without running it every day. If you choose this exit strategy, you’ll enjoy the ongoing cash flow from the business without regularly coming into the office. You’ll still have responsibilities, but from an owner’s viewpoint, not a CEO’s or a manager’s viewpoint.
I hope you use this summary of the life-cycle of a successfully scaled company to help you guide your journey to building a successful Level Three company.
Also, to help you grow your business and get your life back, we just put the finishing touches on a powerful free toolkit which includes 21 in-depth video trainings on how to intelligently scale your company. To access this free toolkit click here. Enjoy.