SME's LIFE CYCLE – STEPS to FAILURE or SUCCESS?

SME’s LIFE CYCLE – STEPS to FAILURE or SUCCESS?Noel Jones 1AbstractThe body of literature on SMEs suggest that all SMEs seem to go through different life cycles, andwhile the terms used by different authors may vary, the events that govern them are all toofamiliar to the founders and managers involved. While each SME may seek to grow from the startit will inevitably meet new challenges and crises over time that must be addressed effectively if thebusiness is to survive and prosper. This author believes that these crises are characterised as‘Plateaus’ that must be carefully managed in order for the business to be ready for its next growthperiod. If neglected and the business tries to continue ‘business as usual’ during a crisis it willcollapse in failure. As so many have done in the past and why the average life span of many SMEsis only five years. Moya K. Mason (2009) points out that: “The Small Business Administration(SBA) keeps the stats on business failures and claims that more than half of new businesses willdisappear in the first five years.” According to an August 2009 Business Daily Article - Poorpractices lead to high SME mortality: “poor management and a shortage of funds have beenidentified as the main cause of start-up deaths globally.” It is recommended that training beprovided for all SME entrepreneurs to prepare them for the road ahead and the challenges andcrisis that they will inevitable meet along the way. This Paper provides a brief look at a typicalSME’s life cycle in terms of both its Growth Phases and the subsequent crises ‘Plateaus’ it mustmanage along the way in order to survive and prosper, and be ready for the next growth Phase.Key words: Small Medium Enterprises (SMEs), Corporate/company life cycles.IntroductionNow with the financial crisis still wreakinghavoc on the world and many largecorporations and public sector organizationsreducing their staff numbers, many aspiringentrepreneurs, suddenly finding themselves outof work, are striving to make their dreamscome true and seeking to start their ownbusiness. Most such businesses are Small toMedium Sized Enterprises, businessesemploying fewer than 250 people, commonlyreferred to as SMEs 2 .The history of SMEs is one where manyhave gone but few have succeeded. Theaverage lifecycle of many SMEs is in theregion of five years or less. Take the United1 Noel Jones, Ph.D. has been a Visiting Professor atAssumption University, Graduate School of Business,since 2000. He was a Visiting Professor at the JointVienna Institute, Austria from 1993 to 2004. A formerstaff member at both the IMF and WB HQs inWashington between 1987 and 1997, he continues as aconsultant to many WB ProjectsStates, for example. As pointed out by Mason(2009), “the Small Business Administration(SBA) keeps the stats on business failures andclaims that more than half of new businesseswill disappear in the first five years.” And, asan August 2009 Business Daily article,ominously entitled ‘Poor practices lead to highSME mortality,’ indicates, business failure atan early stage of a company’s existence is aworldwide phenomenon: “poor managementand a shortage of funds have been identified asthe main cause of start-up deaths globally.Experts say a majority of small businesses foldup after an average of 18 months due to failureto stand up to competition. About 80% of startupsare expected to fail … the failure rate isnot localized, even in advanced economies themortality rate is just as high.” HarvardProfessor Mukti Khaire 3 is equally blunt andcategorical in his assessment of SMEs’ lifeexpectancy: “the track record is well knownand sobering for any entrepreneur: 90 per centof all new ventures fail as start-ups often lackvital resources, must compete againstestablished companies, and have little or no3

track record with which to woo customers andinvestors.” Figures invariably point to a highmortality rate.And figures are even more baffling whenone takes into consideration the fact that manywho fail learn invaluable lessons for futureventures that can thus increase their chances ofsuccess, a view which this author endorses. For,as Thomas Edison once said about his manyfailures en route to inventing the electric lightbulb: “I will not say I failed a 1,000 times, Iwill say that I have discovered that there are a1,000 ways that Cause Failure.” Moreover, asAlbert Einstein once remarked: “If someonefeels that they had never made a mistake intheir life, then, it means that they have nevertried a new thing in their life.” Still, whilemaking mistakes is an integral part of thelearning process, it does not of itself explainthe high rate of attrition. Which begs thequestion of why so many defunct SMEs?One way to account for this high level offailure is to consider company life cycles, anapproach which this paper will follow. Thisauthor has identified four key Phases to allSME Start ups. However, it is also thisauthor’s belief that, as each of these fourPhases comes to an end, there are importantdecisions to be made. This author calls thesedefining moments, which represent transitionalstages from one Phase to another, ‘PlateauStages’. Each of the four stages will thereforeconsist of a Phase and a Plateau.After briefly reviewing the history ofcompany life cycles, upon which these fourPhases are based, and considering whom thesepotential entrepreneurs are, each Phase - andPlateau - will thus be explored at length. Awhole life cycle pattern will then emergemaking it abundantly clear that training shouldbe provided for all SME entrepreneurs