Column: The Evolution of a Successful Contractor

      Tell me if this sounds like your company? The founder is running and oversees all aspects of the company. He/she excels at the technical and/or sales portion of the business but is not a strong manager or leader. While the overall objective of the company is to survive from day-to-day, the emphasis of the company is on sales growth. The overall culture of the company’s management is reactive, putting out fires as they arise. If this is the case, your company would fall into the Phase I category of its life-cycle, the start-up entrepreneurial phase.

      There are four phases in the evolution of a successful company, with the fourth being reserved for the industry leaders such as Lockheed Martin, Northrop Grumman and other well-established organizations.

      Most entrepreneurs strive to have their company achieve Phase III, but what does it take to accomplish this? This article will discuss some of the challenges and strategies to employ along the way.

Phase I – Start-up Entrepreneurial

      Many Phase I companies never make it to Phase II but remain what I refer to as permanent small businesses. Reasons for this include:

• Lack of strategic planning;
• Failure to develop and implement management systems;
• Poor accounting controls and lack of budgeting;
• Working capital shortages; and
• Unclear lines of authority.

      At some point, the company will reach a point of inflection by which it either begins to address these challenges and moves into Phase II, or remains a permanent small business.

Phase II – Entrepreneurial Expansion

      As a Phase II company, a leader (not necessarily the founder) is chosen who provides the direction and focus for the organization. Functional specialists are recruited in areas such as:

• Marketing and Business Development;
• Proposal Writing;
• Human Resources and Recruiting;
• Accounting;
• Operations; and
• Program and Project Management.

      During this time, the company may develop certain products or areas of service specialization that become desired in the marketplace. However, Phase II companies now face a different set of challenges including:

• Delegation of efforts is difficult;
• Financial management systems are still inadequate;
• Growth is still emphasized, many times at any cost;
• Management remains reactionary; and
• Possible turnover of key personnel.

      This is the phase in which most entrepreneurial organizations remain. The most prevalent reason I have experienced for the failure to become a Phase III organization is that the founder, or the leader of the company, fails to delegate authority and responsibility to others. The founder remains too involved in all aspects of the business. The company can only grow to the limits that this one person can do.

Phase III – Mature, Financially Stable, Professionally-Managed Company

      The goal of every entrepreneur is for his/her company to become a Phase III company. The primary reason for this is the business becomes very marketable, and at a premium price in the marketplace should the owner/s decide to sell. Characteristics of the successful Phase III company include:

• The business has established a clearly defined niche;
• It delivers superior customer service with product and service quality constantly evaluated and improved;
• A strong management team with the right people occupying the key positions;
• The company has a strong financial base;
• Financial performance is budgeted, measured timely, and addressed if expectations are not being met;
• Formalized management systems are put in place and are functioning;
• Management becomes decentralized;
• Profit centers are established; and
• The company is no longer identified with the founder.

      Once Phase III is achieved, the challenges become that of continued improvement in these areas.

Strategic Planning – The Key to Successful Growth

      All companies reach an inflection point as they attempt to move up to a higher phase. The companies that are successful in attaining the next phase follow a structured strategic planning process. Strategic planning is a process that involves identification of the company’s goals and objectives for the next year, as well as years thereafter. Quantitative and qualitative objectives are set. These objectives must be measurable, for if something cannot be measured, how will you know if it has been attained? The company evaluates its strengths and weaknesses, along with opportunities and threats. Strategies and action plans are established to achieve these goals and objectives, to capitalize on its strengths and opportunities, and to overcome its weakness and threats. So where is your company in its evolution, and what needs to be done to achieve the next level?

Michael Smigocki, CPA, CVA is the Senior Managing Director of Federal Strategies Group, LLC. He provides government contract and management consulting, M&A advisory, litigation support and expert testimony to the government contracting industry. He can be reached via email at MikeS@FedStrat.com.

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Column: The Evolution of a Successful Contractor

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