How to Break Out of a Growth Rut

Picking Up the Pace

What's holding your company back? Ironically, the pressure for short-term growth can make you lose sight of your long-term growth potential, and no industry or segment is immune. Angelo Santinelli, an adjunct business professor at Babson College and a former partner at venture firm North Bridge Venture Partners, has watched companies stall out because they don't have enough capital to grow with the pace of the market, then cede market share to highly capitalized competitors. "They'll get to $50 million [in sales] and plateau," Santinelli says.

In some cases, a small company has the capital but underestimates just how long it can take to build a product and have the mass market embrace it. "Companies can stall out because they have new ideas but run out of early adopters," says Dave Lemont, founder of Lemont Consulting, a firm that advises young companies on growth strategies. "The company can get the first $8 million to $10 million because there are many people in the world willing to try a new thing. But to become mainstream, you've got to get the more conservative laggards in the market."

Brad Allen, founder and CTO of Siderean Software, is trying to grow his El Segundo, Calif., company from annual sales of $3 million to sales of $10 million over the next year and a half. Siderean started out in 2001 with its own sales staff, but the focus has shifted within the past year to building partnerships and indirect channels that will take the company to the next stage. The company has secured 12 partnerships in the past year, including a co-selling agreement with Oracle(ORCL Quote) and a reseller agreement with software company Inxight Corp.

"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."