A few days ago I wrote about the transition from a small to medium to large business. I had a few people write to me with additional questions, including requests to define the sizes, talk more about the issues during the transition, and make suggestions about how to address things. One of the notes came from a long time friend – Barry Culman – who is currently the president of SPADAC (Spacial Data Analytics Corp.) I’m not involved in SPADAC, but Barry shared a framework that he used recently at a management retreat to explain his view of the evolution of a company. Following is a quick summary of the stages according to Barry.
Birth
- Idea created
- Product or service utilized to deliver idea
- All energy on creation
- Leader is the core driver of revenue
- No process or structure
- Project or products – not a business
Teenager
- Add overhead and infrastructure
- Grow revenue base
- Leader comes “in-house”
- Cash is King
- High energy
- All executives involved in all parts of the business
- Everyone feels like “I know what’s going on”
Young Adult
- Add process and structure
- Profitability dips
- Must determine “who we are” / what do I want to be when I grow up
- Leader is an evangelist
- Separation of duties
- External funding
- Loose budget
- People issues being to appear
Adult
- Answer to board / investors
- Tight budget controls
- Consistent processes
- Leader deals with external forces
- Business is in a steady state
- Emphasis on managing people
Senior Citizen
- Death or Rebirth
While I don’t necessarily agree with every aspect of this and would likely cast some of it differently – especially based on the type of company (e.g. bootstrapped or venture backed), I think Barry’s framework is great and I appreciate him letting me share it with you.
Posted in: EntrepreneurshipCOMMENTS (3)
Would love to hear your ideas around how this process changes if it's bootstrapped versus venture-backed. Maybe worthy of a third post on the topic?
I second that the change in procces in regards to funding type. Non sequitur alert: did you see the article in thge NY Times today about dehydration and cramping?
, November 3, 2006 4:36 PM
Brad--
For venture-backed companies, I have found it useful to divide them into four distinct development stages: (1) seed funding and product development; (2) early commercialization; (3) late stage expansion; and (4) exit through either an acquisition or an initial public offering (“IPO”).
Stages (1) and (2) equate to what is classically defined as Early Stage, but an important distinction needs to be made here because the point at which CEO change is most likely to occur is precisely during this transition from produt development to early revenues-- hence the research that Noam Wasserman of HBS and others (including me) have have done on this difficult transition period.
Through this evolutionary process, VC backed company boards are also naturally exposed to various situations that raise endemic conflicts of interest among board members. As companies grow in size and invested capital, board sizes typically increase from 3 members to as many as 7. The composition of the board also changes to include more independent directors, particularly if the company wishes to go public in the late stage.
Pascal
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