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After 20 years in the financial industry, I decided to take the plunge and start my own boutique investment firm. During his first three years, he worked hard. I was too busy building my business to think ahead.
In the blink of an eye, I seemed to have established my business, but new questions began to arise. Where do you want to take this business and how do you identify the next steps for growth? Did you want to evolve your business model or create a joint venture to accelerate growth? Did I want to consider it? Did I have a succession plan in place? I felt the conversation shift and soon I was making big decisions about the next stage of my business.
Through my travels, I have found that my experience is fairly common. The first three to five years after a business begins to grow steadily is often a critical turning point for companies looking to expand from small to midsize, or from midsize to large.
I found this period of growth to be exciting but overwhelming. After all, there is no step-by-step guide to building and growing a business, which can be even more difficult for diverse first-generation founders.
There are three important things you need to know to get through this crucial stage. The importance of long-term strategic planning, why capital management needs to be proactive, and how the right team can help your business reach new heights.
Related: How businesses can stay ahead of the curve by looking back and thinking about the future
1. Transition to long-term strategic planning
As an entrepreneur, I know it can be difficult to take a long-term view. Many entrepreneurs fall into the same trap as I did, putting out fires and dealing with immediate needs (getting through next year, hiring more employees, managing cash flow, etc.), while at the same time failing to develop a comprehensive strategic plan. I realized that I was ignoring the formulation.
During your first three to five years in business, it's important to think about both medium and long-term goals to keep your business moving in the right direction. Ask yourself honest questions about your future aspirations and priorities.
- In the medium term, think about the most effective way to establish growth for the next 3-5 years.
- Will you grow primarily through organic expansion or pursue strategic acquisitions?
- Do you want to increase your physical presence by opening more locations or expanding into new regions?
- How do you invest in your people and infrastructure to support business expansion?
- Are there new challenges that may become more urgent over time?
- In the longer term, it may be helpful to think about broader strategic issues such as:
- How is your industry evolving? Do you have access to the right insights to anticipate change and potential disruptors?
- How does your company stay ahead of your customers and their preferences?
- How long do you intend to own the company? Given future sales growth, what is the best path to profitability?
Related: Why long-term strategic planning is the lifeline your business needs right now
2. Invest for the future, not just now.
Once you have a plan in place, you need to adjust your capital strategy to achieve your goals and seize opportunities by securing sufficient funds at the right time.
According to our 2023 Medium-Term Business Leader Outlook Survey, 76% of midsize companies expect capital spending to increase or remain at the same level as 2022. However, entrepreneurs often wait to ask for capital until the moment they need it. It's too late to realize the opportunity in front of you. Therefore, it is essential to carry out advanced planning to assess anticipated capital needs in the coming years.
Review your plan and the major investments already included in it. Next, consider the macroeconomic environment and whether you will need additional capital to strengthen your business later on. Work with your bank team to understand your options. Now may be the time to raise equity or seek debt financing.
I have seen several business owners struggle with these decisions. For some people, the idea of exiting stocks is difficult, even though there are great opportunities ahead. But the most important priority is to sustainably capitalize the business and position it to weather future storms.
Having a team of experts will help guide you in the right direction as you go through this process.
3. Build an all-star team
Around this time, your role as CEO may begin to change. The more your business grows, the more valuable it is to bring in experts to help you evolve.
We encourage you to take time to reflect on your career, understand where you excel, and identify areas that could benefit from additional expertise. Using these insights, you can build a team with diverse skill sets to avoid being over-indexed in any one area.
The approach I suggest is:
- Build a strong circle of third-party advisors, including bankers, legal advisors, industry analysts, marketing and communications advisors, and executive coaches. This circle will provide you with valuable advice and relationships that will help you grow your business.
- Consider adding expertise in areas that are adjacent and relevant to your business, such as cybersecurity, customer acquisition, or artificial intelligence.
- We aim to become experts who are in charge of businesses from start to finish and have survived multiple business cycles.
By taking on these important roles, you can focus on growing your business.
The first three to five years in a company can be a pivotal and exhilarating time for business leaders. With clear long-term goals, an active capital management mindset, a fresh perspective on your role, and a strong team of experts, you'll be ready to take your business to the next level.