In the October edition of the HTG Way I introduced this three part blog series on Growth. In this first post we are going to explore four different types of companies and the owner mindset of each in regard to growth and value. The next post will cover the different types of growth. And finally we’ll look at some of the obstacles that will be in your path if you choose to grow your company.
Let’s dive in to discussing four types of companies as they pertain to Growth.
- Indentured Servitude
Does that sound harsh? The sad truth is that this descriptor fits this first type of company only too well. Owners in this category sacrifice everything in exchange for little or nothing. They may work for years without taking any money out of the company in salary or dividends because there is no profit to take. They trade life in an attempt to get the company to grow but don’t intentionally follow sound business practices and thus seldom get anywhere. After years of trying they finally stop and realize they would be far better off if they simply had a job and were paid fairly for what they know and do. They haven’t been paying themselves that way, so they throw in the towel and attempt to sell a business that has little to no value.
This kind of company sometimes gets a bad rap but actually should be considered a good option if it is an intentional choice, not an accidental outcome. These owners prefer to avoid the headaches that inevitably occur with increases in staff size and all the other factors related to growth. Many small business owners choose to maintain their operations at a certain level because it enables them to devote time to family and other interests that would otherwise be allocated to expansion efforts. If done right, they will be paying themselves well and have life/work tension under control. Their company is not likely to have a huge valuation when they are ready to exit, but they’ve paid themselves well and had the lifestyle they desire along the journey. This type of company can often have less stress and financial risk and provide a healthy and handsome reward enjoyed across the owner’s lifetime.
- Traditional or Logarithmic Growth
This type of company is the most typical of those I find that grow beyond $1M in revenue. They often struggle with the key areas where companies tend to plateau and stall in the growth journey:
- Building a sales engine – which includes consistent marketing that drives lead generation and dependable pipeline
- Effective systematic planning and budgeting that enables disciplined financial and operational management
- Building a predictable service delivery engine (process)
- Creating a leadership structure that supports growth
- Focus on building relationships with vendors/distribution/partners in order to leverage their investments to drive business
They tend to stall out around $5M and while they can provide a consistent profit that fuels payroll and a stable salary, it is a long grind it out game. If managed well, these companies can build a healthy business valuation over time, but there is no quick return or rapid spike in value. Steady and slow, they grow until they hit a plateau that stalls them.
- Exponential or Hockey Stick Growth
Of course, everyone wants this kind of company. That is, until they realize what is involved in truly owning and leading a high growth company. This kind of company is filled with change and a willingness to take risk. The key differentiator is often their ability to leverage external growth and build relationships that can help fuel that activity. They discover how to take advantage of the sales and marketing engines of others to help drive their own growth rather than trying to build it all on their own. It takes time to get started down this path but once the engines get going the company is off to the races and owners are hanging on as they adapt to constant change. Business valuation can be significant here if the growth is profitable and strategic.
Any of these last three company growth models is a good option. The only exception is the first one. The sooner someone in that position discovers their situation and can transition to a job working for someone else, the better their future and life will be. Far too many who fall into that indentured slavery type of company trade life for little or no return beyond the satisfaction they may have gotten in trying to run and grow their company.
Which company do you run? Which type of growth do you aspire to for your company? What are your reasons for running the type of company you do? All of these questions and more will serve you well as you consider your mindset around growth and set off on the journey that best fits your goals for your company.