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Choosing the Right Leader for Each Stage in a Company’s Lifecycle

Recently, I had an epiphany when I was working with a company that was struggling in its current state: This company had the wrong leader for the current stage in its lifecycle. The current leader had done a great job getting the company to where it was, but now that it was established, it needed to function in a different manner. The company needed to transition from start-up to growth mode — a transition the current leader was ill-suited to navigate.

In simple terms every company, assuming it survives, proceeds through four stages:

  • Stage One: Founding and creation
  • Stage Two: Growth and maturation
  • Stage Three: Development and expansion of core competencies
  • Stage Four: Exit or monetization

Each of these four stages requires strong leadership, but rarely is a single individual best suited to lead the company at every stage.

Stage One: Founding and Creation

This stage is characterized by is energy, vision, and a development of core culture. The ideal leader at this stage is a classic entrepreneur: full of ideas, with an unwavering vision and the unshakeable belief that if she builds it, it will succeed. This leader will drive forward thinking and create energetic buy-in among employees and others in the marketplace to establish the company and its market presence. Fortunately, companies are typically founded and created by such leaders. Problems begin to arise as the company matures over the course of several months or years following its origin.

Stage Two: Growth and Maturation

The next stage of a company involves targeted and directed growth and maturing of the business both internally and externally. A leader in this stage needs to understand the founding culture and maintain the core values, but also look forward to sustaining the business and culture for the long haul. Energy is still a necessary component in this leadership position, but the energy can be more slow burn as opposed to the intense heat that is part of the company formation stage.

The leader in the maintenance and solidification phase of a company needs to be a trusted successor to the initial leader and be viewed as someone who will implement and solidify the company’s infrastructure. While a single individual can, and often does, lead during stage one, leadership during stage two can be undertaken by a succession of leaders. This second phase of a company will likely run several years or a decade because the work of cooling the hot steel and shaping the core of the company can take years.

Stage Three: Development and Expansion of Core Competencies

In the third stage, a company looks to grow within its core areas and develop additional core competencies or move into additional markets with strength. While growth is the primary objective, it differs from that seen in stage one of the cycle. Growth in this stage is thoughtful and reflective and done with measured purpose, typically from a position of strength or at least a solid foundation that serves to directly leverage the business model. A leader in this stage of the company will need energy focused both internally to motivate and direct the resources and human capital to grow and sustain the culture, and externally to find and develop opportunities. This leader is required to look not only to the past to maintain the core culture, but also to the future to figure out how to sustain the core and adapt to the ever changing business world.

Stage Four: Exit or Monetization

Aside from a distressed situation where outside forces may dictate an exit or change in ownership of a company, most companies will contemplate a voluntary exit or other monetization event at some time. This event is likely the culmination of hard work, perseverance, and weathering some storms. Leading through this final stage of the journey can be the most difficult and require the most focus to optimize the outcome for all parties and for the future of the company.

A leader in this situation needs to be able to balance the anxiousness of getting the final project done with discipline to ensure that the exit is well orchestrated and all the stakeholders involved understand what is happening and are on board with the process and ultimate goal. Leading in this environment requires a high degree of emotional connection and focus to guide the company forward to a successful exit, because distraction or decisions made in haste during the final stage of the journey can have significant negative consequences, and there are no second chances to exit a business.

Each of the leaders involved in these broad stages of a company require different personality traits, operational knowledge, and leadership skills. The challenge for any business is to recognize the stage it is in and have the courage to execute an appropriate change in leadership. An additional wrinkle arises when a business has two or more units, divisions, or locations in different developmental stages. This is where leadership must be reviewed on several layers. Overall company leadership and the leadership of each business unit or location requires attention because the requirements will likely differ for each.

While much more could be said on the interplay of leadership and company lifecycle, a clear takeaway from this high level review is that human capital is something that must be considered and understood by any business owner or leader because the dynamics of different skills, strengths, and weakness will affect a business and become part of the personality of the business. These dynamics will also influence the culture of a business and the ability to sustain that culture over time and as leaders move through the system.

As you ponder changes in leadership, keep in mind that parallel changes may need to be made to the company’s board of directors. For more about changes to board role and membership, check back next month as I tackle that topic in “Keeping Your Board of Directors in Step with the Stages in Your Company’s Lifecycle.”

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Disclaimer: The information in this blog post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Stephen Dietrich, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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About The Author: Stephen Dietrich is an attorney and author who has a passionate interest in the human side of business. His distinctive combination of legal and business knowledge, human insight, and dedication to clients makes him uniquely qualified to help corporate leaders and other C-level executives navigate high-value mergers and acquisitions, restructure transactions, and manage day-to-day operations. Through this blog, Stephen shares his extensive experience and unique personal and professional insights in the hope of stirring thought and dialogue that leads to ever deepening insights and understanding. For more information, please visit www.StephenDietrich.com.

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