Five stages of dealer growth and nine factors

For a long time, Food Merchants has studied models of various food distributor companies. These models basically consist of distribution, agency and brand business as the growth latitude, with network, brand power, product mix and other business elements as the longitude. Although these models are useful in many ways, the artificial growth of the company's growth coherence is caused by artificially distributing and acting as a brand to several stages of growth. A very obvious problem is that many dealers are doing distribution for a long time, or they are acting agents for a long time. They need to go through some important stages from creation to growth to success, and the key business elements at different stages are different. What is the stage? How do the business factors that play a decisive role change at each stage? This is exactly what this article is trying to solve.

Five stages of dealer growth

In order to develop a relevant framework for the dealer company, we have adopted a multi-pronged approach, borrowing both literature research and a large number of company surveys (attached: dealer survey form).

This concludes the five growth stages of the dealership: entrepreneurship, survival, success, take-off, maturity, and describes the management method, organizational structure, the number of formal systems, the main strategic objectives, and the degree to which the company’s owners participate in the business. .

We surveyed 100 dealers and collected a total of 82 survey data. We ask them to try to determine the period and stage that their company has experienced, summarize the major changes that have occurred at each stage, and describe the events that caused the change.

Stage 1: Entrepreneurship

At this stage, the company's main goal is to make its products or services recognized in the market and lay the foundation for future growth. The key issues are:

Resources: Can the company get enough end customers and two batches to deliver products and provide good service to survive? Can the company grow from a number of important customers or selected products to a company with huge sales?

Funding: Does the company have enough funds to meet the large cash needs of the startup phase?

Boss ability: Is it entrepreneurial and energetic?

The organizational structure at this stage is simple – the manager does everything and directly supervises the subordinates. Institutional and formal planning are almost non-existent. The company's strategy is to survive. The manager is the boss of the company. He completes all the important tasks, puts a lot of energy into the company, is the main orderer of the order, and provides most of the funds for the company with relatives and friends.

There are a wide variety of companies in the startup stage. They either do some middle and low-end products, or distribute, or open a store in the wholesale market. Many of these dealers cannot survive because they have not received enough customers, insufficient financial capacity, and selected product errors. In this case, the manager will close the company when the startup funds are exhausted. If they are lucky, they can transfer the company according to the value of the assets. Sometimes, managers can't accept the company's time, financial and energy requirements, and choose to give up. And those companies that survived entered the second phase.

Stage 2: Survival

The company is able to reach this stage and has proven itself to be a functioning corporate entity. The company already has enough customers and can use products or services to satisfy customers and retain customers. Therefore, the company's key issue is to change from being able to survive to a balance of payments. The main issues are:

Cash flow: In the short term, can the company generate enough cash to break even, enough to pay for the goods, and repair or replacement costs after the loss of fixed assets? Can the company generate enough cash flow to survive and provide financial resources for growth and development, so that it can achieve economic returns in the market environment with its own resources and services?

The organizational structure at this time is still very simple. A company may have a certain number of employees, either a sales manager or a person responsible for distribution management. But they don't make big decisions independently. Their job is to execute the clear instructions of the manager. The number of products sold may increase by one or two, and the network channels will be expanded accordingly, but there is still not much brand power.

The development of the system is minimal, formal planning, at most, cash forecast. The company's main goal remains to survive, and company owners are still synonymous with the company.

In the survival phase, the company's size and profits are likely to grow, and thus enter the third stage. Perhaps, like many companies, they will stay in the survival phase for a while, relying on investment time and capital to obtain marginal compensation, and eventually shut down when the manager gives up or retire. “Mom and wife” wholesale and retail stores fall into this category. Some of these marginal companies have gained sufficient economic viability - usually with a small loss; others may fail completely without disappearing.

Stage 3: Success

At this stage, managers are faced with the choice of either using the achievements they have made to further develop, or maintaining the stability and profitability of the company, laying the groundwork for managers to engage in other activities. In this way, the company faces a key question: whether to use existing companies as a platform for growth—to enter the stage of success—growth, or to leverage existing companies to support managers in full or partial departure from the company—to enter the success-disengagement phase. If managers choose to "disengage", it may be because they are subject to various conditions and energy constraints and hope to maintain the company's current situation. Many dealers who are involved in multiple industries at the same time fall into this category.

