Did you know that odds are better that a Nik Wallenda can walk over Niagara Falls on a cable than the chances of a business start-up lasting five years? Past experience at least suggests that would be the line in Vegas.
On June 15th, Wallenda became the first man to walk over Niagara Falls in 116 years. Sadly business startups don’t fare as well. Within five years, half of startups fail. Only 35% of startups are alive after ten years, according to recent figures from the Bureau of Labor Statistics.
Leaders of startups can greatly reduce their risk of failure by understanding how they themselves must change as they add employees.
For example, founders in the early stage businesses almost always need to spend most of their time as a functional specialist. The firm’s size requires them to author construction quotes or write software or bake cakes. Yet by the time they’ve grown to even twenty employees, their leader role must begin a shift from doer to manager.
There are seven stages of growth that are determined by the number of employees. The number of people, not sales or profit, is a predictor of the challenges the leader will face.
The diagram shows the number of employees in each stage from Start-Up, Stage 1, through Visionary, Stage 7 of fast growth firms.
Between stages leaders go through transition zones. Wind Tunnels require that the CEO “let go” of methodologies that no longer work.
For example, in stage 2 the CEO may be the prime salesperson. In Stage 3 a CEO who continues to be that primary salesperson will in so doing, restrict the firm’s growth.
Flood Zones requires bearing up to an increase in the quantity of activity
- A company should avoid the temptation to add people
- Look for solutions with existing staff
- Focus on the WAY a company is currently managing the workload
These insights come from the research conducted with hundreds of entrepreneurial companies on the Front Range, and in Silicon Valley by James C. Fischer author of The Seven Stages of Growth.
As a bent but not broken, scarred entrepreneurial founder, I would take to heart the top seven tenets we’ve developed for leaders in each stage. For example, here are the seven ‘MUSTs” for Startup leaders.
TOP 7 ‘musts’ for Startup Stage 1 firms
Must #1 Dashboard/Flash Sheet: You must have a simple Flash Sheet or Dashboard with your key metrics, which you look at daily. (Examples abound. Email us if you need thought-starters).
Must #2 Cash Flow: You must have a simple budget and a 6-8 week rolling Cash Flow system to help you manage cash.
Must #3 Hire On Values: You have a clear written criteria of what’s a "good company fit" based on your organization’s values.
Must #4 TOP Priority: You must set a #1 priority for the quarter ahead that’s clearly communicated to all. (We suggest following the process described in Verne Harnish’s book: “Mastering the Rockefeller Habits.”)
Must #5 Clear Expectations: You must set have clear performance expectations with every employee.
Must #6 Everyone Knows the Vision: You must explicitly give employees a compelling vision for the future.
Must #7 Feedback: You must consistently gather and give employees feedback. You must do this informally with at least a few people everyday.
To receive the Top 7 Musts for the other stages of growth, click below.