Today I'm starting a four part series that documents the journey a small employer takes from hiring their first employee to their 60th. We'll look at four stages of company size and the organizational structures, CEO priorities, staffing challenges, and key regulations that happen at each stage.
For some employers the growth in headcount happens rapidly, like the new Model S Tesla that can go from 0 to 60 mph in 2.8 seconds! For others the growth happens slowly over a period of years. Either way as companies add more and more employees the complexity rises. In fact, according to noted business consultant Jim Alampi, "the complexity of any organization is created because of the number of people, not the amount of revenue, you have. Money and processes are easy to manage compared to the dynamic impact that people bring to the table."
At this phase the primary business challenge is survival. In fact, according to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. The primary reason for failure is the inability to create a profitable business model with proven revenue streams.
During this stage the organization is very CEO centric. The owner is used to taking care of it all, sales, operations, hiring, firing, finance and managing the people. The business is built around this individual, their knowledge, worth ethic, values and personality. In fact, 90% of the CEO's time is spent as the specialist and selling while only 10% on managing.
Day to day operations are best described as chaos with very few systems or processes. The answer to most customer requests is "yes we can" and we do whatever it takes to make it happen.
As the owner begins to add people, it's critical to hire people carefully. They must fit the culture already established by the CEO. Ideally you need people who are secure in a smaller company and who have the capabilities to take on more responsibility as the company grows. "Hire slow, fire fast" needs to be the mantra at this stage. Unfortunately what we tend to see is that since the CEO is so busy working in the business, he or she doesn't have the time or skill to thoughtfully source and screen the right people. Turnover at this size can be devastating as the effects are felt to the core.
At the upper end of this range, the company feels the need to start developing practices and start having documented policies. We normally see the first employee manual created as we approach 10 employees. The first "manager" may be hired at the later end of this phase and that starts a difficult challenge for the CEO of letting go that we will talk about in phase II.
To get to the next level, it's critical to make sure every one knows the plan to grow the business and they know how they fit into the plan; but be cautious in promising additional responsibility in the future as you will find that some of the people that help you get off the ground will not fit at later stages.
The other complexity that arises with added employees is that of state and federal legislation. During this phase the more than 40 laws will come in to play (just counting Federal and North Carolina laws).
So to summarize, create a profitable business model that can scale and hire the right people and you have a good chance to make it through Phase I. Graduating to Phase II is not easy so tune in next week as we discuss how to navigate from from 10 to 19 employees.
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