To start a business is difficult, but to grow one is even harder.
For most Nigerian entrepreneurs the biggest problem arises when their business has already attained a certain level of success—namely, how are you supposed to set up an organisation that can keep on growing without having everything rely on the founder? Sometimes that success is the growth trap-the limiting factor for the SME.
Most small and medium-sized enterprises in Nigeria start with a dedicated and actively involved founder who takes charge of nearly all the important decisions; this person secures the initial customers, talks to suppliers, hires staff, authorises payments, deals with any operational problems and shapes the strategy.
In the initial stage, this practical method can provide a competitive advantage.
However, as the business expands, the method which had been useful in establishing the company can turn out to be the very factor that hinders its growth.
What we refer to as the SME Growth Trap.
What is the SME Growth Trap?
The SME Growth Trap arises when a company’s growth is limited by its reliance on the founder.
The founder may still be:
• Approving most important decisions
• Managing key customers personally
• Recruiting senior employees
• Solving operational problems
• Approving expenditure
• Managing suppliers
• Directing sales
• Supervising employees
• Making strategic decisions
Although the company might have dozens or even hundreds of employees, decision-making is still centred on one individual.
The outcome is a business which develops around the founder instead of going beyond him.
Although the founder was responsible for setting up the business, a too great reliance on the founder can stop it from becoming scalable.
Why Founder Dependency Becomes a Growth Problem
Founder-led management isn’t naturally wrong; on the contrary, effective founder leadership can be one of the biggest assets of a small and medium-sized enterprise.
The problem arises when the founder is the main operating system of the business.
Growth will become all the more difficult if employees always need the founder’s approval, customers come to depend on the founder personally, and important knowledge is confined to the founder’s mind.
Each new customer, employee, branch or product places further demands on the founder.
In the end, the founder becomes the bottleneck.
The Founder Becomes The System.
A clear indication of founder dependency is the fact that most of the organisation’s key knowledge resides with the founder.
The founder knows:
• How customers should be handled
• Which suppliers to use
• How pricing decisions are made
• How problems should be resolved
• Which employees can be trusted
• How key processes work
It could be effective if the company is small.
It turns into a problem as the business expands.
An organisation if it is to be scalable must have knowledge transferred from individuals to systems.
It therefore involves recording the processes, setting up standard operating procedures, defining the responsibilities and producing reliable management information.
The question should change from:
Who is able to carry out this task?
to:
So that this is carried out correctly, which system is it?
The Founder Is Not Able To Delegate Effectively.
Many entrepreneurs think that they are delegating, but in fact they give people tasks while still keeping control.
True delegation requires four things:
Responsibility + Authority + Resources + Accountability
Assigning an employee responsibility without giving them adequate authority only leads to frustration.
For instance, a manager might have the responsibility of boosting sales yet would still have to obtain the founder’s permission if he or she wished to offer a discount, recruit a salesperson, or alter a process.
The manager has responsibility, but no real authority.
This creates organisational bottlenecks.
When a small business increases in size, the founder should slowly transition from making all the decisions to setting up a framework that allows others to make good decisions.
However, there are employees but no management team.
It does not follow that having employees means that you have the capacity for management.
A business that is scalable requires individuals who can take full responsibility for whole functions.
For example:
• Finance
• Operations
• Sales
• Marketing
• Human Resources
• Technology
• Customer Experience
The founder must not be the only one who thinks strategically.
A strong management team allows the founder to focus increasingly on:
• Strategy
• Growth
• Major relationships
• Capital allocation
• Culture
• Innovation
• Long-term direction
This is a major transition in the life of an entrepreneur:
The process goes from carrying out the work to overseeing it and then on to leading the organisation.
Employees Exist, But a Management Team Does Not
Having employees does not necessarily mean having management capacity.
A scalable business needs people who can take ownership of entire functions.
For example:
- Finance
- Operations
- Sales
- Marketing
- Human Resources
- Technology
- Customer Experience
The founder should not remain the only person thinking strategically.
A strong management team allows the founder to focus increasingly on:
- Strategy
- Growth
- Major relationships
- Capital allocation
- Culture
- Innovation
- Long-term direction
This is a major transition in the life of an entrepreneur:
From doing the work → managing the work → leading the organisation.
The Business Becomes Financially Strained.
Growth may lead to financial difficulties.
Just because sales increase it does not follow that cash will also increase.
An expanding business may require more:
• Inventory
• Staff
• Equipment
• Office space
• Marketing
• Working capital
• Credit facilities
Even if revenue is increasing, the business may face serious cash-flow pressure if financial management does not keep up with growth.
SME owners therefore need visibility into:
• Revenue
• Gross margins
• Profitability
• Cash flow
• Working capital
• Customer profitability
• Operating costs
• Debt
• Return on investment
A lack of financial discipline in growing can result in vulnerability rather than strength.
The founder continues to act as the main salesperson.
It is often necessary to have the founders handle the sales work in the early years.
The founder creates relationships, establishes his credibility and secures the first major accounts.
But a critical scalability question eventually arises:
Is it possible for the company to generate and keep customers without the founder selling to them personally?
