The 5 Stages of Business Growth

How do you get from $500,000 to $1 million in sales? How do you grow from $1 million to $3 million? What does it take to get to $10 million? We’re continuing this series by Bobby Lehew from commonsku entitled “The Path to $10 Million.” Our purpose is to provide insights for your entrepreneurial journey by sharing articles, tips, interviews, and a plan on how you can get to your first $10 million in sales.

Though most days might feel like a sprint, entrepreneurship in a promotional products distributorship is more like a marathon.

The journey requires endurance, as there are multiple transitions, including ecstatic wins, harrowing losses, months of chaotic increases, sluggish seasons of stagnation… in short, all of the variables one can experience between the start line and the finish.

And just like a distance runner who paces their run to win, entrepreneurs must also carefully plot their decisions for long-term success and approach their run with a similar outlook.

“Concentrate on small segments of your race at a time,” wrote Jerry Lynch. “For example, rather than obsessing about the distance that remains, simply complete the next mile in good form… try another, then another, until the race is done.”

We have analyzed the growth patterns of a typical distributor’s entrepreneurial journey and have identified five distinct stages. Each stage has unique challenges and opportunities; being aware of these before you cross each stage will help ensure you pass through successfully. We’ve described each stage below and included tips, suggestions, and resources to help you cross the finish line:

Stage 1: Market Validation

Market Validation – you make your first sale! Market validation is exhilarating. It is when your crazy idea, or your bold new risk is merited by someone’s belief in what you are selling. It’s proof that you have found a market.

• The challenges: One common challenge at this stage is your network. Typically, most entrepreneurs will leverage their existing network to sell to; the challenge is, this network is soon exhausted. Know that you have a limited audience at this stage and that you should be looking ahead at the next stage in your journey.
• The opportunities: Advocacy. This is the time to develop your fanatical fans. Ensure that every customer has a positive experience. And, share your journey with your customers, involve them in your story. Word of mouth is gold at this stage. Most people want you to win, and if they have a positive experience they will tell everyone they know, but be sure and remind them to refer a friend, as referrals are the lifeblood of a business.

Stage 2: Repetitive Proof

Repetitive Proof – Customers are coming back to buy again and repeat business is beginning to provide a steady source of revenue.

• The challenges: This is the season when you begin to build your internal team. You want to replicate the same TLC that you provided (consistency is key!), and you can’t be too careful at this stage to get the right people on your team. In fact, Jim Collins, author of Good to Great wrote that, “A company should limit its growth based on its ability to attract enough of the right people.” For help with this, check out our Guide to Growing Your Team. Also, tune in for our next post in this series where we will talk about infrastructure options for your distributorship.
• The opportunities: Square power. Yes, the principle of math is handy here. Apprenticeship is an outdated word, but in reality, it’s still the method employed by most people who train employees. In an apprenticeship, someone works closely with you to learn the business and adopt your ways of providing the same service (with the same skill and passion that you do). The opportunity here is to make sure you hire right and invest conscientiously in your team. If you concentrate on proper training, each new hire can help train additional people who come aboard and, in this sense, you are able to multiply your efforts through the simple act of apprenticeship. Another opportunity at this stage is to begin rewarding word of mouth referrals. Never forget those early clients who believed in you, they are still your biggest brand champions!

Stage 3: Investment

Investment – The anvil (this season is sometimes called the “trough of sorrow”). An anvil is a block of steel that you use to shape metals. The anvil is the basis for building the tools that you will need to achieve larger success. In this season, you have enough volume to start to invest in systems and processes that will provide a strong foundation to duplicate success and scale your business.

• The challenges: It is called the “trough of sorrow” because of the tension due to imbalance, you often invest in people and support infrastructure at this stage before you have the profit to cover it. It’s a delicate balance, one that requires a keen eye on the financials and a close watch over proper team development.
• The opportunity: This is one of the most critical stages for future sustainability. Systems and procedures are your core assets, so your opportunity here is to invest wisely. Michael Gerber in The E-Myth Revisited, wrote that “the Entrepreneurial Model has less to do with what’s done in a business and more to do with how it’s done. The commodity isn’t what’s important – the way it’s delivered is.”

Stage 4: Scaling

Scaling – Making money again! Payoff time: the blood, sweat, and tears are worth it. Investments begin to pay off as you watch the hard work of team building, infrastructure creation, and customer satisfaction grow.

• The challenges: Typically, this is where you begin to increase management oversight. The challenge is structuring the right balance of key personnel to help provide more leadership to your team. Keep an eye on your gross profit per employee at this stage to ensure that you don’t strip the business of operating profit.
• The opportunity: Now that your infrastructure can be amortized and leveraged across a bigger team and more sales, you want to make sure your compensation plans are built to inspire growth. It’s OK to make tweaks to your compensation structure as your business changes, just be sure to clearly communicate the reasons and the benefits to each person involved.

Stage 5: Organizational Specialization

Organizational Specialization – Now that you have a team producing more and more work, you will begin to develop an expertise in special niches. Salespeople will develop confidence in certain segments of the business (this can be product categories like awards programs, specialties like incentives or company stores, expertise in industry verticals, or creative specialties like custom products and fashion-forward merchandising). Roles within your organization become more specialized as your team grows and your salespeople start developing niches.

• The challenges: Spreading yourself too thin. One of the most dangerous areas for a distributor at this phase is to become all things to all people. The opportunities in the promotional products industry are immense and, though it’s tempting to say ‘yes’ to everything, it would be unwise. Instead of catalyzing your team around a market niche, you could water down your effectiveness. Instead of a team and unity of one, you would create small “mini-businesses” within your company, diluting your profit, reducing your effectiveness, and increasing your overhead, leading to a strain on your entire infrastructure. Instead of being efficient, streamlined, and focused; your operation could become bloated, sluggish, and complex.
• The opportunities: Clients will generally lead you toward your unique value proposition. Pay close attention to these niches. With an eye on the market and your margin, notice how much competition you have in these categories. Refine by testing and proving your concept over and over. Your largest market advantage can take place in this season. Once you determine what those niches are for your unique value proposition: double-down and focus.

Entrepreneurship has its own rewards. Though we have been speaking in terms of winning a marathon, much of the joy you will derive from your journey is the run itself, not the finish line.

These five business stages not only represent watermarks for your business but also defining moments for your life. It’s where you test your mettle, push your limits, and realize the joy of building something that you are proud to be a part of.

It’s a good reminder that we are not merely aiming at some pinnacle of success, we are achieving success at every successive stage. As one commentator put it, “Everyone wants to live on top of the mountain, but all the happiness and growth occurs while you’re climbing it.”*

*Quote by commentator, Andy Rooney.

Bobby Lehew is the Chief Content Officer at commonsku, a cloud-based CRM, order management, and social collaboration platform designed for the promotional products industry by promotional product experts. Learn more at commonsku.com.