Stage One is run by a hands-on, head-down leader.
These people do all the heavy lifting themselves, and when they hire people, it's to assist them in getting things done. Dealing with employees typically frustrates them. These folks spend most of their time building their product and selling it. They usually can't get away from work for any length of time without things falling apart. Because of that it's often said these people own a job not a business.
Much of the owner's work is directly dealing with customers - either sales or production or both. Even when a crew does a lot of the production work (like in a small construction firm) it's still the owner who's the team leader and interface with the customer.
Business owners like this typically use check book accounting. That's where they look at their checkbook to see how well they're doing and if there's enough money at the end of the week, they can go out for dinner. They use a CPA for taxes only and a lawyer for nothing unless they get sued.
These companies stay pretty small - usually less than 10 people. And the earnings of the owner can provide a decent living (maybe 100k or sometimes even 200K) although in specialized industries like medicine the amount is higher. However there's not much wealth inside the company. As a result, these companies are often run by the founders (or the founder's children). But the companies can't be sold for much money because all the real value walks out the door when the owner leaves.
The second stage is run by someone who is hands-off, head-down.
Owners like this are good at delegating and have hired managers. As a result these companies can grow quite large and provide a lot of wealth for the owners, especially while they're working. Their take home (a mix of salary and profits) can be over $250K - often into the millions.
These folks spend time building the company, not the product. Less of the customer-facing work is done by the owner than in a stage-one company. Though owners often keep responsibility for a few significant relationships - with key customers or vendors. These companies have professional accounting systems and reporting. They usually have outside advisors they have close relationships with.
At the early stage two companies, the owner's motivation is often to work less and get more time away from work. But as these companies grown in size and in quality of their processes, the owners get that time. At that point, it's not uncommon for the owners to spend time on other endeavors - charity, politics, hobbies, travel, or even unrelated business, while still maintaining ownership and working in this one.
These business generate more profit than the owners need to live on and the excess is usually taken out of the company. This has two ramifications. One is the majority of the owner's wealth has often been generated outside the company. Therefore the company, while it can be sold for more than a stage-one firm, is not worth as much as a comparable stage-three company.
Stage three companies need a hands-off, head-up owner.
This type of owner has built a company like the second type, but doesn't take as much out of it as possible. Their take-home may be high but they limit it and put the rest into growing their firm. They've hired not just managers, but directors and may have employees with P&L responsibility in different parts of the organization.
By "organization" I mean they not only grow their company, but they are in a position to buy other companies sometimes in adjacent (or even unrelated) industries and run them under the same top management. Their strategic relationships are within their industry not necessarily within their company. As a result, they become power houses regionally, nationally or even globally.
These folks function like CEO's of public companies. They take advantage of sophisticated financing options available to companies at this level. While their personal wealth may be diversified, they have also created substantial wealth inside the companies which can be realized when the company is sold or passed on to future generations. These folks spend their time expanding their empires and building their brand.
Where do you want to play?
These distinctions come from a book by John H. Brown called Exit Planning: The Definitive Guide though I have embellished them based on my experience working with business owners. I highly recommend the book for anyone who is not planning on owning their company forever. And like Brown, I mean no judgment here. It's not that any of these three types of business owners is better than the others. They are just different, make different choices, and those choices have ramifications. You can run your company any (legal) way you like. I just suggest you make your choices consciously knowing the consequences of your decisions.
Product, Company, Brand
It's only a bit of an over simplification to say that in stage one company owners build product, in stage two they build the company and in stage three they build the brand. A good living can be generated from stage one, but it takes stage two or three to build real wealth. When you build with a long view toward the future, each stage forms the foundation for the next. You build products in stage one in such a way that it's easy for others to produce them as you transition to building the organization. You build the organization in stage two with the idea that it will lay the foundation for you to acquire others or grow to become a well-known brand in your industry, region, or sphere of influence.
I've spent 25 years working with business owners helping them scale their organizations. The change is not linear or abrupt - though it can happen quickly. You may be solid stage two in some aspects but still have some systems which operate at a stage one level. There are lessons from all three levels that can be applied no matter where you are now and wherever you want to be.
The key is working on your business not just in it. We've all heard that before but most people don't know how to translate that into action. That's where my direct work with clients comes it - we develop action plans to work on your business. What I do first is assess which level each of your systems is operating at. Then we map those against the your specific goals, and devise a plan for progress. Email me at John@CEOBootCamp.com to see if I have open slots and if one might be right for you
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