Understanding Organizational Growth - Business Strata

There he sat in his makeshift office. Doodling. Each day, it was the same thing. Get up, get ready, go into the garage. There was nothing spectacular about the workspace. You would find similar “stuff” in any number of garages in his Kansas City neighborhood. Once there, though, the creativity and magic unleashed. With pencil and paper in hand, Mr. Disney brought to life many of today’s iconic cartoon characters.

Now, I do not know if this was how history fully accounts for Mr. Walt Disney’s beginnings, but many sources cite he started in very humble ways. Many other entrepreneurs also got their start in garages. These “garage-starters” include Apple, Amazon, Mattel, and Microsoft.

They began as “Ma & Pop shops” and grew into Fortune 500 enterprises. To achieve sustainable growth, they upset people, endured headaches, and battled obstacles. Growth necessitated reshaping, re-configuring, and restructuring how they did business. Success required gut-wrenching decision-making and painful lesson-learning. Disney, Apple, Amazon, Harley-Davidson, and Microsoft all realized sustainable growth due to grit, flexibility, and adapting to change.

To understand sustainable growth, it is helpful to understand “business strata.” Business strata are organizational categories based upon sizes (e.g.—revenue, headcount, market share). This is not an exact science nor is it a technical definition. It is a model to understand organizational sizes, complexities, and challenges.

One business stratum is not superior to another one. Some businesses stay in the same stratum indefinitely while other businesses evolve through different strata. To survive, businesses must manage their growth and transition from one stratum to another one. When leaving one stratum and entering another one, businesses do what is called “crossing the chasm.” “Crossing the chasm” brings exciting changes, challenging obstacles, and complicated personnel issues (to be explored in a future blog post). 

Here are the business strata we will explore:

Ma & Pop Shops:

Classic diners, businesses run out of a garage, and corner stands typify what we will call “Ma & Pop Shops.” Whether it is a neighborhood barber or a lawn service, there are typically one or a few people running every facet of the business. The owner acts as HR, finance, operations, IT, and many other possible “department.” 

• Typical Characteristics
  • Very few employees…sometimes it is just the owner and a couple other workers
  • Oftentimes, it is a family-owned business run by family members
  • Typically under 15 employees
  • Annual revenue less than $1 million
• Opportunities
  • Nimble and agile…can shift course quickly as needed
  • Holistic decision-making cutting across all “departments”
  • Entrepreneurial spirit and ability to experiment and correct course quickly
  • Highly effective communication as few people need to hear the message
  • Better alignment surrounding key initiatives and organizational direction
• Challenges
  • Business fully dependent upon the owner
  • Lack of subject matter experts as team-members must take on many responsibilities
  • Little time for strategic planning as most time spent on tactical work (not as much time spent “working on the business”)
  • Fewer resources and available capital

Small Businesses:

Small businesses typically have a little more sophistication than a “Ma and Pa Shop,” but they still possess a “family” feel. Oftentimes, several employees work at the company allowing the owner to take vacations without having to close the shop. The owner, though, typically involves him/herself in all facets of the company (HR, IT, finance, operations). S/he may not run every one of these functions, but s/he is often heavily involved in each one. Often, there are people promoted into specialized roles, who must evolve and learn on the job. 

• Typical Characteristics
  • 15-500 employees
  • Annual revenue between $1-$50 million
• Opportunities
  • Nimble and agile…can still shift course quickly but communication becomes more of a challenge
  • More people to share the workload
  • “Family” feel is still present
• Challenges
  • Minimal time to focus on strategic aims, but still a strong tactical focus just to get things done
  • “Loose” policies and procedures create miscommunication and misalignment
  • Still a lack of subject matter experts in key positions
  • Some people are a “Jack of all trades but a master of none”

Corporations:

At this point, organizations experience greater sophistication and employ “specialists.” This strata is nimbler than a Fortune 500, but not as much as one of the lower strata types. Various departments exist creating silos. These silos result in “turf wars” for resources. There is often a lack of policy and financial discipline compared to Fortune 500s. Gaps in systems and processes affect cross departmental excellence.

• Typical Characteristics
  • 500-5000 employees
  • Annual revenue between $50-$500 million
• Opportunities
  • Additional revenue to grow
  • Arrival of department “specialists”
  • Still somewhat nimble
  • Pioneering if able to control politics and silos
• Challenges
  • Gaps in processes and systems
  • Siloed departments begin to emerge
  • Turf wars may stunt growth opportunities

Fortune 500s:

Companies experience increased revenues, talent, systems, and structures. However, inflexibility, bureaucracy, and silos become greater realities. With many resources, Fortune 500s can be leading innovators by trying new approaches and spending heavily in research and development. As market definers, Fortune 500s can pioneer new paths. However, internal bureaucracy can threaten these realities.

• Typical Characteristics
  • 5000+ employees
  • Annual revenues exceeding $500 million
• Opportunities
  • Greater access to resources
  • Heavy influence upon governmental policy makers, market and industry leaders
  • Ability to experiment without tapping out resources
• Challenges
  • Bureaucratic decision-making
  • Siloed departments
  • Turf wars for resources
  • Inflexibility— “Too big to change”

No stratum is better than the other stratum. However, it is vital for organizations to understand that differences exist between them. If an organization desires to grow, its leader(s) must recognize that structural changes must take place. When doing so, it is important to create policies and structures that support growth and realize sustainability. 

No, Walt Disney, Oprah Winfrey, Jeff Bezos, or Arianna Huffington did not accomplish long-lasting success on their own. Sustainable growth (whether staying in the same stratum or moving to a different one) requires finding great people, adapting to changing times, and seizing upon new opportunities. Those who do these things well realize long-lasting results.

Want to start something great? Go ahead and park the car in the driveway, setup a workstation, and let the creativity flow!  Who knows, you may draw, build, or design the next great thing!