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On reflection I think I may have jumped the gun (by no means for the first time) with my last post: urging entrepreneurs and their senior teams to learn how to plan holistically, rather than strategically. Many don’t yet do the latter.

But, just as you a growing business needs the structures and processes of the next stage now, the entrepreneur needs the thinking and planning style that will take them through a looming transition to the next phase of growth.

As a way into this topic, let me share with you a diagram from a recent presentation I made at the UK government’s  Department of Business, Innovation & Skills (BIS)

The terminology here arose out of a somewhat bleary-eyed yet energised New Year’s Eve morning I spent with NESTA’s Jon Kingsbury thrashing out our respective approaches to supporting creative businesses. I’m the first, especially when I’m running positioning or branding workshops, to cry ‘don’t wordsmith’, usually in a desperate attempt to maintain focus on the content and not the expression. It’s one of those recurring human traits; to feel much more comfortable pushing words around into near-perfect shapes than pushing the sense of something into a semblance of meaning. My only excuse for breaking the rule on the last day of last year is that: a) it took no time at all and b) we’d already generated so much flipping meaning that I am still working my way through it.

In trying to find a neat way of characterising three recurring early stages of business growth, we certainly weren’t going to attempt to reinvent ‘start-up’ and the idea of a ‘grown-up’ enterprise seemed to fit the ones that had got through the worst bit. (by the way, those indicative team sizes below the transitions are just one loose way of defining the stages – it is just as easy to mark them by ball-park turnover numbers). It was JK who coined ‘stay-up’: not only did it fit the format we’d established with the other two; it captured graphically the plate-spinning, hamster-wheeling, Groundhog-Day state of running to stay still that seems to be a dominant feature of this stage. It describes the state of the business, the implicit strategy, the focus of the leader – and probably their sleep pattern. The MD’s number one question, while they’re in it, is ‘how do I get out of it?‘ (see an earlier post: ‘The Reluctant MD‘)

Having given JK his (well-deserved) 15 minutes, I want to focus on the three transition points, those junctures where (I’m oversimplifying to the point of caricature here):

– the individual freelance or sole trader (who often mistakenly thinks they’re already a business, just because they have a limited company) begins to build a workload and team bigger than they can handle on their own

– the initial team grows beyond the point where they can all sit around one big table, in a single room, and everyone can keep up with what’s going on by earwigging, so an informal ‘mate-y’ style of team management and communications becomes less effective at getting the work out the door

– the ‘Reluctant MD’ may be reaching their limit and the organisational structure (which resembles an upright dumbbell, flat at the top and the bottom, thin in the middle) , production and business processes are creaking at the seams.

Each transition the business inevitably goes through requires a parallel transition in the mindset and management repertoire of the leader or leaders. Einstein’s “We can’t solve problems by using the same kind of thinking we used when we created them.” becomes less of a pejorative and more a statement of plain fact. The thinking, before anything else, needs to change.

It’s not easy to do that by yourself, to yourself. It’s no accident that Einstein used the active verb ‘using’; we don’t have to possess the new thinking ourselves, we just need to use it. So we could learn it, or get it from somewhere or someone else and apply it. If we express Einstein’srule in a different way, from the entrepreneur’s point of view, it might say ‘ You can’t solve problems [of negotiating one of these transitions] by being and behaving the way you did as you built towards this point.’

Each successive watershed demands the entrepreneur expands their management bandwidth, their strategic management skills. Their operational management expertise, that enables them to run the business they have right now from day to day, is good enough to maintain the status quo; it becomes seriously challenged when called upon to envision where to go beyond an endless repetition of the day to day and to then figure out how to get there.


Much as every entrepreneur would like to think their business is unique, certain patterns recur when companies grow. There are recurrent watersheds that an enterprise must cross as revenues and team expand. They happen to everyone and there’s no way to avoid them.

These milestones along the path of growth occur when the organisation reaches certain sizes – roughly speaking at 10-12 people, 30-35 and about 120. I’m told by another serial CEO/non-exec that the one after that happens around the 300 mark, though I’ve not personally been there.

Each of these staging-posts signals that the structures and processes which sustained the business up to this point are not the ones it will need in the next phase, after the watershed. I’ll put it more strongly; those structures and processes simply won’t work, not then. If you’ve taken a business past a dozen employees, you’ll know this from experience. Take a simple function like internal communications; every entrepreneur remembers the early days when you all worked in a single space, probably around one big table, and communication happened via a mixture of osmosis, shouting across at each other and earwigging.

