One area that has drawn the interest of academic study over the years is how companies naturally evolve. One piece of research, which appeared in a 2003 paper published in the International Journal of Organizational Analysis, found out that there are five stages every company goes through over time.
The question is, what stage do you think your organization might be in? The answer might tell you a lot about how to think about your role as its leader.
Stage One: Existence
The first stage any organization goes through is its entrepreneurial start or birth. The organization’s focus at this stage is about becoming viable–where you’re generating enough cash to fund the organization’s operations. You’re trying to get customers to buy just about anything from you at this stage. It’s almost like you’re gasping for air. A CEO plays an outsized role in an organization’s ability to survive the existence stage, mainly because most decisions are concentrated with them or their small executive team.
Stage Two: Survival
Once you make it past the starting years of a company, it becomes a battle to survive and grow. This is where the organization’s structure becomes paramount, where you need to add new competencies and professional management. There is also the threat that something could go wrong at any minute and take the company out altogether. The CEO also needs to evolve as the organization grows through this stage. They need to change their behavior from that of an individual contributor to more of a coach and executive who guides the team to their joint vision and goals.
Stage Three: Success
At this stage, the company has passed a threshold of success. It has established a clear customer base and competitive advantage in the marketplace that fuels year-over-year growth. The catch is that bureaucracy and organizational politics have become hurdles to overcome. As the company has scaled, the number of policies, procedures, and hierarchies has also grown. Everything has a much more formal air than in earlier stages. The CEO’s role has also changed again, where they have shifted from thinking about daily operations to focusing much more on planning and strategy. That shift in the position also causes many entrepreneurs to look for an off-ramp out of the company. While they thrived in the early stages, the new part isn’t as fun–it’s already started to feel more like a job. I’ve written before about this dynamic, and it’s essential, to be honest with yourself and recognize whether it’s time to leave and start something new instead, especially if they’re not ready and able to commit to reinvesting their energy into the future of the business.
Stage Four: Renewal
This is a critical stage in the lifecycle of an organization because it typically reflects a change in leadership, where the founder has transitioned out in favor of a new CEO. This new leader sees the business very differently, which can be needed to stoke the creativity and innovation required to stoke new growth opportunities for the organization. This can also be an opportunity for the new CEO to strip down some of the silos and hierarchy that have developed over time to refocus on customers’ needs and get back to that sense of newness and energy from the good old days.
Stage Five: Decline
This is a stage that no organization wants to find itself in. This can happen when the renewal stage goes wrong. You’ll see that growth slows or even becomes negative. People inside the organization also elevate their needs over those of the business. It’s become much more political than ever, and the winners of the political battles consolidate decision-making power amongst themselves. As a result, the company becomes more and more limited in its ability to meet the needs of its customers, which only continues to erode the company’s prospects over time.
So, what stage do you think your organization is at? Are you still on the upswing, fighting for air, or desperate for some new energy capable of driving a renewal in the organization? The more honestly you can answer this question, the better your chance of finding a way to keep your company growing into the future.