2.1.4 Stages of company growth

To predict lifespan and set up a model of the new venture growth author of the Thesis investigates theoretical materials describing evolution of the new business entity.

Сompany evolution with growth of revenues

After establishing a new venture, entrepreneurs should clearly understand what perspectives their company may encounter. Each stage of company growth has specific operational and strategic features¹³. G. Flamholtz distinguishes four stages of organisational growth. These stages include: new venture, expansion, professionalization and consolidation. Theoretical investigation of possible organizational growth problems provides essential knowledge for better understanding of managerial issues and business planning. Due to the fact that Marktune will be made in form of partnership of already existing companies, it will approach to the third stage already in the second year of existence.

Stage No	Description	Critical Development Areas	Approximate Organizational Size (sales in millions USD)
I.	New venture	Markets and products	Less than 1
II.	Expansion	Resources & operational systems	From 1 to 10
III.	Professionalization	Management systems	From 10 to 100
IV.	Consolidation	Corporate culture	From 100 to 500

Table 2. Stages of Organizational Growth

Table and Figure depict the main characteristics for companies on different growth stages.

Develop Management

System

Develop Complex Operational System

Acquire Additional Resources

Develop Products and Services

Identify and Define a Market Niche

Figure 4. Pyramid of Organizational Development

On the first stage company finds a niche and search what market needs. New venture has to develop, acquire or provide a product or service that will satisfy the identified market need. It has to build an organization that is capable of functioning of a day-to-day basis to provide the product or service. Informal type of strategic planning is dominated in these companies.

On the second expansion stage number of employees rapidly increases. Company meets problems of growth rather than survival. It develops the increasingly complex operational systems. Strategy planning system is not very formal, but it needs some strategic planning. Management by objectives is adopted as a controlling function.

The third stage of organisational development implies planning, standardization of business processes, management training and control. Planning is made on the more formalised level and includes written plan of financial and non-financial goal, objectives, and targets of the organization. New budgeting and accounting system is introduced. Controlling undermines other than top-down approaches since it fails. The company budgeting system needs to be brought down to the level of individual departments and products. Formalization of recruiting procedures directed to hiring more professional employees. A formal performance appraisal system should be in place, and management development programs should have taught the firm’s management for efficient usage. At this stage company needs to establish a formal process of strategic planning.

The fourth consolidation stage accompanies by improving corporate culture and operates with values, beliefs and norms. Enterprise has a decentralized system of responsibility with strong managers. It is ruled under a participative style of leadership. Company culture promotes increased accountability and organization becomes profit oriented rather than strictly revenue oriented. Strategic planning ought to be a topic in company’s managed development programs. Expansive market research and analyses are necessary. Flexible budgeting, based on different assumptions about economy and related level of business, is become the main controlling method. Deviations from standard will require factual explanations. This stage has following functions of management development:

• shaping the corporate culture;

• promoting leadership style, that postulates appropriate style of leadership, promotes a single style of leadership;

• Rewarding and recognizing managers.

Organizational growth and types of crises

Another strategic approach to the growth of the new venture is strategic management by risk control. The foundation of this approach is focused on the crises of the hierarchic organization growth. Besides an investigation of the financial and marketing side of the new venture growth we may construct controlling on the executive officers and employees -management relations. Organizational development encounters contentious innovations in hierarchic structure.

Process	Organizational structure	Crises
Firm foundation	Absent	Leadership crises
Specialization	Not formalized, with limited vertical integration	Autonomy crises
Delegation of authority	Functional, with Head Quarter Officers	Diversification crises
Department focus	Focus on Departments in functional structure	“Washing out liability” crises
Division (subsidiary) formation	Division oriented: relationship Head office – Branch office established	Divisional communicational and policy crises
Coordination	Structure with double subordination, matrix structure

Table 3. The crises of the hierarchic organization growth¹⁴

The organizational growth follows all stages with formalization of business relationship between the new venture colleagues (see Table 3.). The coordination of the growth on the different stages allows minimise financial expenditures and soften or even eliminate the employees swamping.

To sum up the developing business entity comes through the number of stages with specific organizational and managerial patterns. These patterns should be taken into consideration while planning and implementing company development progress.