Second-Stage Entrepreneurs

Characteristics of Second-Stage

Second-stage companies are those that have grown past the startup stage but have not grown to maturity. They have enough employees to exceed the comfortable control span of one owner/CEO and benefit from adding professional managers, but they do not yet have a full-scale professional management team.

A business typically begins to enter its second stage when it approaches $1 million in total receipts. The transition process can continue until it hits $100 million in receipts, although for most companies $50 million represents the upper limit of second stage. By $100 million, a firm will have to be professionally managed in order to continue to thrive and grow and be in its third stage of development. Employee numbers and revenue ranges vary by industry, but the population of firms with 10 to 100 employees and/or $750,000 to $50 million in receipts includes the vast majority of second-stage companies.

Here are a few of the many signs identified by Eric Flamholtz and Yvonne Randle1 that indicate to a CEO that second stage is at hand:

  1. Many people are not aware of what others are doing.
  2. People lack an understanding of the firm's ultimate goals.
  3. A precipitous drop in product quality occurs for unknown reasons.
  4. Turnover increases sharply, just when the company needs more personnel.
  5. You wake up worrying about operational tasks that someone else ought to be handling.
  6. All your customers want to meet with you, but finding the time to do so seems impossible.

1. Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firm, by Eric Flamholtz and Yvonne Randle, revised ed. (Jossey-Bass, 2000), 9-10, 33. This paper makes heavy use of Chapter 2 of Growing Pains. Flamholtz and Randle identify seven stages: New venture, expansion, professionalization, consolidation, diversification, integration, and decline and revitalization. Here we compress their stages 2 and 3 into a single second stage, and treat their stages 4-7 as a single third stage.

Resources

U.S. Jobs 2006-2008
U.S. Jobs 1993-2008
Littleton Economic Gardening
Kauffman Foundation Research

Chris Gibbons: Introduction to Economic Gardening Chris Gibbons Intro to EG
Mark Lange: Economic Gardening Update for Collier County, FL (Naples) Mark Lange EG Update

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