toprepare them for the many challenges ahead.1. A Brief History of Company Life CyclesOne of the earliest writers on company lifecycle growth was Greiner (1972) who providedthe foundational work on the theory of acompany’s development as evolution andrevolution. Based on his theoretical review ofdeveloping organizations he came up with theconclusion that organizations seem to movethrough five distinguishable types of growth“each phase contain[ing] a relatively calmperiod of growth that ends with a managementcrisis. The five phases and crises whichGreiner identified are:“(1) growth through creativity, followed bya crisis of leadership;(2) growth through direction, followed by acrisis of autonomy;(3) growth through delegation, followed bya crisis of control;(4) growth through coordination, followedby a crisis of red tape;(5) growth through collaboration; followedby a crisis of psychological saturationamong employees. This crisis can be solvedby new structures and programs that allowemployees to periodically rest, reflect, andrevitalize themselves.”Others have followed his work andexpanded on it, and in time developed a richliterature on company life cycles. One suchscholar to whom Kees van Montford (2006)refers in his landmark work dealing with thelife cycle characteristics of small professionalservice firms are Lavoie and Culbert (1978)who, as he put it, “stressed the human factor inorganizational development in their review ofa series of different theories. To be effective,organizational development must be tied toprogressively mature reasoning processes thatcharacterize managers working in increasinglyhigher stages of the organization's evolution.Valid organizational change and developmentbasically addresses the problem of gettingmanagers and their employees to upgrade thevalues and logic underlying their patterns ofdecision-making.”Another significant contributor to this fieldis Adizes (1979) who argued, among others,that “the attitudes and style of anorganization's managers may provide a meansfor ensuring a long and effective life for anorganization.” Adizes identified 10 Life Stagesin the corporate life cycle of an organization.They include:1. courtship (the initial development orcreation of the proposition/ model/business/ formation/etc);4

2. infancy (after launch - start of activetrading);3. go-go (frantic energetic early growth andsometimes chaos);4. adolescence (still developing but moreestablished and defined);5. prime (the business or organization at itsfittest, healthiest and most competitive,popular and profitable);6. stability (still effective, popular, can stillbe very profitable, but beginning to loseleading edge - vulnerability creeping inmaybe);7. aristocracy (strong by virtue of marketpresence and consolidated accumulatedsuccesses, but slow and unexciting,definitely losing market share tocompetitors and new technologies, trends,etc);8. recrimination (doubts, problems, threatsand internal issues overshadow theoriginal purposes);9. bureaucracy (inward-focusedadministration, cumbersome, seeking exitor divestment, many operating andmarketing challenges);10. death (closure, sell-off, bankruptcy,bought for asset value or customer-baseonly)http://www.businessballs.com/adizeslifecycle.htm.Also of great import is the work of Quinnand Cameron (1983) who examined manymodels, which they then combined andsummarized into one theoretical model. Underthat model, companies go through 4 differentbut related life cycles. The first one, “anentrepreneurial stage” is characterized byinnovation and creativity on the part of thefounder. Followed by “(ii) a collectivity stage(high cohesion, commitment), (iii) aformalization and control stage (stability andinstitutionalization), and (iv) a structureelaboration and adaptation stage. Accordingto Quinn and Cameron, “there is a consistentpattern of development in organizations overtime, and organizational activities andstructures at one stage are not the same asthose at another. Thus, the criteria used toevaluate an organization's success at one stageof development may well be different from thecriteria used to evaluate success duringanother developmental stage.”Applying the findings of Greiner to thesmall entrepreneurial business situation,Churchill and Lewis (1983) developed a modelthat has become “a classic.” Starting from theposition that many of the traditional models arenot suitable for small entrepreneurialbusinesses because not all such businessesmust go through the typical stages ofdevelopment or risk failure, they argued thatmany traditional models do not pay enoughattention to the entrepreneur him/herself, towhy they started the business in the firstinstance, and to what happened in its earlystages of development and growth. They alsoshowed that for the small entrepreneurialbusiness “each stage is characterized by size,diversity, complexity, and the followingmanagement factors: managerial style;organizational structure; extent of formalsystems; major strategic goals; and ownerinvolvement.”Following Greiner’s seminal work, Scottand Bruce (1987) came up with a similar fivephasemodel, classifying those stages ofdevelopment as “inception, survival, growth,expansion, and maturity.” Like Greiner, theytoo stressed that a crisis of some kind comesbefore each stage of development or growth.This model is somewhat similar to the fourphasemodel developed by this author asdescribed below, where each crisis stage isclassified as a ‘Plateau’ stage which must befirst addressed if the company is to continue tosurvive and grow, short of which it willcollapse in failure.Kees van Montford’s (2006) empiricalstudy among small professional service firmsalso includes references to Goffee and Scase(1995) whom he credited with concluding“that a major constraint limiting smallbusiness growth is the process of mutualadjustment between proprietors and theiremployees.” According to him, “they identifiedthe most common causes of crises in small(high-tech) firms as: weak generalmanagement; poor financial controls; productcompetition; diversification and acquisition;5

