Verne Harnish

Between one million and ten million in revenue your biggest issue - and by the way it's not like revenue's not important all along. It's always important, but it's particularly important in that first stage. The second stage - cash is always important, but it is particularly important between a million and ten million, because that's when you're trying to figure out what you want to be when you grow up. That's actually when you're going to grow faster just because of the sheer numbers - between a million and ten million, than you're ever going to grow in the history of your company. It's the equivalent of when you go from being a five-year-old to a 15-year-old -- you grow a bunch and you just need to survive the mistakes of your youth. And the equivalent of that in business is surviving all of the things -- all of the trials and tribulations of trying to figure out what you want to be when you grow up, and you just can't run out of cash. Now when you get over ten million in revenue -- ten million to about 50 million in revenue -- it's all gross margin. You've always had competition, but it really becomes fierce when you add that extra zero to your revenue.

Ten million and north and you're going to get lots of price pressures. The biggest problem from 10 to 50 million is getting your operations going so cleanly that you can reduce price and still maintain your margins.

Then between 50 million to about 300 million, which is the Sapients of the world and those hotshot companies in Boston, by that point you'd better figure out how to predict your profitability. It doesn't have to mean necessarily you're profitable, but you'd better be able to predict your profitability on a real regular basis. That's why most companies don't go public until they're something north of 40 or 50 million.

What are some general stumbling blocks that pervade all fast growing companies?

We actually say there are three big issues in growing a company. Number one is the inability for the leadership to grow in the company. That's first, second, third, tenth. As goes the leadership goes the rest of the company. And the fundamental issues around leadership is your ability to delegate. Said another way, it's your ability to know how to let go properly. And you can't just abdicate. It's got to be that you really know how to delegate. I have a process of staying in touch and coaching you and growing you and developing. As Fast Company has said, the fundamental job of leaders is to create more leaders.

The second biggest issue is your ability to get systems and structures in place, to handle the complexity as you arithmetically add people. You geometrically increase the complexity. Said another way, everything was fine at 39 employees. And you get the 40th employee and you swear things are twice as complex. And from a mathematical perspective, they are because that's just how it works. And so what happens is when you're small, you can trust your guts. You can hold things in your head. Now it's gotten big enough that that doesn't work for you anymore. And so you've got to upgrade your accounting systems, you've got to upgrade your information systems. You've got to start getting more formal in your organizational structure and accountability. And these are things that often the entrepreneur fights, because it's not entrepreneurial. And that's what cam limit them.

Number three is the effects of the market. As you grow, your effect on the market and the market's effect on you are in a rapid transition. For instance, when you're under a million, there's no concept of market. It's like, "I've got to go get seven customers." And in this vast world, there is not competition. You can pick up scraps if you've got any kind of moxy. From a million to ten million -- now you have to think about handling bigger customers. From ten million to 50 million -- now you have to start thinking about your positioning against competitors. For the first time your executive team's got to sit around and you have to start formally plotting strategy relative to competition and the marketplace. And then above 50 million, you actually have to care what Alan Greenspan says. The economy can shift a few percent and that can make you swing a million bucks all of a sudden. And you can't put that on credit cards like you did before.

Tell me about your "Fundamentals for Fast Growth" checklist.

I hate to use the analogy, but it really holds true. It's now coming out fairly clear that the Arkansas plane crash was simply due to the pilots ignoring their checklist. And in a real sense, we feel that strongly about this checklist. This is the kind of checklist of things that need to be in place or you can risk crashing. It doesn't mean you crash, but you've got a much higher probability of crashing if you don't follow the checklist. That's our analogy.