Companies grow year after year – especially German SMEs and small and medium-sized enterprises can do one thing best: grow! It is precisely this growth that offers employees great opportunities, such as management positions or other rather special career paths such as cross-entry. It is precisely these opportunities that have inspired me for SMEs and I have worked exclusively in SMEs. I saw a lot of growth there and was always happy that I was part of this company and can contribute to growth.

But I also noticed that companies can break with growth. “The numbers are great but it’s not that exciting to work there anymore,” employees told me. I have noticed that different crises can occur depending on the growth. In this article, I will show what these are and how an SME can cope with them.

Tip: The model is based on the ideas of the Greiner model. However, this was too easy for me and important aspects are missing. That’s why I designed my own model.

Business growth in my experience (Lindner)

Limitation: This is a model from my experience. It is meant to present reality simply and serve as orientation. It may also be that it is a little different for each company. I would like to give guidance with this model. It has not been scientifically proven, but reflects my experience.

Excursion: What are SMEs

SMEs stand for small and medium-sized enterprises. It includes 99.3 percent of all German companies (3.5 million). It is divided into:

  • Micro-enterprises (up to 9 MA)
  • Small businesses (up to 49 MA)
  • Medium-sized enterprises (up to 249 MA)
  • Large companies (from 250 MA or often from 500 MA)

Most companies – almost 85% are small businesses. I myself have based on the experience of my research and also the experience of my professional life as a management consultant, orientated myself to the definition, but also added my own thresholds. I will explain these values in the course of the article in the appropriate places.

Small and Strong (10 MA)

The company is still small and not so old. Everyone knows each other – the service routes are short. People talk a lot to each other. What strikes me most is that everyone does everything – the employees can be used in many different ways.

The first crisis starts from 10 employees. The founders are busy managing the new employees, so that strategic planning falls by the wayside. There is a leadership crisis, because it is no longer possible to discuss everything personally. This phase is quite simple. It is enough to give the employees more freedom and possibly to define quite loose roles.

Leadership crisis (50 MA)

The company showed its strength above all through creativity and the high level of commitment of the first employees. Everyone learned and does everything. The main thing is the customer is satisfied. Decisions are made primarily by the founders and there is creative chaos in many places.

This is precisely where the first crisis begins. Here it is time for the founders to let go. The highly dynamic interaction is already reached at the first limits from 10 employees and can still be maintained up to 50 with first team leaders (professional leadership). There is a need to build up initial structures and managers, as everything can no longer run over the desks of the founders alone. An executive is needed and 2-3 disciplinary officers are required. This includes not only all technical aspects but also “soft” topics relating to the qualification, development and support of employees.

At this stage, it is up to the founders to let go and build up management structures. Much influence is needed on the founders. The founders can no longer process all the information. Even some employees, who can no longer clarify everything with the founders, will feel uncomfortable and certainly one or the other will go back to a small company.

Cultural crisis (100 MA)

It is slowly but steadily changing. The biggest change is that not everyone does everything anymore – everyone has their own special territory. New employees are searched for special tasks and there are first internal teams such as Controlling and HR.

Due to the specialization of the individual employees, searches still know, but the information must be given after first processes along a chain. At this stage, the company is changing the most:

  • There is a battle in the company between the new employees and the old long-term employees. You will not find your company and its culture shaped by founders as they used to be. There is a lot of talk about the past.
  • Due to the new specialization, there are not yet enough forces for everything – the consequence of internal tasks: no one feels responsible anymore. The company is becoming slow and inflexible.

Competition has arisen between the two cultures. The uniformity towards the customer is lost. Processes are defined, but there is wild growth. It is now important for the founders to use good managers who convey and represent the processes and values of the company.

At this stage, companies lose agility slightly because they have reached a critical mass. There is also the risk that the company will fall apart due to the cultural dispute in the middle. Often, external service providers are added during the phase to advise on the development of the organisation. It is important to change the culture of the company in a targeted way, as well as to preserve traditions.

Bureaucratization (250 MA)

Now the first complete tasks have been structured. The consequence is departments or regional responsibilities. Profit centers, business segments and first cross-sectional functions, e.g. internal process management are formed. Due to the internal chaos, more and more processes and structures are being built up. Everyone optimizes their area and there is always talk of interfaces.

Here, companies notice that, despite rising sales, profits are falling somewhat. More formal planning will be applied and new staff will be recruited for overarching voting. Also certain functions are centrally controlled and you have to turn to an often overloaded place, which often does not deliver in time.

Often, however, the limit of what is necessary is exceeded. The company is beginning to get caught up in its own bureaucracy. Structures are set firmly by the Board of Management, processes are clearly defined and compliance is monitored. For this purpose, an internal department drafts instructions for action, checklists, reporting templates. The leadership also takes some decisions back. Uniformity is called for again.

The only problem is that standardized processes make the company immobile and often a task is discussed longer than completed. Decisions are often based on specifications and principles rather than on customer benefit. Many companies are losing many employees at this threshold.

But the market demands quick decisions and employees are quickly frustrated. Of course, a certain amount of bureaucracy is necessary, but the company has just 250 employees, not 5000. It is now necessary to break up the rigid organization by means of agile methods.

Silo Crisis (400 MA)

Now strong departments have been established and the bureaucracy is slowly being dissolved and more freedom is being given. The challenge now is that the new departments, divisions and business areas continue to work in the spirit of the company and do not build closed silos. But especially after the reduction of bureaucracy, some employees strongly oppose it.

Competition has arisen between the departments. The unity towards the customer is lost and power struggles begin. At this stage, the founder is challenged. He now has to recapture rigid silos and small kingdoms, which some department heads have built up hard over the years. This is followed by a dissolution of the silos and a mixing according to cross-functional departments according to agile methods. Unfortunately, some executives also have to be removed during this phase and, in my experience, they are often even long-time friends of the founder.

If this change is not made, the company will become more bureaucratic and rigid until the department heads have such a high degree of autonomy that there are such strong silos that are no longer controllable for the founder. It is no longer clear who exactly does what, as the department heads have sometimes created a strong lack of transparency to the outside world.

In this phase, soft skills such as social control, empathy and self-discipline are particularly important, which replace the formal processes. The solution is problem-solving orientation, interdisciplinary teams, open meetings with all those responsible and skills. Remuneration models for whole groups are also good instead of just an entire bonus. This change is particularly difficult for all those who have helped to build up the formal processes.

Conclusion

The growth of an SME is not easy and there are many phases. As a founder, you have to constantly change and also experience many phases as an employee. Every employee has a form where he feels most comfortable e.g. I know many who only work in the sector of autonomy and chaos and always leave companies over the size of 100 people.

For a better summary, I have re-visualized the phases and divided them into leadership and bureaucracy. Of course, not every company goes through the phases like this, but there is a clear tendency to see that most SMEs think this is the case. Take the picture as an orientation and arrange your SME there.

My experience of How SMEs grow and what phases they go through (Lindner)

Image source: https://pixabay.com/de/photos/h%C3%A4nde-macro-plant-soil-growing-1838658/

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I blog about the impact of digitalization on our working environment. For this purpose, I present content from science in a practical way and show helpful tips from my everyday work. I am a manager in an SME myself and I wrote my doctoral thesis at the University of Erlangen-Nuremberg at the chair of IT Management.

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