changing market demand; high overheadstructure; manufacturing and operatingproblems; cancellation or delay of majorcontracts; poor marketing; and pricecompetition.”Describing the main life cycle framework inthe literature, Hamilton (1999) explained thatSME development responds to a variety offorces in the marketplace which, as expoundedby Lewin’s (1951) work on Force FieldAnalysis, are both driving and restrainingforces in addition to being equilibrium ones.Quoting Van de Van (1992), Hamilton alsoquestioned the assumption that development islinear: “The development of firms involvestheir passage through a fixed sequence ofidentifiable stages. There is no doubting thevalue of such frameworks but they generallyassume development to be a linear process andso they do not apply readily to the host of smallfirms that happen to have "grown, declined,and re-grown" (Filley & House, 1969, p. 440)during their lifetime.” The ‘Plateaus’ whichthis author identifies at each stage are alsobased on the similar assumption that thedevelopment of small firms fail to follow alinear process.In his empirical study, Kees van Montford(2006) also found that small professionalservice firms “change over the course of theirlife cycle.” He then explained that “as a firmprogresses from the start to the growth stage,and then to the maturity stage, itsdiversification in sales increases in terms ofobjects types, client types, and activities. Onpassing the maturity stage and entering thedecline stage, a firm's diversification decreases,and it returns to a limited number of sectors,client types, and activities. The same patternapplies to the composition of the labor force:after the start (with, by definition, an extremelyhigh percentage of architects in our study),more non-professionals join the firm; and thesame effect emerges from the growth stage tothe maturity stage. When the firm hits thedecline stage, many nonprofessionals leave,whereas the professionals remain, thusincreasing the relative percentage ofprofessionals.” He thus identified differentstages, each one with different characteristics,but all of them leading to the need for bothexternal consultants and professional trainingfor SME entrepreneurs, be they skilled craftspeople or professionals.While these models are relevant to someorganizations, this author takes the view that inorder to encompass SMEs in one model, it isnecessary to narrow down the Life CyclePhases to four, each one being followed by apotential or actual crisis ‘Plateau’ that must becarefully managed or otherwise the businesswill fail. As Figure 1 below illustrates, eachPlateau Stage brings about a key decision point– to continue business ‘as is’ and risk failureand collapse, or take time to address the crisesand challenges and get the company back onan even keel again to be ready for its nextgrowth period.Figure 1: SME Growth–Time Graph with Phases andLife Cycle PlateausThough this is a model predominantlyinspired by Western SMEs (most studies onthis topic pertain to Western SMEs), it is thisauthor’s belief that it may be applied to someAsian SMEs, including Thailand’s. One caveat,though; in Thailand there are many Thai-Chinese SMEs that were started by Chinesemigrants who came to Thailand in the early tomid 20 th century. Many had few skills, lowlevel education and little cash. However, theyworked and saved hard and eventually boughtout their employer’s business, or left andstarted their own. These newly establishedSMEs grew slowly but steadily, and todaymany are quite prosperous. They are primarilystill managed by the founder or his sons anddaughters or their offspring. In some casesthere are now three generations of the familyinvolved, and the business continues to thrivewithin its particular sector. However, a new6

type of life cycle ‘Plateau’ has begun toemerge as a result of the current youngergenerations’ Business Education and interest inupgrading the business with the introduction ofinformation Communication Technology (ICT)and new Management Information Systemsthat are ICT driven. These pose a real threat tothe elder family members who don’t trust ICT,mainly because they don’t understand it. Theypoint out to their younger members, “but wehave managed the business very successfullyfor the past 30 to 60 years without computers,so why do we need them now?” While thispaper recognizes the dilemma facing theseThai-Chinese SMEs it is hoped that someanswers provided below will be of benefit tothem, even if the unique features of theseSMEs is not fully addressed at this time.2. Who are these Potential Entrepreneurs?Many entrepreneurs begin with a great ideafor a product or service and believe that theycan succeed if only they had the opportunity toset up their own business. Unfortunately, thesesame entrepreneurs are often people with ideaswho do not have the know-how or experienceof starting and running their own business andquickly come unstuck. Some are crafts ortrades people who maybe great carpenters,plumbers, mechanics, electricians, builders,beauticians, hairdressers, cooks, etc whobelieve it is easy to set up shop and