One of the key discoveries to come from our research is that there are seven stages of business growth. The most accurate determinant of the characteristics of a business ecosystem—the best way to offer growth guidance to companies—is not industry, the age of a company, or the revenue generated, but is rather the number of employees in a business. This is because the complexity of the organization is driven by the number of people in the company.
The Stages of Growth clarifies the optimal number of managers and leaders for a business.
Stage 1 is the Start-up Stage, with 1 to 10 employees. In a Stage 1 business, the management team is typically just the CEO. Then, as the organization heads into Stage 2, with 11 to 19 employees, the CEO needs to be developing one to two managers to support the increased number of employees.
In Stage 3, the number of managers needs to double from Stage 2, with three to five. Stage 3 is all about delegation. This marks a critical turning point for the organization.
Stages 1 and 2 are owner-centric Stages. In these Stages, the organization revolved around the owner, but Stage 3 marks the beginning of an Enterprise-Centric organization—one that can stand apart from the owner—and that’s done through Delegation, which is the theme for Stage 3.
In Stage 4, with 35 to 57 employees, the focus is on professionalizing the Management Team that began to be established in Stage 3. At this point, the Management Team should include six to ten managers and two to three executives. One of the most important things this professionalized management team does in Stage 4 is invest in the systems and processes of their departments to establish the foundation the organization needs to support future growth.
The efforts in Stage 4 often create a siloed organization because the managers are stepping up and taking more formal ownership of their departments or functional areas of the business. Stage 5, with 58 to 95 employees, is all about Integration. Here, with 11 – 16 managers and four to five executives, the organization is tasked with a focus on Integrating these silos. In this integration, another important transition occurs.
Stages 3 and 4 are really the Enterprise-Centric Stages led by a Management Team. Stage 5 marks a transition. As the professionalized, siloed managers of Stage 4 come together to create an integrated team in Stage 5, a Leadership Team is formed with four to five executives.
The Leadership Team established in Stage 5 then sets up the organization for Stage 6, the Strategic Stage. In this Stage, the Leadership Team should include six to eight executives, supported by 17-26 managers.
By Stage 7, the Leadership Team should have grown to 9 to 15 executives—who are now running the business day-to-day—and be supported by 27 to 45 managers. The focus of this stage is recapturing the innovation the organization had in earlier stages to keep it from becoming stagnant.
Stages 1-2 are owner-centric; the CEO is leading the team. In Stage 3, the organization transitions to enterprise-centric, with the addition of a Management Team. In Stage 5, that Management Team expands into a formalized Leadership Team.
This framework serves as the ideal for businesses to follow, with the management and leadership teams growing in proportion to the needs of the organization. In reality, however, many leaders miss these transitions. The business grows, but the management team does not, resulting in businesses in Stages 3 and 4 routinely having a management team that is too small. These businesses are still owner-centric, the CEO is stretched way too thin, and is either burnt out or headed in that direction at a rapid pace.
Stage 6 and 7 businesses often do not have a leadership team. The CEO is still stretched too thin, occupied with managing managers, not doing what the business really needs them to—dedicating energy to the strategic vision and planning for the business.
In any of these instances where the organization is out of alignment with the ideal level of management and leadership teams, the business stagnates; the management team can’t handle the growth. Understanding these foundational concepts—owner-centric versus enterprise centric, and when a management team needs to birth a leadership team—is a first step in the right direction to ensure leadership is growing proportional to the business.
The concepts from this article were taken from Strong Management Team: Leading with a shared vision and common language. Available through The ReWild Group and Amazon, the book explores in-depth this and other concepts while providing illustrations to help business leaders incorporate the ideas into their organizations. Get your copy today to start benefiting from a Strong Management Team in your company.