Substantial businesses are large, valuable enterprises that achieve predictable results through well-defined strategies, structures, and processes, but they face challenges in maintaining growth and avoiding bureaucracy.
Primary Implication
Owners of businesses in the substantial stage are 100% reliant on the management they employ to keep their business with predictable and repeatable business results through interlocked strategy, structure, and processes. Even if the founder of the business is still involved, the business is of such considerable importance, size, and worth that the owner has professional management in place to convert the assets of the business into profits.
The issue to avoid in a substantial business is the risk of bureaucracy stifling creativity, customer responsiveness, and product innovation. Lose sight of what the customer wants to buy because you are so wrapped up in selling what you have always sold, and you will drop down into the survival stage where you either rebound or go out of business.
Overview
Substantial businesses are of considerable importance, size, and worth. They achieve this stage because they produce predictable and repeatable business results through interlocked strategy, structure, and processes.
If the founding owner is still involved at this stage, they are more likely to be a goodwill ambassador that works through a professional leadership team that is more hands-on in setting the strategic direction and operating policies. The risk for a substantial business is bureaucracy stifling creativity and customer responsiveness.
Substantial businesses recognize that nothing in business happens without money and people. Those businesses in the survival or stuck stages never have enough money to hire the talent they need to progress to the higher stages. Those who make it to the substantial stage from the stretch stage did so because they hired the right people that could significantly impact their P&L Statement and Balance Sheet results.
Substantial businesses achieve their considerable size and worth because of their culture shaped by their strategy, systems, and processes. As they worked through the stretch stage, they defined and reinforced through the structure, systems, and processes what is acceptable or unacceptable, important or unimportant, right or wrong, workable or unworkable. Those businesses that fail to do this never make it to the substantial stage.
One of the primary benefits that come to substantial businesses is their highly predictable cash flow from operations. Couple this with a very proactive approach to investing surplus cash into new business opportunities and other investments that generate “Other Income,” and you have a business that is very good at making their cash work for them. Because of their financial sophistication, they pay close attention to their Statement of Cash Flows to monitor their operating cash flow, equity investments, and debt financing.
One of the biggest challenges a substantial business faces is the never-ending need to grow sales year-over-year. Any decline in sales places tremendous pressure on the business to meet its profit plan, given the enormous expense base they have in support of its business size.
To manage the diversity of businesses that exist in substantial businesses, the senior executive team focuses on a roll-up of the multiple P&L Statements into a consolidated view that they use to make investment decisions. The performance management process is driven by SMART management objectives backed up with short and long-term incentive programs. They use the BCG growth-share matrix or something like it to divert cash from cash cows to stars while closing down dogs and resolving SBU questions.
Substantial businesses are continuously improving through a multi-year strategic plan by strategic business unit with results management through variance reporting. Sophisticated information management and control systems are in place to monitor performance. Multiple levels of professional management exist to develop and execute the strategy, lead and manage the org structure, and ensure that processes are in place to ensure that what needs to get done gets done when it needs to be done.
The unfortunate reality of substantial businesses is that they are likely to be making much less money than they should because of the bureaucracy that comes from the management hierarchy that constricts autonomy and decision-making. The more bureaucratic the business, the higher the risk of product obsolescence – think Kodak, Motorola, and Blockbusters. These businesses went from substantial to out-of-business in a fraction of the time it took them to become substantial.