Then there were eight or ten of you and that began to stop working. A couple of people working on the same project developed significantly differing impressions of what the client wanted and how much they had said they were prepared to pay for it.

By the time there were twelve of you it was really starting to create problems.

Extrapolate that syndrome from communications across project management, client/account handling, operations, finance, management information, product development, marketing and so on – those interdependent activities that constitute the humming engine of a functioning business – and it’s easy to see how what was relatively organic, unstructured and implicit might need to become more planned, structured, codified and agreed. The transition into each subsequent stage poses similar challenges but in a more complex form that reflects increased size.

And if you use a lot of freelancers – which is not just prudent commercially for many entrepreneurial businesses, it is also a sensible response to the technology-driven fragmentation of digital-era expertise – then you may well experience a special version of the problem. You’ll look at the books and note that there are only twenty-two people on them. Phew, there’s a way to go before you have to deal with the thirty-something transition. So then why are you having all these problems with people being less-than-fully aware of what each other is doing; why is your work flow creaking at the seams and why is it so difficult to keep track of project profitability?

Forget the payroll for a moment and look around the office/studio. Do a head count. Remind yourself that for the past four months there have been six or seven freelancers in the house on any given day. So you have actually been managing a team of twenty-eight or twenty-nine people, knocking on the door of the next stage and – as soon as you stop to think about it – experiencing symptoms of an organisation that’s not quite fit for purpose.

There’s a simple remedy. Always adopt the systems and processes of the next stage to the one you are in. Not the current one. You simply don’t know when the unexpected additional brief, the one extra contractor, the new business win from a client in a hurry, will tip the business over that watershed – there is no data available about the future.  So don’t get caught on the back foot. It’s a world of pain that’s entirely avoidable.

People talk about growing a business as it were an option, a lifestyle choice. It isn’t. It might well feel empowering to ponder an imagined bifurcation in the entrepreneurial path, to consider a couple of jauntily-angled signs that point, on the one side, to frantic scaling and untold wealth and, on the other, to a genial working day that goes on (more or less) forever. Except it doesn’t quite work like that.

Like an adolescent offspring, a young business is a pain; it will keep trying to grow up. Despite your best efforts to hold it back – conscious or otherwise – there’s an inexorable internal dynamic that makes a business, if it’s any good, need to expand. No doubt a smart economist, or maybe just a decent accountant, has a good explanation for this. Whatever. For a business owner it is either a blessing or a curse;  for many, in theory it’s the first but in reality it’s the second.

Paradoxically, this unstoppable momentum doesn’t stop a lot of creative businesses staying more or less the same size for years. They grow a little, push up the evolutionary scale for a while, only to settle back down to where they were a year, or eighteen months, ago. Having briefly entered the choppy waters of growth, they beat a retreat back to harbour, to calm water. Only it isn’t calm, back where they came from. It’s just a different kind of chop: too much work; not quite enough revenue; too few hours in the day; too little structure; flimsy processes, management structures and profits.

I worked, briefly, with a business that has gone through this cycle every couple of years since its inception. It has tremendous expertise, a charismatic leader and enthusiastic clients who tend to get on board at the top of the cycle and ended up questioning the quality of outputs, the attention to the subtleties in the brief and the evident chaos in project management.  What they experience is the point where the business has the opportunity to push through to the next level of growth but fails to grasp it.

A whole sorry catalogue of causes get blamed for this sort of entrepreneurial Groundhog Day, including – surprise, surprise – our old friend, a lack of investment. The most common culprit, though, is much closer to home; it’s the entrepreneur themselves.

Indeed, the syndrome  is so common it defines a key rule of entrepreneurial expansion; a business only grows at the speed with which the MD and directors can increase their personal Management Bandwidth.

The peak, from which these businesses invariably fall back, marks the limit of the leader’s (or leaders’) current management capabilities. Commercially, growth is there for the taking. The vision, goals, confidence and skills to grab it are not.

They need to be acquired, in either sense of the word – learned or purchased – for the cycle to be broken.

