4.1 Introduction

This chapter discusses organizational issues owners face while operating and attempting to grow their businesses. We examine four stages of organizational growth and the choices business owners face when deciding how to manage tasks and responsibilities. Those management decisions shape an organization's structure, which in turn influences lines of communication and decision-making processes.

The end of the chapter includes a short description of business legal entities. Also, you will find exercises to help you better grasp these concepts and to determine what type of organizational structure and legal entity might best suit your venture.

Moving from a one-person band to an orchestra

Most businesses start like a one-person band. The owner plays all the instruments, some better than others, but all out of necessity.

Like any musical ensemble, a small business includes many roles. In the beginning, the owners are often the best at making or delivering the product or service. Since they have the most at stake, they often assume a wide variety of roles, including sales, accounting, and much more.

Through a combination of skill, planning, talent, and perhaps luck, some businesses manage to grow. This growth leads to new and changing roles in the business for everyone, including the owner. Of all the roles an owner has in the business, perhaps the most important one is to be the designer for the business.

In the role of chief designer, business owners have three critical duties:

• Provide the vision and direction for the company . Owners set the direction for the values of the company, develop its product and service strategies, and set the tone for its relationships with customers.
• Develop and refine processes and procedures. Owners design the “business model”, or the big picture formulas and processes of doing business. Then, they must fill in the details by analyzing processes and finding bottlenecks.
• Create the organization’s human resource structure . Owners identify the positions and types of people the business needs, and then they find the people to fill those roles. In the words of Jim Collins, author of the bestseller Good to Great ,

  Get the right people on the bus, the wrong people off the bus, and get everyone in the right seats.

The payoff for a well-designed business is immense. With clarity of vision, expectations and processes, and with the right people pulling together, there is a strong foundation for growth. Instead of a grim “never take a day off” grind, the business owner can now enjoy the ride—and maybe take a day off from time to time. It is also now possible for the owner to think about a profitable exit, because a business that can run without the owner is worth a lot more than one that falls apart when he or she is not at the controls.

Owners of a growing business eventually have to decide how to organize employees and delegate authority. Doing so can be a frustrating task for many entrepreneurs. Most would rather concentrate on closing sales, producing product, or managing cash. However, they do so at the peril of putting off planning for the future needs of their enterprise.