Chapter 3: Life Stages (Part 2)

Growth:

If the business can pass through first stage it will slowly and gradually move to next stage which is growth. At this stage a business has to move from break even to making profits. Size of the business grows. Number of employees and production level increases. Now since the production level is higher,business gets cost benefit. It is able to produce the product or provide service at lower cost as compared to the cost at introduction phase.

At this stage things are very exciting. Revenue is moving only in upward direction, there are lot of new talented resources in the organization who have so many ideas to further improve things. At this stage an entrepreneur has to be very careful, because it’s not necessary that the speed with which things are moving will only take you upwards. At this stage an entrepreneur comes across following four types of entities.

1. New Investors
2. New Employees
3. New Consultants
4. New Partners

New Investors

This is a mutual need. Business needs funds to operate and there are people out there who are always looking for some investment opportunity to multiply their money. An entrepreneur must be very careful while accepting new investors. If the founder wants to run the business the way he/she wants and on the ideology on which the business was found then the founder must have control of business. There are several stories where the founding member got thrown out of the company by other investors. So most important thing to keep in mind is to keep the control with yourself.

New Employees

As the business grows different type of expertise is required to cater to increasing needs of business. So hiring of new resources starts. Most of the times management prefers to hire the people with whom they have worked in the past. Management does this because of three reasons, first one is they know competencies of these people. Second one is they feel comfortable working with them and third one is management likes these people, for any reason other than their competencies, and want to promote them.

Hiring any employee for first reason is totally justified, because if a person is competent enough for the role in organization and the organization can benefit from it then he must be hired. However hiring a person for any or both of the next two reason is totally wrong. Just because management is comfortable working with a person does not make him/her competent for the job. I don’t think explanation for third reason is required.

Unnecessary hiring leads to increasing manpower cost which increases pressure on margins of the business. There are many companies out there which has accumulated too much of manpower, who are giving enough output and are consuming organizations resources.

Hiring of employees should be strictly based on requirement of the business and the person's competence and potential who is being hired.

New Consultants

A well-dressed person in a suit will come to your doorstep and tell you that whatever you have been doing all this time was wrong and he can tell the right way to do it, and when you let him in he will take all the information from you put it in a fancy powerpoint presentation and present it to you. He will tell you that this is the way you are supposed to do the business which you have found and for this fancy presentation you will give him a big fat cheque. This person is a consultant. When think carefully about it you will realize…”dammit….I’ve been doing the same thing all the time and I paid him for nothing.”

An organization needs to hire a consultant because it has hired employees for two wrong reasons as mentioned in topic of “New Employees”.

New Partners

Sometimes an entrepreneur comes across an opportunity where he can get a good business deal but does not have necessary competence in his organization to work on it and if it’s a short term project then it doesn’t make a sense to hire a new employee with required competence to work on such short term project. In such case we need to find that competence outside the organization. These outside assistance which an organization hires are known as partners. While hiring a new partner as organization must take into account below two primary factors.

• Economic feasibility: the cost at which an organization is hiring a consultant must be less than the revenue which the organization is getting from such work, because then only it can make profits.
• Partner’s competence and ability to deliver: As you can see in fig 3.3: “Use of Partner” as organization is always as the front end facing the customer and not the partner, so if the customer does not get what he wants then the organization's reputation is at stake. Hence before choosing any partner the organization must look into the competence and ability of partner.