You’d be surprised at how many of the people running early-stage businesses have no idea why they are doing it.  No, really. It just seemed like a good idea at the time. Maybe they had one of those sly after-hours drinks with a fair-sized client and picked up the vibe that they might support a breakaway from the big-ass agency that’s currently rinsing them out of a gazillion Euros a month. Or a couple of you had an epiphany in Le Pain Quotidien, sitting with all the other wannabe entrepreneurs in the back corner where the free Wi-Fi is strong and there are wall sockets within reach.

When you’re trying to dig a promising small business out of a hole, or steering another through a problematic growth-spurt, the first question to ask – always, without exception – is: why are you doing this? What is your personal motivation? You can have as many grand business visions and BHAGs as you like, but if they’re not aligned with what you want and where you want to get to in your life…then it’s unlikely to end well.

And of course, in so many entrepreneurial businesses, that ‘you’ is plural. At the heart of the enterprise sits that most unnatural phenomenon: Partners.

Which is where it really gets interesting; because now you’re dealing with two or more people who may well not know why, fundamentally, they’re in this business. Or one person who does and one or more others who don’t. The mentoring task – whether you are a CEO, non-exec or external advisor – is then twofold; first you need to get each owner to produce a statement of their personal goals, what they want from running and, in particular growing, the business. Secondly, you need to engineer and facilitate a ‘truth session’ where everyone puts their cards on the table. Again, you’d be surprised at how many sets of founders have never done this. Perhaps there’s a fear – sometimes justified – that what gets revealed might be explosive.

Two examples from the past twelve months; two small successful niche agencies, two founders apiece. Each had one partner with a family, committed to staying in the city where the business was based; each had another who wanted to make a major geographical move in the next couple of years and radically shift the way they worked. One was based in a regional British city; the other in a European capital; geography offers nowhere to hide from life-stage dilemmas.

In one the agendas were out in the open; in the other they simmered. One set of founders had a grown-up dialogue about their divergent life-plans, the others niggled and nagged at each other without quite knowing why. The Brits transferred responsibilities ahead of the shift and effected a managed transition; their European counterparts split fractiously and, in the process, shattered the business.

The learning is; it’s hard to say what you want from growing your business if you don’t know what you want from your life. And if there are more than one of ‘you’, you need to start sharing those highly personal agendas  – now.

If I had a pound for every time I’ve heard the founder of a creative or digital business imply that all their problems would vanish if only someone would see fit to throw a few hundred grand or the odd million their way…well, I’d probably have enough money to invest in one.

I used to take this stuff seriously and wonder if the problem was me; maybe if I had an MBA, if I hung out with investment bankers more, if I’d followed up with that guy from Schroeder’s I met in 1989.

Then, after I’d heard this broken-record lament enough times, I realised a couple of fundamental truths. Firstly, the vast majority of creative and digital businesses are inherently un-investable. They just don’t meet even the most basic criteria that would satisfy a VC or investment bank/fund. They would struggle to convince an angel investor or angel network. Which pretty much brings it down to a rich aunt with a passion for cutting-edge animation or online media analytics – and there aren’t too many of those around.

Not every early-stage company is a ‘start-up’.

The second thing that gradually dawned on me was that these wishful entrepreneurs were talking a kind of code. When they talked about ‘investment’ or ‘funding’ what they actually meant was ‘growth’. They passionately desired to grow their businesses, but they had made an a priori assumption that growth was only possible on receipt of a large ingestion of cash. So the conversation instantly became all about ‘Where do we find the money?’.

Given that inherent un-investability, this was always going to be – for the vast majority – a hiding to nothing. Worse that that, it constitutes a massive distraction from the real business of growth, a heavy drain on senior management time and strategic thinking capacity.

For first-time entrepreneurs, especially those who find their business stuck in a stage of development that is exhausting and unrewarding, it’s a seductive thought that you’re swimming with the sharks, hunting down that elusive half-a-mill that would make it all better. As a legion of business-lite authors know only too well, this is lucrative territory, the promise of overnight transformation.

The truth is far more prosaic, and it’s not out there. It’s right here, in the guts of your business, in the commercial and operational workings of the stuff you do to make a living. Paradoxically, most of these businesses already contain the means to grow into the next stage; the very inefficiencies that hold them back are themselves the key to breaking out and moving on.

It’s not about the money – or at least not in the way you thought it was.