7 Stages of Growth: Stage 2

Ramp Up: 11 – 19 Employees

What does a Stage 2 company look like?

A Stage 2 company has 11 – 19 employees. CEOs of Stage 2 companies are still the center of the business. They need to stay calm and thoughtful, and before they react to the increases in activity and workload, CEOs should ask themselves these questions:

  • Am I still focused on driving profits and revenue?
  • Am I beginning to let go of critical aspects of the company to capable people?
  • Am I watching the key indicators of success every day?

A Stage 2 company is CEO-centric — meaning the CEO is likely the specialist who has created a product or service and is now getting his/her idea to take shape. Therefore, 40% of the CEO’s time should be spent as Specialist, while only 20% of the time will be spent as Manager. The other 40% of the CEO’s time should be in creating and fine-tuning the vision of the company. The leader is still the center of the business, and all decisions run past him/her. A Stage 2 leader must provide the vision — spending 40% of his/her time creating, articulating and getting the team on board with the path and movement of the company.

A Stage 2 company will start seeing the beginning of diversification within its organizational infrastructure. In Stage 1 everyone will need to fill multiple roles at the same time. In Stage 2 the business will begin differentiating tasks and having people become specialists within the organization. This is a critical stage for leaders because they must begin to delegate both authority and responsibility, and this can be difficult for many entrepreneurs. Leaders, filling the leader role, within a Stage 2 company will try to hold on to all the control and make all the decisions, but the reality is they simply cannot.

This is why leaders begin to feel stretched too thin, frustrated that people aren’t doing their jobs and worried that things are getting too out of control. The leader, leader or otherwise, still needs to manage sales and must have the ability to motivate a small staff to achieve extraordinary results, keeping an eye on quality and customer service.

A Stage 2 company must start focusing on cost issues and recognize the need to consciously manage the growth of the enterprise. Growth, not survival, is paramount. The company needs to support a higher sales level and generate positive cash flow.

Of the three Gates of Focus, The People Gate, The Process Gate and The Profit/Revenue Gate, the latter is the main gate for Stage 2. It’s still all about generating revenue and starting to generate profit. The second gate is The Process Gate because the company has grown from less than 10 people up to 19 people, and the business cannot rely on having people keep those critical processes in their heads.

Required Leadership Skill Base:

  • The ability to manage sales.
  • The ability to motivate a small staff to achieve extraordinary results.
  • The ability to keep an eye on quality and customer service.
  • The ability to address cost issues.
  • The ability to see the need to manage growth and fill more that one role.

The CEO’s management time increases as his/her staff increases, requiring different things from the leader than experienced in Stage 1.

The top five challenges in Stage 2:

  1. Hiring Quality Staff
  2. Improving Sales
  3. Cash Flow
  4. Leadership/Staff Gap
  5. Limited Capital to Grow

At this stage of growth, the risk is in the bustle of rapid growth. If the leaders fail to check key indicators, cash flow gets thin and disaster is imminent. With the business now growing, it is time to begin building organizational infrastructure and preparing for Stage 3. Infrastructure building begins with the following:

  • Developing clearly defined values.
  • Defining tasks and processes.
  • Defining roles and responsibilities for each team member.
  • Helping team members become specialists in their business functions.

Beginning to think about what specific responsibilities can be delegated and who to delegate them to in Stage 3.

Between each stage of growth is what is called a transition zone, and that transition zone is actually a phase of chaos that the organization moves through in order to prepare itself for the next stage of growth.

Without this chaos, the organization would not be able to sustain itself or be able to compete in the next stage of growth. Therefore the chaotic zones are an important juncture in the growth model of any thriving organization. It is interesting that inside the vulnerable and chaotic transition periods of organizational growth, there inevitably appears to be a high level of confusion in the staff about what’s happening.

When a company experiences one of these transition zones it’s typical to hear complaints directed at leadership. In truth, often the chaos couldn’t have been avoided and was a natural result of the company preparing for the next growth stage.

As a company moves from Stage 1 to Stage 2, it encounters a Flood Zone. A Flood Zone is the transition zone whereby the organization experiences an increase in the level of activity. There is a sense of drowning, as there is a rise in the number of people on staff, new and different processes to implement and new clients with new demands. The Flood Zone causes many CEOs to lose focus as they attempt to handle the flood of new activity. The CEO should not let the activity distract from first focusing on the following:

  • Driving profits and revenue
  • Maintaining product/service quality and customer service excellence
  • Monitoring success key indicators weekly

The Builder/Protector Ratio (BPR) is a measurement of “confidence vs. caution.” It is a critical tool to gauge the business’ ability to accept change, respond with confidence to change and successfully navigate the change.


  1. Thrive on risk
  2. Are always looking for new opportunities
  3. Don’t back down from the everyday challenges


  1. Thrive on caution
  2. prefer to apply the brakes (and should be encouraged to do so when appropriate)

During Stage 2, the Builder/Protector Ratio should be 3:1 three builders to one protector.

While the CEO should continue to bring a builder-like mindset to the company, it’s not about moving forward as fast as possible, but more about everyone being aligned. As members who are becoming leaders and specialists build their teams, CEOs must help build confidence in their ability to succeed.

Foundation Building Blocks for Stage 2:

Business Model

Continue to refine a simple business model laying out the:

  1. Value proposition
  2. Target customer/channel
  3. Product/service features and pricing
  4. Revenue streams
  5. Marketing and sales strategy
  6. Operations strategy
  7. Profitability
  8. Cash flow.


Create a simple sales system that works and can be replicated and used by all salespeople. The company should also have or be implementing a customer relationship management (CRM) system.

Quality Control

Have a quality control review and feedback form (work review template) to keep the team on track and held accountable.

Financial System

The financial system should include a simple:

  1. One-year profit plan (budget) projecting revenues and expenses
  2. A financial model
  3. Cash flow forecasting
  4. A dashboard.

Work Community

Develop a written plan for each employee describing expectations, performance measurements and actions that will be taken to help him/her succeed.

The Non-Negotiable Leadership Rules for a Stage 2 Company:

  • Sell absolutely everyday.
  • Develop, without fail, three employee leaders to be responsible, accountable and proactive.
  • Create a daily, weekly and monthly “key indicator” instrument panel/flash sheet.
  • Communicate any and all directions in writing.
  • Drive small action teams to hit goals.


What does a Stage 3 company look like?