"Building a scalable, enterprise-focused software company in this day and age is something that needs to depend much more heavily on partners and indirect channels," says Allen, 48. "The real issue moving forward for us is putting people in place to effectively establish, manage and grease the skids for these indirect partners."
Greiner's research has found that successful companies go through five distinct stages of growth. The free-for-all, wear-all-hats first stage gives way to greater divisional structure, formal communication and hierarchy in the second stage. The third stage of growth is focused on delegation, where lower-level managers and employees have greater power to develop new products, chase new markets and help customers. The fourth stage—coordination—is geared toward creating product groups and formal planning and review procedures. Companies that evolve to the last stage—collaboration—are focused, among other things, on creating cross-functional teams and streamlining systems that have gotten too formal. The key is how companies handle the instability that lies between each push for growth. "The [company] starts to get really chaotic and unorganized," says Greiner. "This is often where they fail."
Fifty-five-employee Shabby Chic is feeling the turbulence as it pushes ahead with its multiyear growth plan. Ashwell's management team includes a new CEO, CFO, head of stores, planner and buyer—a big change for Ashwell, who prefers informality to formal analysis. The new team has opened three new stores this year and plans to open 10 more next year. "We are going to do this carefully," says Ashwell, adding that of the 45 new stores planned for the next few years, 15 will probably be free-standing stores, 15 lifestyle mall locations and 15 traditional mall locations. Once the company meets its U.S. goals, Ashwell would like to target the Asian, Australian and European markets.
Ashwell is trying to stay true to the company's original branding concept as she makes big decisions, like whether to move the company's Los Angeles-based manufacturing offshore and where new stores should be located. She has also had to make compromises with her team and come to terms with market realities. Ashwell prefers older storefronts, but a Shabby Chic location recently opened in a brand-new mall in Austin, Texas. "Believe me, I had to be educated and talked into that one," she says. "But it's where the traffic is going." The company is a little bit slower to open stores than anticipated, but the growth is already evident. "Even in this first year, [same store] sales [show growth of] 19 percent," she says. "They're pretty damn good."
Those companies that break through the ceiling of growth have to challenge the status quo and innovate continuously, says Rich Laxer, CEO of financial services firm GE Capital Solutions. They must also be good at finding waste and eliminating it—whether it's in terms of finances, production, time or materials. "You can't have steps that don't add value," says Laxer. "It's making sure you have as lean an organization as you possibly can, both in the people you have and in the steps they [take] to deliver the service."
Theresa Welbourne, founder of eePulse, an HR technology and research consulting firm, sees small firms struggling with what to grow first, second and third—whether it's head count, cash, customers or sales. The typical scenario is to focus on product, sales cycle and people (in that order), but the companies that win are the ones that spend more time hiring the right people. "[They're] really built on their core team and they're working on the people, but that's not what most people do," she says. John Keagy is co-founder and CEO of 6-year-old ServePath, a San Francisco-based managed hosting company with 2,500 customers that is working to go from annual sales of $10 million to sales of $20 million. Its growth strategy is to target more sophisticated customers—namely accomplished Web 2.0 firms and software as a service companies—that have more complex requirements, but Keagy needs to build the 100-employee company's middle management layer to spur this growth. "Ten people can't fill out this whole company anymore," he says. "We need to teach the executives we've got now how to build executives that report to them."