Do you run a growing, thriving company, or have you become a lifestyle business? Dont know what I mean? According to 2007 CEDIA Management Conference instructor Leslie Shiner, a lifestyle business is what your company becomes once you reach a comfortable income level and make the conscious decision to stop growing. Not that theres anything wrong with that.
Shiner, a management guru who has been an invaluable addition to our industry, pointed out that running a lifestyle business is a perfectly respectable career decision. Thats not to say, however, that a more ambitious growth strategy cannot be profitable, even in the challenging world of custom installation.
In Shiners seminar at the very insightful CEDIA event last month in Florida, she described how most small businesses grow quite well in their first year, but then get stuck at a plateau for the next four years before finally breaking through the barrier. The big question is, if you dont want to run a lifestyle business, then how do you make it over the hump? First, of course, you must carefully manage your growth; if you want to make more money, you do not want to grow at the expense of your profit.
Shiner cited a Harvard Business Review study, called Stages of Small Business Growth: Existence, Survival, Success, Take Off, Resource Maturity, to make her case. Even though this growth pattern starts to sound a little too much like the 5 Stages of Grief or AAs 12 Steps, it is a useful roadmap for your business. The key, Shiner said, is identifying what stage your business has reached, so that you can understand whats needed to move to the next level.
In a nutshell, the existence stage typically features a business based on finding customers and turning a profit. The owner does everything, and there is no strategic planning. A company like this is only one or two bad jobs from going out of business. Profit is accidental. The number-one priority is cash flow.
During the survival stage, the owner still does everything, but has started developing systems. Theres still no long-term strategic planning, but the owner is trying to understand the relationship of revenue to expenses. The company can be profitable (by accident) without a defined or repeatable process.
The success stage represents the proverbial fork in the road. Does the business owner choose success disengagement or growth? Shiner defines success disengagement as the moment when an owner finally hires functional production and installation managers, while still ruling the roost himself. When something goes wrong, however, the owner reverts back to old micro-managing habits. On the other hand, a confident owner can just as easily maintain faith in his team, realizing the importance of focusing on and committing resources to growth. This is a time for extensive strategic planning and forecasting. Its important for the owner to treat his staff like his company is bigger, and that takes more capital and a call to the bank to establish a line of credit.
During the take-off stage, company growth is significant. The owner further delegates to his managers, though hes probably still out of his comfort zone, and will either slide back or keep going.
Once a company reaches the resource majority stage, profit is finally based on the process and not the people. There is full accountability for everyone on staff, yet the company will fall back to the previous stage if delegation is not successful, or if it grows too fast, managers dont understand costs, or cannot keep up with volume. At this point, the owner cannot be mired in the day to day.
Shiner admits that a plateau point for any one business can be affected by geographic factors, the mix of subcontracted vs. self-performed work, average job size, and type of equipment sold. Nonetheless, there are some key points that can typically keep a small company moving forward, even as it hits each plateau.