start theirown SME, only to find that the paper-workalone to get a license to trade and register theirbusiness is both bureaucratic and demanding.For some professionals, such as architects,engineers, medical doctors, dentists, lawyers,accountants and psychologists, etc, all part ofKees van Montford’s 2006 study (see above),having the necessary professional qualificationis a pre-requisite, to starting their own businessbut may be insufficient for them to get the seedcapital together to cover the overheads,facilities, equipment and offices, etc to starttheir own SME. Still others, such as artists andcraft workers may have very high quality workto sell but who lack the marketing and otherskills to get their business underway. The listgoes on, but most importantly, what iscommon to all is the lack of many essentialelements required to start a business and makeit a success. These include: a high qualityproduct or services that meets a market need; asuitable location to start their business;investment capital; managerial skills such asfinance, HR, sales, marketing, andadministrative skills; not to mention the abilityto carry out a business feasibility study andprepare a robust and accurate business plan -two other essential requirements before everproceeding further. Whatever socioprofessionalcategories SMEs belong to, theyall lend themselves to a general life cycleanalysis,3. PHASE I: Start-up ExcitementLet us suppose that our Entrepreneur Joehas all the necessary skills, knowledge, andcapital to start an SME to deliver his greatmanufacturing product into a market that has ademand for it. Initially the energy and drive ofthe entrepreneur Joe will see him launch hisbusiness, perhaps with some family members,friends or former colleagues. This core team ofsay three to five people will all be enthusiasticand inspired by Joe’s energy and drive and willgive the business all the hours at their disposalto get it off to a good start. The key challengeshere for Joe – and for all the Joes of the world(all aspiring entrepreneurs of some sort) – areto sell his ideas to others while reinforcing hisown commitment to the business. Thisprecisely characterizes the early stage of thecompany and progresses to when risk becomesan issue due to significant expenses involved incapital outlays for machinery, etc.While this author classifies this step as theStart-up Phase, Adizes (1979) saw it as twodistinct stages, which he named ‘Courtship andInfancy,’ Scott & Bruce (1987) called it the‘inception stage,’ and Quinn & Cameron (1983)referred to it as the ‘entrepreneurial stage,’Though the semantics differ, they allnonetheless refer to the same reality; a linear,steady ascending advance in theentrepreneurial endeavours. That is until Joehits the first Plateau, the first sign of a crisis.The company may soon become like afamily affair, with everyone pitching in to getthings done. Many sacrifices will be made by7

all, none more than from Joe and his family.They rapidly see the sales figures expand,market access grow and revenues beginning toflow. They believe that the sales increase is asign of greater profitability, when in fact theymay not have done an accurate costing of theirproducts. Have they included in their costingthe price of all raw materials, machinery,utilities, space-facilities, storage,salaries/wages, administrative overheads,transport, sales and marketing, and all the othermyriad costs incurred in pricing each unit ofproduction? Perhaps not! The author recallsonce speaking to a married couple who hadrecently started their own craft business. Whenhe asked how they priced each item, they gavea list of inputs, but in turn left out many more,including the cost of their own time. Whenthese missing cost items were added, he coulddemonstrate to the couple that they wereworking for minimal wages, well below theminimum wage at the time. They were shockedto realise this and so had to revisit the wholebusiness operation and raise the selling price oftheir craft products or they would have quicklygone out of business again.As described above, the Start-up Phase isone of excitement and high energy, whereeveryone pitches in and does whatever it takesto get the business off to a successful start. Joelikes to be involved in everything andespecially in the production area from wherehis career has been to-date and from where hisoriginal product business ideas came.Typically, he is not so much interested inmanagement as such, preferring to be a handsonboss and getting his ‘hands dirty.’ Theleadership is clearly with the entrepreneur andhis family members, while there are perhapsonly notional demarcations among workers asto their specific roles and responsibilities. Thisvagueness is often accepted so that each job ortask that arises gets done by someone.Everyone tries to ensure that no task ‘fallsthrough the cracks’ and yet no one is heldresponsible for their outcome. There areminimal administrative procedures put in placeand much of the admin decisions are made onthe ‘fly’ as they arise. During this early start-upperiod, the company’s growth is likely to befast and may even be exponential as it gathersmomentum in the early stages.As the business grows ever faster and salesincrease, this puts pressure on production andquality control to ensure that they meet theircustomer’s requirements, even if it means extraovertime and reworking items to addressquality shortfalls. There is also pressure ontransportation to ensure customer deliveries areon time, and on finances to ensure invoices goout on time and are paid in full when due. Inthe