Success-disengagement stage

In the success-disengagement phase, the company has achieved a truly healthy operation, with sufficient scale and product market share to ensure economic success, and profitability is also at or above the industry average. If environmental changes do not undermine their niche markets, or inefficient management reduces the company's competitiveness, the company may stay at this stage indefinitely.

In terms of organizational structure, the company has reached a considerable scale, so in many cases it is necessary for the functional manager to assume some of the duties performed by the manager. Functional managers should have certain talents, but they do not need to have good talents because the company's goals limit their rising potential. At this stage, the company has sufficient cash, and the main concern is

Cash flow: Preventing cash loss during the boom period, making it difficult for companies to withstand trials in times of inevitable hard times.

In addition, the company has certain network resources and brand power. Basic financial, marketing and service systems have been formed. Planning the operating budget to support the normal operation of the company. The manager supervises the company to implement a strategy that basically maintains the status quo.

As the company matures, companies and managers become more fragmented, in part because managers are increasingly active in other areas, and in part because of organizational organizational skills. Many companies will stay in the successful phase for a long time. Some companies' products and market environments do not allow them to continue to grow, as are distribution companies operating in limited areas.

If the company can't adapt to environmental changes, it may either shut down or return to a state of reluctance to survive.

Success-growth stage

In the success-growth phase, managers need to strengthen the company's strength and integrate resources for the company's development. Managers will bet on cash and the company's existing borrowing power, all invested in the company's growth.

Important tasks at this stage include:

Organizational skills: Strengthen organizational skills to meet the company's growth needs.

Product portfolio: There should be reasonable planning and replenishment of the product portfolio, with one or two products that have core competitiveness or become a source of profit.

Network layout: 30%-50% of the important channels in the region.

At the same time, to ensure the profitability of the basic business to avoid cash flow, the establishment of the company's system should also consider the upcoming demand. As with the success-disengagement phase, operational planning is carried out in the form of a budget, but strategic planning involves a wide range and requires significant involvement of managers. Therefore, in the success-growth phase, managers are more actively involved in all aspects of corporate affairs.

If successful, companies in the success-growth phase will enter the fourth phase of the company's development. In fact, the success-growth phase is usually the first attempt by a company to grow before it is committed to expanding its size. If the company at this stage is not successful, the company can find the cause in time and move to the successful phase. Otherwise, it may return to the survival stage before bankruptcy or cheap sale.

Stage 4: Take off

At this stage, the key issue facing the company is how to grow quickly and how to fund it. Therefore, the more important issues are as follows:

Cash: Does the company have enough cash to meet the huge demand for growth (which usually requires managers to tolerate high debt-to-cost ratios)? If the expenditure is out of control, or the manager loses patience and makes improper investments, will the company's cash flow be hit?

Strategic planning: buy out the business or build the terminal down, or strengthen the management of the channel value chain.

Organizational skills: When the company grows rapidly and becomes more complex, it needs to improve organizational efficiency. Can the quality of personnel adapt to the development of the company? Is the function of each department of the company clear and clear, and is the staffing complete and reasonable? Is there an ability to cope with unexpected situations?

Network layout: Is there still a blank area based on the existing network structure? Which channels need to be consolidated and extended?

Product portfolio: Can existing products meet the needs of different channels and profits? Is there a product portfolio that can complement each other? Does the product that brings the main profit need to be replaced?

This stage is crucial in the life of the company. If managers are financially and managerially able to cope with the challenges faced by growing companies, the company can grow into a large company with a certain brand power. If managers can't cope with challenges and recognize their limitations in time, they may stay in the third stage. Many times, those who bring companies into the third stage often fail in the fourth stage, or because they try to grow too quickly and run out of cash – managers become victims of “multifunctional syndrome”; or Because they failed to effectively improve organizational skills, let the company function properly - become a victim of the "all-sense syndrome."

