Stretch businesses are characterized by rapid growth, ambitious owners, and a focus on scaling operations, but they face challenges in securing funding, managing risk, and building a strong team to support expansion.
Primary Implication
The riskiest profit stage of losing everything you have accomplished lies in the stretch stage. As ownership reaches as far as possible, financially and professionally, in a particular direction to become substantial, the results of their efforts will end in them either achieving their aspirations or not.
Business owners fail their business in the stretch stage when they cannot control the actions occurring across the business because they fail to attract and retain the people they need to hold accountable for results.
Overview
Businesses in the stretch stage have ownership reaching as far as possible, financially and professionally, in a particular direction.
Owners in stretch mode have the energy, a desire to grow their business and a tolerance for the risk they incur as they push themselves through the stretch stage to own a substantial business. They are less involved in the day-to-day yet highly involved as the visionary leader pushing people to expand the business. Operational decisions have been delegated as the owner relinquishes daily duties to the management team. The challenge they face is, the more significant the business becomes, the harder it is to control the actions that got them to where they are. Couple this with not being good at holding people accountable for results, and the business will fall out of the stretch stage into either stuck or survival.
The ability to progress from the stretch to the substantial stage is greatly influenced by access to business funding shaped by your sales growth projections. A business in stretch mode has a steady operating cash flow, a strong line of credit, and some business loans. One of their keys to expanding their business is they control their expenses and are careful in making ill-advised investments brought about by owner impatience. They have double-digit sales increases because they have built an accountable marketing and sales organization.
The management team of a stretch business uses its monthly P&L Statement to compare actual results to planned to identify where corrective action is needed. They also use a management scorecard to monitor KPI’s and the use of variance reporting to ensure planned actions are producing desired results. A look at their Balance Sheet will show liabilities are greater than equity in pursuit of more assets to fund business growth goals.
Stretch businesses rely on a profit plan to spell out the goals for sales, operations, and finance. They are continuously evolving their financial, marketing, and production systems as they begin to formulate formal policy and procedure manuals by function.
The challenge for a business in the stretch stage is the never-ending struggle of having enough operating cash and borrowing power to fund their business expansion aspirations. Their ability to make it through this stage is tied to the tolerance ownership has for putting everything at risk to pursue the rapid growth required to become substantial.
Businesses that attempt to stretch into the substantial stage but fail most often fail because they couldn’t attract, hire, and retain the people needed to achieve the economies of scale enjoyed by substantial businesses.