meantime, as contractually agreed uponwith his customers, the late payments for theproducts sold - typically two to three monthsafter delivery - eat into the working capital andthus affects the purchase of raw materials. Inaddition, payment of utility bills begins to addup and salaries or wages may also not be paidon time or in full. And, adding insult to injury,machinery breakdowns delays production. And,if new staff members are employed, there is notime to train them up to Experienced WorkerStandards (EWS), thus affecting quality furtherwhich in turn, can lead to additional productioncosts due to the re-work of some items.Yet! While all these ‘problems’ are arising,Joe and his brethren in the world see only theincrease in the order book, the growingdemand for his products, and fail to noticewhat all the fuss is about on the shop floor. It isas if he and the rest of the company are onparallel tracks – his is a positive one of growthand the company’s a negative one of problemsbeginning to spiral out of control. Of coursethis is somewhat of an exaggeration, for Joewill be getting constant reminders andcomplaints from his own family membersabout what is really going on throughout thecompany. He in turn is perhaps ignoring someof the warning signs believing that they are justteething problems that will go away in time, orhe may be avoiding addressing them becausehe is unsure of what to do. Either way, a crisisis looming that has to be dealt with if thecompany is to survive.3.1. PLATEAU IThe above scenario quickly leads to the firstcrisis - or’ Plateau’ in this author’s language –which, as Scott & Bruce (1987) point out,8

precedes another growth period in the SME’slife cycle. Greiner (1972) befittingly classifiedthis as a ‘crisis of leadership.’ At this juncture,paradoxically enough, if the entrepreneur takesthe unwise decision to keep going ‘as is,’ thebusiness is very likely to collapse, even with afull order book in place. To avoid such acollapse, he must slow down the company’sgrowth and take time to put in place thevarious systems that are needed to ensure thecompany’s survival.These will include: well-defined, coherentjob descriptions with roles and responsibilitiesclearly stated; administrative systems toaddress the purchasing or raw materials andother inputs; goods’ receivables to ensure thatwhat has been ordered arrives in full and ontime;a financial system to ensure that accurateinvoices go out on time and are paid in full andpunctually and that bills for raw materials arepaid when due as are utilities and other chargesetc.It is now also a time when Joe mightconsider working with his colleagues onputting together a Vision and Mission for thecompany, as well as strategic and operatingobjectives to reflect the latter. These will helpset the company’s direction for the future andget the buy-in of his workers. These objectivesshould be S.M.A.R.T. objectives – meaningSpecific, Measurable, Achievable, Realisticand Time related. While Adizes (1979) arguedthat the ‘go-go’ stage (stage 3 of the 10 LifeStages, defined as frantic, energetic andshowing early growth and sometimes chaos),requires a Vision and Administrative systemsand stage 4, the ‘adolescent’ stage,characterized as still developing but moreestablished and defined, the introduction ofplanning and coordinating, this author seesthese as belonging to the Plateau Stage thatfollows the initial start-up Phase and as part ofthe emergence of different crises issues thatneed to be addressed.Typically, this crisis leading to Plateau 1will take place within the first 12-18 months ofthe SMEs life cycle. The Plateau itself maytake no more than 6 months before thecompany is ready for its next growth period.4. PHASE II: Steadying the ShipThis second growth period is one where theSME is beginning to steady its growth andbuild on the early successes, while starting toreap the benefits of the slow-down duringPlateau 1. According to Scott & Bruce (1987),this is the ‘survival’ stage. It is a period thatlasts perhaps another 12-18 months when thecompany begins to expand and take on newproduction staff to meet the growing orders. Italso introduces Quality Assurance (QA) for allworkers, both supervisors and line workers, toensure optimum effectiveness and efficiency. Itmay also install a planned maintenance systemfor its machinery.The administration office will increase byone or two more staff members and introducecomputer support systems for all its functionsrather than relying on ledgers or paper controls.Staff will be appointed to focus on Sales &Marketing to increase orders and managecustomer relationships, Supervisors will beappointed for different functions such asProduction, Maintenance, Warehouse &Transport, and Administration. A few newManagers may also be recruited or appointedfrom the existing staff - very often other familymembers or close and loyal colleagues of Joe’s.These will include Production & QA,Administration & Finance, Sales & Marketingmanagers, etc. Joe will now have to spendmuch of his time dealing with suppliers andcustomers, and carrying out generalmanagement functions, much more than handsonProduction that he favoured during the startupPhase.Here, Adizes referred to the organization asin its prime where it is results-orientated, hasplans and procedures in place to optimizeeffectiveness and efficiency, while being alertto what is happening within the sector. He thengoes on to refer to the next stage as maturitywhich is associated with established companywidesystems, where procedures and processesfor task accomplishment are in place.Again we see rapid growth occur, perhapsnot as steep as before, but rapid nonetheless.Things begin to run much more smoothly thanbefore and the new systems put in place ensure9

