Road Blocks to Growth – Hitting the 5 Million Dollar Wall
By: Bob De Contreras
There are several milestones where companies “hit the wall” and
start a backward slide of losing clients, dropping revenues, and encountering
significant morale issues. Often companies hit the first wall around five
million dollars in revenue. It happens over and over again. CEOs read about
it, are warned about it, and yet their companies hit the wall and start the
What is it and how does it happen? It’s caused by increased
sales, growing staff size, greater customer support demands, and the inability
of the entrepreneur to transition control of business operations to the new
organizational structure. The entrepreneur CEO and founding executive team
typically make all the decisions and touch all the clients, employees and
vendors. But, as the company grows beyond five million dollars in revenues,
that is no longer possible. Delegation of responsibility and authority to a new
layer of management and trusting someone else to make the business decisions is
a difficult transition for the executive team.
The CEO is often trapped into holding control of the decision
making because growth issues have probably consumed the time necessary to plan
for and make changes. These missed changes fall into two key areas – process
development and delegation. The short list of issues includes:
The company culture was never set to empower managers and
employees to take charge and fix situations before they became
Building an infrastructure that scaled with company growth
was not a priority.
Work flow and work processes were never put in place or never
documented so employees could follow them.
Management was never trained or incented to delegate and the
employees were never trained to accept the delegation of authority and
Company decisions were all based on tactical criteria –
seldom if ever based on strategic criteria.
Customer support was not a priority.
Customer satisfaction was never measured.
Employee training was never a priority of the company.
Employee development was never a priority of management.
Employee satisfaction was never a concern.
The hiring managers didn’t have the training to differentiate
the good hires from the bad.
An organization growth plan was never put in place to address
employee growth issues.The company couldn’t afford to pay salaries high
enough to attract quality employees. – Delete (I have not personally seen
this as a significant contributing factor to this problem)
STRATEGIES TO AVOID THE PITFALLS
The list above should look familiar to you. You have seen it
just as we have. So, what are you going to do about it?
Go back to first base. Remember when you were thinking about
starting the business? What did you do? You sat down and started writing a
business plan. That business plan is more important now than it was when you
founded the company. But, what’s more important now is to have an operational
plan that deals with the items in the bullet list above.
Your operational plan now has to consider a more complex
organization and how departments interact and coordinate. The operational plan
documents specific roles and responsibilities for management and staff. If it’s
not documented, no one will know what to do or how to do it. The operational
plan documents process and management delegates based on guidelines in the plan.
The sales strategy in the business plan looks totally different
now. In the beginning the CEO was doing all the selling. Today there is a
sales executive and several sales staff. Now the business plan has to address
sales support, shared accounts, territory management, contact management,
incentive compensation plans – process, process, process. Without process
control everyone “does their own thing,” which limits the ability to control the
sales process and effectively forecast.
The marketing strategy in the business plan is also different.
The original marketing strategy was most likely a marketing communications
plan. Now the marketing strategy has to be more focused on marketing
communications, product marketing (product planning), lead generation, and
driving the company’s advantages in the market place.
The company culture is decided at the top. Therefore the CEO
must drive the culture by leading the management team to support the culture by
leading-by-example. Start or improve the focus on personnel development and the
importance of employee satisfaction. Things that were never considered when the
company was founded are now critical to the company’s success. This includes
employee development, performance management, career development, employee
benefits, health care, time off, vacation time, 401K, profit sharing, stock
ownership and believe it or not, the window office.
Leadership by example is now more important than ever in the life
of the company. The managers will never delegate to their staff, if the CEO
does not delegate to them. And, the other edge to the double edged sword is
that if the staff is not trained you will never be able to delegate to them.
Training is always the first budget to get cut and always the one that should
never be cut. If revenue is the life blood of the company, then the staff is
heart that pumps that blood. The company can’t live without either.
