Page 31 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 1. Executive Compensation Framework 17

The same would describe other companies in a threshold market stage. There would
likely be many small companies with very specialized product brands marketed in small
geographic areas.

Growth. The growth phase marks the period of tremendous growth as the threshold
company emerges with strong success in new venture areas as well as becoming a national
influence by challenging established leaders in market share. In addition to maximizing
revenue on the product or products introduced in the threshold stage, the company is
expanding the product line into new markets, capitalizing on the brand name and its
manufacturing, marketing, and distribution strengths. An increase in product lines probably
has increased the diversity and complexity of related management processes. The number of
employees increases along with sales, and management may shift from the original owners
into the hands of professional managers, as the company must cope with different problems
brought on by apparent success. Coordination needs are greater and communication more
formalized to ensure consistent interpretation; relative priorities need major review to ensure
optimal success. Return on shareholder equity is very strong and increasing significantly
during this phase.
During this period, the company is likely to state its nature of business too broadly,
venturing into product lines for which it lacks expertise. This often results in a level of
performance far short of expectations; however, success in main lines overcompensates.
Cash and available time both seem to be in short supply as full energy is directed to
maximizing product success and reinvesting in the business. Rapid growth places a major
strain on the business because it can rapidly outgrow its production capability. Because of
the shift in emphasis from getting the business started to keeping up with its growth, many
start-up executives decide to leave. Little time exists for formalizing job descriptions,
although individual responsibilities are better understood as greater specialization is
required. Written policies and procedures start to emerge. The depth of management is
very thin; however, some replacements and new positions can be staffed internally by jug-
gling. Decision making has become more formalized (and therefore slower), and alternatives
are viewed in light of precedents set during the threshold stage. White shirts, rolled up at
the sleeves, have replaced sport shirts; however, the tone is still informal and essentially on
a first-name basis.
To stay in the growth phase, the company must continually find new uses for existing
products or introduce new products, or both. This requires a careful analysis of available
capital for manufacturing and marketing to optimize return on investment.
The longer the company can sustain a competitive advantage, the longer it will stay in
the growth stage. A favorable price based on control over costs may be a significant factor.
A market described as being in the growth stage would find an increasing number
of large companies with a national focus that have established entry barriers that make it
difficult for others to enter the market. An example of such a barrier would be a strong
brand name.

Maturity. The maturity phase is marked by little change in market position (some slippage
may be offset by new products—mainly interpolation or minor extrapolation of existing
products rather than new breakthroughs). Emphasis is probably on maintaining current
market penetration and servicing existing customers rather than adding new customers.
Market share is more likely to be gained by lowering prices than by increasing investment.