a more even work flow for all, and lessemergencies seem to arise as a result.Managers, supervisors and workers are muchclearer about their roles and responsibilitiesand get on with their tasks with renewedenergy and drive. However, Joe is not at allcomfortable in his new role for he is now busywith what he calls bureaucratic tasks that takeup enormous amounts of time and diverts himeven further from his first love – Production.He is constantly attempting to second guess hisother managers and supervisors leading toundermining their authority and credibility inthe eyes of their subordinates. This causesgrowing confusion among them as they striveto ‘please’ the ‘big boss’ rather than theirimmediate one. Some of the newly appointedmanagers and supervisors may not besufficiently capable for their new roles andlook to Joe for guidance and support but he toodoesn’t know how to provide this, thus leadingto further problems. Meanwhile the company isdoing very well financially, sales continue togrow as revenues increase and on the surfaceall seems well. But behind the scenes there areemerging conflicts among departments andamong some managers and supervisors. Joe isperceived to be supporting some more thanothers, especially his own family members.This is beginning to show in poor crossdepartmental communications, and poorcollaboration, leading to inadequate advancenotice from Sales to Production, or on-timedeliveries to customers who complain to Salesabout the delays. In the meantime, Finance ishaving its share of problems with supplierswho are not given adequate notice ofpurchasing orders, or some orders are beingchanged at the last minute due to a change inProduction requirements. Delivery delays tocustomers are further causing delays inInvoices being paid on time and this isbeginning to impact on cash flow.In short, a second Plateau Crisis is emergingand again Joe has a choice to make – continue‘as is’ with the risk of a company collapse, orslow down growth to address the manyproblems and challenges that have arisen sincethe last take-off occurred?4.1. PLATEAU IIThis Plateau II tends to occur in year 3 of anSME’s life cycle and is generally broughtabout by Phase II-scenario or variations of it.Greiner (1972) classified this Plateau as a‘crisis of autonomy.’ As with Plateau I it is atime when the company again has to slowdown and get its house in order if it hopes tosurvive and continue to grow in the future.And also as with Plateau I, this Plateau willoften be over within six months though thePlateau period may well last longer than sixmonths, as it is an essential time to addressmany of the key challenges the company isfacing.One of these is of course Joe himself.Should he remain the Chief Executive orshould he bring in someone and appointhim/her as the General Manager that is sobadly needed at this time. The entrepreneurialand driven leader that is Joe is more suited to astart-up company than to a company that needsconstant maintenance and management of thevarious systems that have had to be put inplace; a management system, financial system,an administration system, a HR system,Production & QA system, and Sales &Marketing system, etc. Joe is also more suitedto a company where the General Manager mustbe focussed on the company’s Vision andMission as (s)he strives to grow the businessand attend to the many external forcesaffecting the company’s sector and marketssuch as technological innovation, productinnovation, work-force diversity, competitorsfrom within the country and from abroad,currency fluctuations, market regulations andtariffs, costs of utilities especially electricityand water, logistics and transport costs due tooil price increases, etc; areas Joe is neitherproficient in nor interested in getting fullyinvolved with for his ‘love’ remainsProduction.Perhaps there is a need to recruit newprofessional managers to replace some poorperforming family members and loyalcolleagues? How will Joe address this and howwill his existing team accept the need forchange? All these challenges must be met10

during this Plateau II stage, for if not, thecompany is doomed to failure.The ironic thing is that failure at thisjuncture may well be due to the company’searlier successes. Greiner called this ‘a crisis ofcontrol.’ This is often a time when Joe willhave to seek external guidance fromManagement or Organization DevelopmentConsultants to help him and his Team managethis needed change stage in the company’s lifecycle. This will involve a careful diagnosis ofthe company’s strengths, challenges that existand are ahead, as well as opportunities forfurther growth. They will also need to identifythe weaknesses and threats that exist.This diagnosis may take many forms anduse a variety of diagnostic tools such asS.W.O.T as suggested above, AppreciativeInquiry (Copperrider et al, 2000), FutureSearch (Weisbord et al, 1995), 360 Evaluation,Risk Analysis, Porter’s (1990) FiveCompetitive Forces (Bargaining Power ofSuppliers or Customers, Threat of new entrants,Threat of substitutes, and Competitive rivalryfrom within the industry).Following this diagnostic stage, thecompany, with the collaboration of itsconsultants, will begin to put in place acarefully crafted Action Plan of OrganizationDevelopment Interventions (ODIs). This planwill then be implemented on a company widebasis, carefully monitored and evaluated at allstages, and modifications made as needed toeffectively