The Level III Company: "Market Leader"

Part 4 in a Series of 4Below are the characteristics and warning signs of a Level III Company, a Market Leader. This is the third of three defined company stages as part of The Business Growth Cycle. CHARACTERISTICS:

• Aligned executive and middle management teams are in place and are staffed with qualified people and accountability is clear and well-managed. (Level II crisis is resolved).
• The company's business niche is clearly defined and its products and services fit the niche.
• The company has an identify beyond the founder(s)' and current leader's (CEO).
• The company has well-defined and communicated short-term and intermediate term strategies and plans, which are being followed.
• Managers (executive and middle) are doing more managing (working 'on' the business) than technical work (working 'in' the business). They are focused on developing systems, accountability and people that will allow the business to scale.
• Unproductive/unprofitable products and services are phased out.
• Market research, development and planning is timely and competent in regard to:
• • Products
  • Services
  • Customer base
  • Geographic coverage
  • Competition
• Competent staff, management and leadership development processes are in place:
  • Performance feedback
  • Training
  • Coaching
• The managers effectively use financial and non-financial performance data in presenting, planning, decision-making, problem-predicting and expense control.
• Profitability is strong.
• The company's financial health is strong and cash flow works well.

LEVEL III - Top Warning Signs of SuccessIf these problems are present in a company they will eventually cause ‘train wrecks’ that slow down or stop the company’s ability to scale. It is the role of the leader(s) to predict and resolve these problems before they show up in the results:

• The executive leadership team does not function as a team
  • Entitlement and/or arrogance plagues one or more of the executive team members, who were once ‘all stars’ have become trouble-makers or brilliant jerks
  • There are some long term loyal employees and/or recent hires on the executive team that can not scale themselves
  • There starts to be some friction between old and new executive team members
• Customer service quality dissipates
• Executive leadership team is slow to react to and/or understand changing market conditions and increasing competition from other companies in the market placeVendor relationships become strained. Long term service providers are no longer effectively able to serve the company
• The company has pockets of both tight and loose cost controls
• The owners-founders start loosing the motivation to keep scaling the business and climbing the ‘high mountains’ – complacency and the feeling of what to do with the rest of their lives starts to plague them
• Throughout the company relationships become more important than getting qualified people in key positions and clearly defining and enforcing accountability – The Company becomes a political beast
• Major systems (ERP) conversions become unduly problematic with significant time delays and costly budget overruns

Benefits of Becoming a Level III Company

• Survival and continued development of the company are not dependent on one or a few people.
• Management and ownership succession are more assured.
• More capable executive, management and technical employees can be hired and retained.
• Existence of a strong middle management team frees ownership/executive leadership to plan, pursue additional markets and react to major opportunities and predict problems.
• The company can more effectively expand product lines and markets.
• The company is more able to react to a rapidly changing economy or market.
• Profitability is usually sustained.
• The increased flexibility and stability usually makes the business more enjoyable for the owners/managers and key employees.
• The owners can spend more time away from the business if desired.
• The business is more marketable at a premium price if the owners desire to sell.
• Smaller companies in the same industry can be successfully acquired.

Qualities of a Level III Company

CULTURE AND PEOPLE

1. CEO
   • The company has a well-defined leadership (CEO) role.
   • The company has an effective and humble leader.
   • The leader understands his/her talents and blind spots.
2. MANAGEMENT
   • The key management positions are right for the company's size and growth rate.
   • Right people are in all key positions-management and technical.
   • Managers are systems oriented.
3. COMMUNICATION
   • Meetings are productive and efficient.
   • Managers receive productive feedback, coaching, and training.
   • Leaders and managers are available to employees and customers.

SYSTEMS AND PRODUCTIVITY

1. ACCOUNTING
   • All accounting, financial performance reporting and control systems are in place and working
   • Financial and non-financial performance information is produced and used by key employees
2. WORK PROCESS SYSTEMS
   • All work process systems are efficient and produce quality end products
   • The difference between marketing and sales is understood, and systems for both are in place and successfully working.

SALES AND MARKETING

1. BUSINESS NICHE
   • The company is focused in a well-defined business niche
   • Products and services fit the company's business niche
   • Diversification into unrelated businesses has been avoided
   • The leader and key managers are externalized in their industry
2. CUSTOMER SERVICE
   • Product and service quality are continually evaluated and improved
   • What constitutes superior customer service is clearly defined
   • Superior customer service is continually practiced throughout the company

MONEY AND FINANCE

1. CHIEF FINANCIAL OFFICER AND CONTROLLERSHIP
   • Product and service quality are continually evaluated and improved
   • The company has the effect of a strong accounting and finance department
   • The CFO and controller are an integral part of the management team
2. EXPENSE CONTROL
   • Budgeting is successfully employed
   • Expenses are closely monitored and controlled
   • Key performance measures are established and performance monitored
3. FINANCIAL MANAGEMENT
   • Debt/equity objectives are established and performance monitored
   • The company is committed to minimizing if not eliminating debt capital in relation to equity capital
   • Mature cash flow plan in place, understood and working

KEY QUESTION:

If you were to score your entire company (not just parts of the business) on a scale of 1 to 10 (1 being "does not have any of the qualities or characteristics of a Level III Company" and 10 being "meets every single quality and characteristic of a Level III Company") - What score would you give your company, is that the score you want? What score would everyone else in your company give? What do you need to do, specifically, to get your score to a 9 or 10?