Second-Stage Businesses Have Unique Needs

Businesses that have navigated successfully the waters of identifying a viable market and product and that are no longer concerned on a day-to-day basis simply with survival, are classified as second-stage businesses. These businesses have special needs, unique from those of start-ups and large corporations. The leaders of these companies often find that their businesses are either stretched to the limit due to increasing sales that require perpetual increases in people, inventory, space and financing , or that they have reached a plateau and cannot do anything to change the status quo.

The challenges second-stage businesses face are no longer simply about survival. These companies are generating revenues of $2.5 to $50 million annually, but are facing organizational issues that must be considered if growth is to continue. Second-stage businesses frequently face some or all of the following issues:

• People in different parts of the organization are unaware of what others in the organization are doing.
  
  
• Many employees don’t understand the organization’s ultimate goals, and may even be inadvertently working against such goals.
  
  
• A rapid growth in sales may precipitate a decline in product quality.
  
  
• Employee turnover may increase due to increased organizational conflict and stress.
  
  
• Leadership often finds itself performing operational tasks that others really should be handling.
  
  
• Leadership finds itself daily without enough time to complete their workload, much less focus on planning for the future.
  
  
• Lack of organizational infrastructure causes loss of files and paperwork, creating confusion and embarrassment.
  
  
• Computer systems overwhelmed by growth may crash frequently, hindering the employees’ ability to function.
  
  
• Meetings often accomplish little and are seen as a waste of time by many.
  

Second-stage business leaders often find that the very qualities and skills that helped them survive in the start-up stage may no longer be sufficient and are potentially a liability to sustained, long-term growth. In order to move past survival and into sustained and enduring growth, second-stage leaders have to transition their businesses into a professionally managed firm, while still maintaining the entrepreneurial creativity that drove the company’s original success.

Second-stage businesses are an extremely important component of today’s economy. According to YourEconomy.org, second-stage businesses are only 13.4% of the total business population in the Kansas City Metropolitan area, but supply 39.2% of the area’s employment. Knowing how important second-stage businesses are and the unique risks they face, the University of Missouri at Kansas City’s Small Business and Technology Development Center has created a program to specifically address the needs of second-stage business leaders.

The Growth Business Strategies program is the first in a series of programming being developed to meet the needs of second-stage entrepreneurs. “There are many great resources out there to help out brand new businesses, and there are numerous high-dollar consultants and training companies providing what large corporations need. The second-stage business leader tends to fall through the cracks,” according to Diane Scott, professional development program manager at UMKC’s SBTDC. The Growth Business Strategies program is designed to give the key leaders of second-stage companies the skills necessary to transition their companies into professionally managed ventures with the appropriate organizational structures in place to cultivate further growth, without creating innovation crushing bureaucracies.

The time of second-stage leaders is in high demand. Simultaneously, growth business leaders need dedicated time to work on their businesses, not just in them. The Growth Business Strategies course format is specifically developed to limit time away from the business, while simultaneously giving leaders focused time to grow the skills needed to further develop their companies. The program is presented in three monthly modules on Fridays and Saturdays at the Elms Resort and Spa in Excelsior Springs, MO (45 minutes from downtown Kansas City). The four weeks between modules allow students the opportunity to apply new skills and work on a plan for the strategic growth of their companies.

The program covers all the areas proven to challenge second-stage businesses from planning and budgeting to operational controls and organizational culture change. ABMI’s own Dan LoIacono will teach the session on Funding a Growing Venture. Second-stage leaders will get a chance to apply their new skills in a competitive and rigorous simulation of a second-stage venture.

Due to LoIacono’s association with the program, UMKC’s SBTDC is offering a 25% discount to leaders who learned of the program through ABMI. To receive the discount, applicants just need to refer to ABMI on the application. To view an informative flier on the Growth Business Strategies program click here. To download a program application click here. Applications must be received by August 1st and space is limited. For more information on this or other programs for second-stage businesses go to UMKC’s SBTDC’s site at: http://www.entrepreneurship.bloch.umkc.edu/sbtdc/secondStage.aspx

A Snapshot of the Economy, July 2008

The state of the economy has been capturing our attention lately to say the least. It is hard to ignore the media and the seemingly never ending increases in gas prices. The effects of inflation are starting to be apparent in various places such as the grocery stores. While it is no doubt something is going on, how do we discern what is simply media hype and what is fact? And perhaps more importantly, what does it mean to us? How should we, as small business owners prepare or respond?
Let’s cover a few key statistics that seem to have the biggest impact on small business.

The Prime Rate
The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). It is used as a tool by the Federal Government to relieve pressure and stimulate spending in challenging economic times. The lower the rate…the cheaper the money…the more spending. In theory, more spending fuels investment and stimulates growth. The Prime Rate was at 8.25% in September, 2007…not that long ago. That was the highest rate since March 2001. The Fed started lowering the Prime Rate in September 2007 gradually. The last rate change was in May, 2008 when the rate was adjusted by a quarter of a percent to 5.0% (See table). The lower Prime Rate stimulates investment in business (equipment, assets, etc.), and can help businesses invest in new equipment or initiatives that can improve productivity. The lower rates also make business acquisitions more affordable.

Oil Prices
We see and feel the impact of rising oil prices every day as we drive down the road. The effect of this increase cost will be rippling through the marketplace throughout 2008 and arguably much longer. Oil prices impact so many factors in the production and distribution process in almost every industry the increased cost is impossible to ignore. The increased cost will impact profits for small business in the short-term. As the businesses are able to pass the increased costs to the end user the affect will be less dramatic. Ultimately, the rising oil prices will be reflected in higher prices to the consumer. On a slightly more positive note, domestic oil production and development of alternative fuel industries will be stimulated by the higher prices that can support previously unprofitable domestic investment.

The Housing Market
The housing market has taken a blow on the chin over the last year. New home sales have dropped on a national level in six of the last seven months. According to the Commerce Department, national new home sales dropped 2.5% in May compared to April, and the average price of a new home was down 5.7% from a year ago.
In the Kansas City area, the Realtors association reported that May’s sales of new homes were down 40% from sales in May 2007. The Kansas City Metro Area saw an 83.7% increase in the foreclosure rate between 2006 and 2007. According to RealtyTrac, 1.177% of all housing units in the region were in some stage of foreclosure throughout the past year. Kansas City’s 1.177% was less than the average for the 100 largest metro areas in the country (1.382%) but was higher than the nation as a whole (1.033%).

Unemployment
The national economy lost 62,000 jobs in June, the biggest loss in employment since March 2003. The grim outlook reflected six straight months of job cuts — a sustained slide that hadn’t occurred since 2001-02 — and an unchanged 5.5 percent unemployment rate, the highest level in four years. Nationally, the greatest level of national job losses occurred in construction.
Job seekers are becoming more and more disillusioned with the dependency on large corporate employers for their employment. Many are pursuing opportunities in small business to buy a business and have more control over their future.

Summary
This has been a very brief overview of some of the key economic indicators relevant to small business. There is no way we could adequately cover everything going on in the economy and how it could impact your unique industry. It seems apparent that the recovery is in the hands of the small business owner. The same entrepreneurial spirit that has built this country will need to come through as we dig out of this downturn. Paying attention to the marketplace and making adjustments to capture market share and profits will be critical as we navigate our way through the economic rapids. There are a number of reasons why buying a business could be the perfect move at the perfect time. Contact your advisor at ABMI to explore if the timing is right for you.

913-341-6300