address the problems identified atthe diagnostic stage. When successfullycompleted or even while in process thecompany will move to Phase III – BusinessConsolidation.Many of the same steps to be taken by anorganization going through this second Plateaustage are also enumerated by Adizes (1979) inhis 11 step Program, although each businesshas to decide for itself which of these isrelevant to its needs at this time in its life cyclehttp://www.businessballs.com/adizeslifecycle.htm.5. PHASE III: Business ConsolidationThis is a Phase where the company is seento be growing up and maturing. Adizes (1979)described this Phase III as a combination ofboth ‘stability and aristocracy’ and Scott &Bruce (1987) as ‘expansion and maturity.’The company has addressed its manychallenges and built on its strengths and is nowready to take on the opportunities available toit. These may include product and/or marketdiversification, or moving into the exportmarket in targeted countries. These of coursebring with them new challenges different fromthose in the past but, having a moreProfessional Management Team in place, thecompany is better equipped to deal with them.In the meantime Joe, as the founder and ownerof the business, may have taken up the role ofChairman or Managing Director while the dayto-dayoperations of the company areconducted by the General Manager and his/herManagement Team. Joe may also beresponsible for product or business at this time.Of course the various management andbusiness systems that were put in place earlierwill now have to be expanded to cope with thegrowing business. While this may involverestructuring the organization and increasingthe number of functional departments, caremust be taken to ensure that the company doesnot become too pyramidal and bureaucratic,since its major strength from the start lay in itsflexibility and ability to respond quickly to allemerging situations. It was also characterizedby its loyal and committed employees whohave over time built up their own companyculture. This must get transmitted to new staffmembers while also reflecting the changingattitude and perceptions of them.As the company grows and expands into awider range of technologies and products, andincreases its export sales, new challenges haveto be met. In turn, these can again lead to athird Plateau.This third Plateau Crisis emerges as a resultof Phase III developments and again at thisjuncture the company has a choice to make –either continue ‘as is’ with the risk of acompany collapse, or slow down growth toaddress the many problems and challenges thathave arisen since the last take-off occurred?11

5.1. PLATEAU IIIThe scale of the challenges has increased inline with the company’s own growth and onceagain they have to be carefully managed if thecompany is to continue to survive. One of thebig challenges and mistakes many companiesmake is that they grow beyond themselves, thatis to say, grow beyond their ability to managethe growth; ‘a crisis of red tape’ in Greiner’sterms. This may make such firms vulnerable toa takeover or force a merger with a competitor.Or this may get them into financial difficultiesthat force them to take stock of their situationor go out of business.Many times, such predicaments will havebeen caused by over ambitious investments innew plants or machinery, by diversifying thecompanies’ product range too much, or byentering markets where they are overwhelmedby the competition. It may also be the result ofglobalization where trade barriers or tariffsimpact on their exports, or currencyfluctuations make it difficult for them to tradeoverseas, or transport and logistics costsescalate beyond what they had expected. InPorter’s and Waterman’s parlance, thesecompanies failed to ‘stick to the knitting,”meaning that they didn’t concentrate on whatthey know best how to do.Addressing these emerging challenges mayforce Joe and its company to re-examine itsVision and Mission and long term growthplans and take corrective measures before it istoo late. The way forward maybe to growthrough some carefully targeted acquisitions,merge with a competitor or a company in arelated industry to enhance it technologicalknow-how and innovation, or it may meanconsolidating its current market position toretain market share, and develop newlyemerging markets it other global regions, all ofwhich will take time. As Adizes stated: “Oneof the main challenges for mature corporationsis therefore to seek reinvention through newbusiness development, before it's too late, oftenthrough acquisition of other businesses ininfancy stage, or by developing new 'infant'business divisions within the parentcorporation.”http://www.businessballs.com/adizeslifecycle.htmThis stage will involve a close examinationof the company’s management, teams,departments, functions, and organizationwithin its sector, nation or region, and alsowithin the global marketplace. Once again,taking the time to address all of the abovecould prove to be decisive for the company’ssuccess and later expansion once it is ready toact and capture these new markets.6. PHASE IV: Business for the Long HaulFollowing this third Plateau stage thecompany will be better prepared for the longhaul,as it expands its product range,modernises its technology and branches outinto newly emerging markets. Of course,global challenges will continue to put pressureon the company and many further changes willbe required over time, but each will beheralded by a series of actual or imminentcrises. And just as before, the company willagain be faced with a decision to continuebusiness ‘as is’ and risk collapse or opt to taketime to address the new challenges arising andbe ready for yet further growth and expansion.While all these Plateaus or steps have beenconsidered in the context of SMEs, they areprevalent in most companies whatever theirsize. And regardless of a company’s largeness,they must be dealt with effectively or thecompany could face its own demise. As wehave seen in recent years, some companiesfrom the Fortune 500 no longer exist, havingfailed to address the challenges facing them,while others such as IBM and Disney havebeen transformed and are again thriving today.SummaryAll SMEs tend to go through a series of lifecycles, and while the terms used by differentauthors to refer to them may vary, the eventsthat govern them are all too familiar to thefounders and managers involved. While eachSME may seek to grow from the start, it willinevitably meet new challenges and crises overtime that must be addressed effectively if thebusiness is to survive and prosper.12

This author believes that these crises arecharacterised as ‘Plateaus,’ which must becarefully managed in order for the business tobe ready for its next growth period. Ifneglected and should the firm tries to continue‘business as usual’ during a crisis it willcollapse in failure as so many have done in thepast averaging a life span of only five years orless. As reported by Moya K. Mason (2009):“The Small Business Administration (SBA)keeps the stats on business failures and claimsthat more than half of new businesses willdisappear in the first five years.” And giventhat according to an August 2009 BusinessDaily Article “poor management and ashortage of funds have been identified as themain cause of start-up deaths globally,” it isrecommended that training be provided for allSME entrepreneurs so as to prepare them forthe road ahead and the challenges and crisisthat they will inevitable meet along the way.ReferencesAdizes, I., (1979). "Organizational Passages-Diagnosingand Treating Lifecycle Problems of Organizations,"Organizational Dynamics (Summer), 3-25.Cooperrider, D, and P. Sorenson, D. Whitney, and T.Yager, (2000), Appreciative Inquiry: Rethinking HumanOrganization Toward a Positive Theory of Change,Champaign, IL: Stipes Publishing.Churchill, N. C., and V. L. Lewis (1983), "The FiveStages of Small Business Growth," Harvard BusinessReview, (May-June), 30-51.Filley, A. C, and House, R.J. (1969), A HistoricalPerspective on Small Firm Development Managerialprocess and organizational behavior, Illinois: ScottForesman and Company.Goffee, R., and R. Scase (1995), Corporate Realities.London: Routledge.Greiner, L. (1972). "Evolution and Revolution AsOrganizations Grow," Harvard Business Review (July-August), 37-46.Lavoie, D., and S. A. Culbert (1978), "Stages ofOrganization and Development," Human Relations 5,417-438.Lewin, Kurt (1951). “Field Theory in Social Sciences,”New York, Harper & Row.Mason, Moya K. (2009). Research on Small Businesses,http://www.moyak.com/papers/small-businessstatistics.htmlAccessed August 2009.Peters, Tom, and Robert H Waterman Jr (1982). “InSearch Of Excellence: Lessons from Americas Best RunCompanies.” Harper and Row, New YorkPorter, Michael (1990), “Competitive Strategy.” NewYork: Free Press.Quinn, R. E., and K. Cameron (1983), "OrganizationalLife Cycles and Shifting Criteria of Effectiveness: SomePreliminary Evidence," Management Science, 29(1), 33-51.Risk Analysis,http://www.wiley.com/bw/journal.asp?ref=0272-4332Accessed August 2009.Scott, M., and R. Bruce (1987), "Five Stages of Growthin Small Business," Long Range Planning 20, 45-52.S.W.O.T.Analysishttp://www.netmba.com/strategy/swot/ Accessed August2009.360 Evaluation, http://www.custominsight.com/360-degree-feedback/360-delivering-feedback.asp AccessedAugust 2009.Turana, Johnstone ole (2009), Poor practices lead tohigh SME mortality. Business Daily, September 12.http://www.businessdailyafrica.com/-/539444/644778/-/view/printVersion/-/nmo2dmz/-/index.html AccessedAugust 2009.Van de Ven, A. H. (1992). Suggestions for studyingstrategy process: A research note. StrategicManagement Journal, 13 (special issue, Summer), 169-188.Vinnell, Reuben, and Hamilton, R. T. (1999), AHistorical Perspective on Small Firm Development.Entrepreneurship: Theory and Practice. v23n4, 1999: 5-18. http://www.allbusiness.com/management/331219-1.html Accessed August 2009.Van Montfort, Kees (2006) Life cycle characteristics ofsmall professional service firms. Publication: Journal ofSmall Business Management, July 2006.http://www.allbusiness.com/management-companiesenterprises/1187656-1.htmlAccessed August 2009.Weisbord, Marvin R., and Sandra Janoff (1995),“Future Search: An Action Guide to Finding CommonGround in Organizations and Communities.” SanFrancisco: Barrett-Koehler.13

Notes2 A variety of definitions exist, the most widelyaccepted one being ‘a business employing fewerthan 250 people’http://www.booksites.net/download/chadwickbeech/Glossary.htm. According to the EuropeanCommission definition, “Small and medium-sizedenterprises (SMEs) are those businesses whichemploy fewer than 250 persons and which have anannual turnover not exceeding EUR 50 million,and/or an annual balance sheet total not exceedingEUR 43 million”.hecpevc.wordpress.com/resources/pevc-glossary/and an independent business managed by its owneror part owners and having a small market shareeither by number of employees or turnover.http://www.planningportal.gov.uk/england/government/en/1115310689529.html3 Mukti Khaire is an assistant professor ofEntrepreneurial Management at Harvard BusinessSchool.14