If the company can't make a big leap, it can also cut back on spending and continue to be a successful and healthy company in a balanced state. If there are too many company problems, it is possible to return to the survival stage and even fail completely.

Stage 5: Resource maturity

After the company enters this stage, the first concern is to consolidate and control the financial benefits of rapid growth, and secondly to retain the small scale advantages, including rapid response and entrepreneurship. Companies must expand their management team as quickly as possible to eliminate the inefficiencies that growth can bring. Companies should also use specialized tools such as budgeting, strategic planning, goal management, and standard cost systems to professionalize companies—while not stifling entrepreneurship.

The company in the fifth phase has human and financial resources for specific operations and strategic planning. The company is decentralized in management, has enough employees, and has accumulated a certain amount of experience. The system covers a wide range and is very comprehensive. Managers and companies are quite separate financially and operationally.

The company is now successful, with advantages in scale, financial resources, management talent, network, brand power and so on. If the company can maintain its entrepreneurial spirit, it will become a powerful force in the market. Otherwise, the company may enter the sixth stage: the rigid stage.

The rigid phase is characterized by a lack of innovative decision making by the company. This phenomenon is very common in large companies that rely on huge market share, purchasing power and financial resources to maintain operations until significant changes in the environment. Unfortunately for these companies, it is usually their fast-growing competitors who first noticed environmental changes.

Changes in nine key business factors and needs

Nine key business elements

There are several factors that play a decisive role in determining the ultimate success, and their importance varies with the company's growth and development. We found nine such factors in the study, seven of which are related to the company and two to the managers.

The seven factors associated with the company are:

1. Financial resources, including cash and borrowing power.

2. Organize skills, involving the number of employees, backup strength and quality, and the rationalization of organizational structure.

3. Institutional resources refer to the degree of perfection of information and planning control systems.

4. Product resources, the core competitiveness of the product, and the advantages of the combination.

5. Network layout, major sales channels and channel development levels within the region.

6. Business resources, including customer relationships, vendor relationships, distribution processes, etc.

7, brand power, the company's position in the industry and the market.

Two factors related to managers are:

1. The personal abilities of managers and the ability to translate individual abilities into organizational skills.

2. Manager's forward-looking strategic planning capabilities.

As the company moves from one stage to another, the importance of these factors changes. We may think that these factors are replaced at three levels of importance: the key factors that must be met by the company's success have the highest priority; the second, the factors that the company needs to be successful must pay attention to it; Third, the higher management has less direct attention, but easy to manage factors. If we classify the eight factors listed above based on their importance at each stage of the company's development, we will clearly see the changing management needs.

Change in demand

In the early stages, the manager's personal abilities give the company vitality. It can be said that the company is based on the manager's ability of interpersonal relationship, sales, creation, etc. This is a more important factor. At this time, the brand power is minimal and can only rely on the manager's personal ability and resources to win customers for the company.

As the company grew, other employees also entered the company to start sales, management, etc. At the beginning, they were assisting managers to work. Later, as the company's products and channels gradually increased, they would replace some of the manager's work. As a result, organizational skills are becoming more and more important. At the same time, management must spend less time doing things and spend more time managing. He must do more work through the organization. Many entrepreneurs can't improve their organizational structure and decentralization, and they don't pay much attention to management. This explains why many companies are going to ruin in the success stage and take-off stage.

If the manager decides to adopt a strategy for growing the company, he must understand what changes in the individual's behavior are required by this decision and take a look at the management needs described in the chart. Similarly, managers who want to start a business should realize that they need to do various kinds of work such as sales and channel development from the beginning, and also manage cash and plan the company's development direction - these requirements will make managers pay a lot of energy.

As the company grows, the importance of cash is also changing. When you first started a business, cash is an extremely important resource. When it comes to success, cash becomes easy to manage. If the company wants to continue to grow, it will become a major concern. At the end of the fourth phase or the fifth phase, as growth slows, cash becomes an easy-to-manage factor. Companies entering the third phase need to be aware of their financial needs and risks as they enter the fourth phase.