Priorities have changed now. The CEO can no longer run the
business and make business decisions “by the seat of the pants.” Decisions are
more complex and the input and advice of the senior management team is critical
to successful CEO decision making. In the beginning the CEO was the expert
because it was a new business and the CEO was shaping the business. Now the
business is shaped, the market chosen, the customer base built and the person
closest to the client, the market and most knowledgeable to make a decision is
most likely one of the senior managers – NOT THE CEO. “Group think,”
brainstorming, team work, market research, competitive analysis are all required
to make a sound decision where before “gut feel” was good enough. Did Lee
Iacocca turn Chrysler around? No, he led his team to make some better decisions
and bring a higher quality product to the American public. It took hundreds of
people from design, engineering, manufacturing, marketing, sales and advertising
working together to make it happen.
In summary, to avoid “hitting the wall,” you need to go back to
basics. Create processes that support and encourage your ability to scale the
business, hire quality employees, provide training, foster team work, encourage
delegation, and support the employees’ needs. Something to remember is that the
CEO and founding executive team pushed the company to the first $5 million and
the employees push it forward to the $20 million level. Start working now,
because the next wall you are going to hit is just around the corner at a
hundred million dollars in revenue.
Blocks to Growth – Hitting the 5 Million Dollar Wall Case Study
Bob De Contreras
I once worked with a twenty million dollar company. The company
was US based but looking to expand to international sales. The company
developed and sold software for the banking industry and had grown to the twenty
million dollar mark in just three years. The CEO made “every” decision in the
company. He chose the colors on the next marketing brochure; he made the
decision on sales strategy; he prioritized the product enhancement plan; he
negotiated sales contracts; he chose the office furniture; and the list goes on
and on. The company had over 200 employees, 5 senior executives and a score of
middle managers in offices around the country.
Funding growth from revenues had not been a problem in the past,
but now this CEO wanted to take the business worldwide. This was going to take
significant investment dollars. It meant opening offices and hiring many new
employees in other countries. The company management was concerned about
organization and how to manage or coordinate worldwide operations. The CEO was
worried about how he was going to be able to continue to make all the decisions
in a company with worldwide operations.
Fortunately this CEO was a forward thinking entrepreneur who
constantly read business books to learn better management techniques. This
prepared him to listen to our advice and the advice of other business advisors
he used. First he decided that if he was going to lead his company to future
growth and success as they opened operations around the world, he would have to
delegate management authority. He decided to hire two general managers – one
for Europe and one for Asia. He decided to bite the bullet and hire high
caliber talent and delegate local operations totally to the general managers.
That meant that they would have their own sales, marketing, and administration
executives in their territories. The three geographies (US, Europe and Asia)
would run as independent organizations with the three general managers reporting
to the CEO.
This was a bold move for this CEO to take. It was not an easy
decision for him to make, nor to live with. The general managers were hired and
put in place with their staff. The CEO then quickly changed his focus to how he
would manage and coordinate the operations of these three entities. He then
made several more decisions that were difficult to make because of the cost but
critical to the success of the company transition. Training was kept as a
central corporate function so that the entire worldwide organization would be
“singing out of the same book.” Sales and consulting processes were developed
and decided centrally in the corporate organization. Then a single, consistent
sales and consulting training program was rolled out to the world. It took over
a year to complete the training as the employee base grew to over 400
The CEO implemented a consistent worldwide management reporting
system that was also developed centrally out of the corporate office. Company
wide measurements, reporting, strategies, and incentives were all consistent
worldwide even though all management had been delegated to the three general
The CEO also implemented a centralized support organization in
the corporate office for the coordination of sales, consulting, marketing and
advertising programs. This corporate function was responsible for documenting
all processes, procedures, measurements and reporting.
At this point the CEO had come full circle and had at his
disposal the tools to keep informed and restart his ability to make worldwide,
company wide decisions based on up to date information and a strong support
This company did not hit the twenty million dollar wall. They
didn’t hit the twenty million dollar wall because this CEO was forward thinking
and willing to set his personal need behind the needs of the business. The
reward was a company that grew from zero to $117 million in five years with over
800 employees around the world and products installed in every major bank in the
With trust, quality employees, and solid management techniques
you can do it too.
Brought to you by:
Bob De Contreras
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