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7 Stages of Growth: Stage 3

7 Stages of Growth: Stage 3

Delegation: 20 – 34 Employees

What does a Stage 3 company look like?

A Stage 3 company has 20-34 employees. At this stage of growth, it’s typical to experience a staff revolution. The first indicator that a company has hit Stage 3 is the certainty that the leader can no longer hold all the strings and be in control of the organization entirely on his/her own.

When a company is in Stage 1 and Stage 2, it is CEO-centric – meaning the CEO is likely the specialist who created the product or service that the company provides. It’s the CEO’s energy and passion that moves the company forward. Stage 3 is the first time the company becomes enterprise-centric – meaning the leader must pass off a certain amount of authority and responsibility, and this is probably one of the most difficult challenges for a typical entrepreneur to be able to do.

When it becomes apparent to CEOs, particularly Leader/CEO, that they can no longer do what they have done in the past, it will likely cause frustration. In the awakening process CEOs either adapt to new changes, or if they don’t, they eventually may suffer the trauma from having enormous leadership inefficiency and what is called “entrepreneurial burnout.” In Stage 3, CEOs must be able to assign work. This includes both the authority and the responsibility of the work to managers. It is also necessary to manage, orchestrate and empower the managers.

Required Leadership Skill Base:

  • The awareness to assign enough managers.
  • The ability to delegate authority and train for that authority.
  • The ability to manage, orchestrate and empower the managers.
  • The ability to address cost issues.
  • The ability to see the need and manage the growth.

Stage 3 leaders have outgrown their original spans of control. It’s critical that the CEO starts to build trust among his/her management staff in order to support the challenge of having them take on more responsibility and authority. CEOs will have to start delegating and letting go of that control they have held for some time because staff buy-in is now the number one challenge.

The top five challenges in Stage 3:

  1. Staff Buy In
  2. Communication Gap
  3. Business/Profit Design
  4. Unclear Values
  5. Resistant to change

As the leader navigates through Stage 3, the primary goal is to undergo a major transformation from being entrepreneurial to becoming an operational manager (or hire an operational manager). In order for the organization to successfully grow, the CEO must “let go and let it grow.” The mindset of the organization must become larger than one person. The organization can no longer be CEO-centric where everything revolves around the leader. It must become enterprise-centric where the fundamentals of the organization are being built through the team.

The organization has grown too large to micromanage. So, the leader will have to learn how to macro-manage. The organization is now so large that one person is incapable of effectively controlling everything, so the CEO has to learn how to delegate responsibilities and authority to others, transferring knowledge so it becomes part of the team’s collective intelligence.

The leader has to start trusting, believing, managing, training, teaching, coaching, rewarding, caring and communicating with each and every person in the company. This is a very difficult transformation for most CEOs/founders, and many don’t succeed. If the leader is having trouble making the transition, he/she should get help. Stage 3 is perhaps the most difficult stage of growth to navigate. If a CEO doesn’t understand who he/she needs to become, he/she will find the company’s growth coming to a screeching halt. Why? Because the business can no longer successfully grow using what worked before. Moving from Stage 2 into Stage 3 the company experienced a Wind Tunnel. Much different from a Flood Zone, the Wind Tunnel is about letting go of methodologies that no longer work and creating new ones that do.

The business must be reorganized for the level of complexity it has reached. It is a difficult time because growth creates, (a) anxiety (many of the staff are resistant to change); (b) insecurity (many don’t know what to expect); (c) fear (many fear failing); (d) confusion/chaos (as the team learns responsibility and authority); and (e) revolt (because the CEO can’t let go and tends to continue to micromanage).

The CEO’s influence in the business must be Facilitative. So many aspects of the business are changing that it requires a leader’s Facilitative presence. This is a big change from the authoritative presence the CEO probably prefers. Instead of having all the answers, he/she needs to facilitate the empowerment of the team by encouraging them to think on their own. When they want their leader’s direction or opinion, the response should be “how do you think we should handle that?” In order to avoid a revolt, the leader will need to (a) have an open door; (b) communicate often with the entire team; and (c) continually encourage, gently exhort and affirm his/her staff.

With departmental divisions forming and people specializing in different aspects of the business, 60% of the leader’s time should be spent coaching key employees and managers to help them successfully take on more responsibility and authority.  The Specialist role (the leader’s expertise role) that dominated in Stages 1 and 2 is diminishing (30% of the time), but the leader must continue to monitor if the products/services are relevant in the ever-changing market and address customer needs.

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)

In Stages 1 and 2, the BPRs are 4:1 and 3:1 respectively — the company should have been very aggressive creating a business model and ramping up its volume. But, in Stage 3, as the company shifts from a CEO-centric to enterprise-centric, the BPR should be 1:1. With all the change required to achieve a enterprise-centric status, now is the time to be equally aggressive and cautious. Becoming less aggressive might be a challenge for the CEO, but this is critical for the team to become confident in their roles, responsibilities and ability to make decisions.

Foundation Building Blocks for Stage 3:

Delegation System

Develop a system and template for delegation to insure the leader is maintaining control and supporting his/her managers.

Quality Control

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

Work Community

The hiring system should help identify the skills that are needed and then help the company find, recruit, select and hire great employees. There should also be a plan for each employee describing expectations, performance measurements and actions that will be taken to help him/her succeed.


The financial system should include a simple:

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

Marketing and Sales

Develop a well-defined sales and marketing system that all salespeople use.


It is time to get outsourced part-time support such as COO, CFO and HR consultant.

The actual living entity of the business becomes much more tangible and measurable. This is the first time the leader must begin to rely on his/her leadership skills to run the company instead of technical skills.  And it’s the first time the leader is not involved in the day-to-day sales of the company.

The Non-Negotiable Leadership Rules for a Stage 3 Company:

  • Release control to capable supervisors and lead them.
  • Create an advanced financial reporting and projection system.
  • Instill a team-based mindset.
  • Overhaul the business model.
  • Strengthen all communication.


What does a Stage 4 company look like?

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