The importance of strategic planning, product mix, network layout, brand power and institutional control factors has increased as the company has evolved from a slow initial stage of growth (successful phase) to a rapid growth phase (takeoff phase). These resources must be obtained before they can grow rapidly for development.

Later, company resources are the cornerstone of the company's success. Company resources involve acquiring market share, customer relationships, and reliable vendor resources, which are very important in the early stages of the venture. In the next few stages, losing a large customer or manufacturer is relatively easy to make up. Therefore, the relative importance of the company's resources is declining as the company develops.

The changes in the effects of these factors clearly indicate that managers must be flexible. At some stage, it is important to focus entirely on cash, but not on others. It is extremely important to delay the payment of taxes at all costs in the first and second stages, but in the stage of success and growth, this may seriously distort accounting data and exhaust management time. “Doing personally” and “organizing skills” are contradictory and need to be managed flexibly. Adhering to old strategies and old ways can be detrimental to companies entering the growth phase and can even be fatal.

Problems to avoid

From the chart we can see that all factors are crucial in the take-off phase, in addition to the manager's personal abilities and resources. This is a phase where action is required and there is a huge potential return. Therefore, when dealers want to get this stage of development, please ask yourself:

Is the organizational structure of my company reasonable? Can it adapt to changes in growth?

Should I buy the brand up, or should I build my own terminal?

Now or soon, can I establish a system to meet the needs of larger and more diverse companies?

Can the manufacturer provide me with more support to help me develop? Can my product provide me with a stable source of profit? Can my channel still extend to other places?

Do I have enough cash and borrowing power and are willing to take all risks for the pursuit of rapid growth?

Many dealers simply think about how to get more support and rebates from manufacturers, and lack of attention to strategic planning and organizational skills. These two factors are crucial for dealers who want to grow fast. Just like a human brain and hands, they must work together to achieve their goals.

In addition, dealers who want to start a business can see that entrepreneurship needs to have strong personal abilities and resources, as well as good cash flow forecasts (or a large amount of cash on hand). At the maturity stage, these factors are less important, replaced by organizational skills, good information systems, and budget control. This shows that in the company's development process, entrepreneurs must learn to transform their personal abilities and resources into organizational capabilities and resources.

case analysis

This method can be used to assess the various conditions of the dealer company. Take franchise chain stores as an example. Compared with most dealers who have developed from the path, this mode of operation has many differences in the startup stage. They usually have the following advantages:

Standardized operating procedures elaborated by franchisees;

a marketing plan developed through extensive research;

Advanced information and control systems provided by franchisees;

There are promotion and other entrepreneurial support, such as brand identity, store decoration design, staffing and training.

Franchise chain stores require relatively large start-up funds.

If the franchise licensor has done a good market analysis and has high-quality differentiated products, then the new store can quickly pass the stage of entrepreneurship and survival (many of the circulation-type dealers will die in these two stages) into the early stage. The stage of success. With good image display and channel brand, we have more product agency rights and bargaining chips for other terminals.

However, these entrepreneurial advantages usually have the following costs:

Growth is also limited due to regional restrictions;

Sustained financial health relies heavily on the support of franchisees;

When the company enters the stage of success, it is easy to fail because there is no mature experience in the stage of entrepreneurship and survival.

One way to increase franchise is to increase the number of stores in the region or to get business in multiple regions. Managing multiple stores or areas requires more different skills than managing a store. For example, proactive service awareness, sound organizational structure, and assessment mechanisms may result in dealer development due to lack of experience in the survival phase. Bring damage.

We found that many companies seem to be at a certain stage of development, but after careful examination, they can see that they are actually at this stage for some factor and another stage for another factor. For example, a company that has experienced a period of controlled growth has sufficient cash (characteristics of the success stage) to prepare for accelerated expansion, but managers are still trying to monitor each employee (the characteristics of the entrepreneurial or survival phase).

Although in general a factor will rarely lead or lag more than one stage, the imbalance of various factors will still bring many problems to entrepreneurs.

The development stage of a company determines the business elements it must deal with. Business planning helps determine which factors must be faced in the end. Understand the company's development stages and future plans, so that managers can make more informed choices and prepare themselves and the company to meet the challenges of the future.

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