If the answer is no then the business has a sales model which depends on its founder.
A scalable sales organisation needs:
• A defined sales process
• Customer segmentation
• CRM systems
• Sales targets
• Account management
• Lead-generation strategies
• Sales training
• Performance measurement
The objective is to move from:
Move from founder relationships to institutional relationships.
People ought to place their confidence in the company rather than in the person who set it up.
The Founder Remains the Chief Salesperson
Founder-led selling is often essential during the early years.
The founder establishes relationships, builds credibility and wins the first major accounts.
But a critical scalability question eventually arises:
Can the company generate and retain customers without the founder personally selling to them?
If the answer is no, the business has a founder-dependent sales model.
A scalable sales organisation needs:
- A defined sales process
- Customer segmentation
- CRM systems
- Sales targets
- Account management
- Lead-generation strategies
- Sales training
- Performance measurement
The objective is to move from:
Founder relationships → Institutional relationships.
Customers should trust the company, not only the individual who founded it.
Recruiting with a Focus on Loyalty Rather Than on Ability
Loyal employees are valuable.
Yet loyalty by itself is not sufficient to create a high-performing organisation.
When a business expands, it needs people who have the skills and experience required for the next stage.
A common mistake among founders is to retain people because:
He was there with me at the start.
or:
“She is very loyal.”
The more important question is:
Can this person carry out what the next stage of the business demands?
The organisation might have to combine its institutional loyalty with new professional capabilities.
That may involve training current employees.
That can involve hiring experienced outside talent.
Often, it requires both.
All Matters Need The Founder’s Approval.
One of the simplest methods of spotting a founder-dependent organisation is this.
If the founder must approve:
• Purchases
• Recruitment
• Discounts
• Supplier payments
• Customer complaints
• Marketing decisions
• Staff leave
• Routine expenses
• Operational decisions
As the organisation grows, it is likely to grow slower.
A company that is expanding needs a clear framework for the delegation of authority.
Employees should understand:
• What they can decide
• What requires management approval
• What requires executive approval
• What must go to the founder or board
What we want to achieve is not to take away control.
The idea is to have control at the right level.
The Business Has No Processes That Can Be Repeated
Scalability requires repeatability.
Growth will result in inconsistency if each employee carries out a process in their own way.
It is especially important when a company sets up more branches, enters new markets or greatly expands its workforce.
Standardised processes can improve:
• Quality
• Productivity
• Customer experience
• Cost control
• Accountability
• Compliance
The business must be capable of reproducing what is effective.
A scalable organisation should not depend on:
That’s the way the founder wants it to be done.
It must include procedures which allow capable individuals to achieve steady results.
Technological Development Has Not Kept Up with Growth.
A large number of businesses start off by using simple tools like spreadsheets, email, and messaging applications.
They might be quite sufficient at the start.
The more transactions there are, the more inefficiency, errors, and poor visibility manual methods can cause.
SMEs may need appropriate technology for:
• Accounting
• CRM
• HR management
• Payroll
• Inventory
• Project management
• Customer service
• Business intelligence
The reason for doing so is not that the technology is in vogue.
The aim is to apply technology in order to make the organisation more efficient, more visible and more scalable.
The Founder Has Not Changed As A Result of The Business.
The hardest challenge is for the founder to make the transition.
A company which has earned ₦50 million in revenue will need a completely different kind of management approach when its revenue reaches ₦500 million.
A company which is earning ₦5 billion cannot plausibly be managed by the same kind of structure that was effective at the start.
The founder must evolve:
From Operator to Manager.
From Manager to Leader.
From Leader to Strategic Owner.
This means being willing to place trust in capable individuals, setting up proper systems, and accepting that good decisions can be made by people other than the founder.
The Four Stages of Founder Evolution
A useful method of understanding the growth of small and medium-sized enterprises is to look at four stages.
Stage 1: Founder Does
Most of the key activities are carried out by the founder.
Stage 2: Founder Manages
The employees carry out the work, but the founder is still very much involved in overseeing it.
Stage 3: Founder Leads
Managers are in charge of the various functions, whereas the founder becomes more focused on strategy and growth.
Stage 4: Founder Governs
The organisation has professional management, systems and governance structures enabling it to function independently of the founder.
Is Your Business Ready to Scale Beyond the Founder?
At Bellforte Consulting, we help business owners and leadership teams identify the organisational, leadership and operational barriers that may be limiting their next stage of growth.
Our Business Growth & Scalability Diagnostic can help you assess:
- Founder dependency and decision-making bottlenecks
- Leadership and management capability
- Organisational structure
- Talent and succession readiness
- Business processes and systems
- Performance management
- Governance and accountability
- Strategic execution
Don’t just build a bigger business. Build a better organisation.
Your next stage of growth may not require you to work harder. It may require you to build an organisation that can work beyond you.
Talk to Bellforte Consulting about preparing your business for its next stage of growth.
Drop us a line Info@BellforteConsulting.Com or call +234-080-562-948-28 or +234-080-562-948-49
https://Bellforteconsulting.com