Three Invisible Gates That Stop Most Companies From Growing


3 Invisible Gates That Stop Most Companies From Growing


In our experience, as a business grows and the number of employees increases, the business will typically go through these three stages.  How well the business adapts at each stage of growth will impact how well the business continues to grow.  At any stage of growth, it is crucial to have the right people in the right seats.

How many people can one person manage?

Harvard Business Review estimates the ideal range for an experienced manager is between five and nine direct reports.  Inc. pegs the sweet spot at seven.

The ratio of managers to direct reports matters because it explains why some businesses grow and others plateau.  Every business is different, but you can loosely think of a business’s evolution as a series of stages with an invisible gate holding most owners from progressing to the next stage:

Stage 1: Doers (up to 9 employees)

In stage 1, you direct a handful of doers.  You need people who can follow your standard operating procedures and execute them.  Your best employees will often be generalists who can do many things reasonably well.  They thrive on variety and like the feeling of getting things done.

Many business owners get stuck in stage 1 because they fear delegation.  Business owners often don’t trust employees enough to do the work without their direct oversight.  However, those owners courageous enough to hire some managers will graduate to stage 2.

Stage 2: Managers (10–40 employees)

In a Stage 2 company, the owner hires a small number of managers (usually fewer than five), who are paid to ensure their direct reports execute.  The emphasis is on managing against the plan the owner gives them.  Good managers understand the process they are being asked to manage.  They are detail-oriented and stick to the plan.

While managers may contribute to the plan, they are not usually responsible for creating it.  Managers typically need their leader(s) to supply the plan, which is why many companies stall out at stage 2.

Stage 3: Leaders (40 + employees)

For our purposes here, let’s define a leader as a person who can lead a team through more than one layer of management.

Suppose you have a sales leader who oversees two sales managers, each with five salespeople reporting to them.  The leader’s job is to set direction and to provide a vision and plan for their managers to execute.  They lead a team of twelve (two managers plus ten salespeople) while managing two direct reports.

While most leaders can manage, the opposite is not necessarily true.  Leadership requires managers to learn a new set of skills.  Leaders need to be able to communicate clearly, delegate effectively, and create strategy.

If you’re stuck at stage 2, you have two options: either hiring leaders to parachute into your organisation, which risks alienating your managers, or training managers to become leaders.  Both strategies are challenging and time-consuming, which is why many companies get stuck at stage 2.

Half Your People, Half Your Processes

For an example of a company that successfully managed the transition to stage 3, look at Acceleration Partners.  Started by Robert Glazer in 2007, Acceleration Partners is a global agency specialising in partner marketing.  Acceleration Partners is a people-centric business that helps brands reach and manage their influencer relationships.

In the beginning, Glazer began hiring people to help him manage clients and their projects.  Acceleration Partners’ needs evolved as the company expanded.  Glazer explains, “Every time your company doubles in size, you outgrow half your people and half your processes.”

Glazer grew Acceleration Partners for 14 years, and by the time he sold it in 2021, Glazer had an entire team of leaders overseeing a group of managers who were managing the people doing the work.

If you’re stuck, it’s worth asking if you have the right people in the right seats to take your business to the next stage.  In the beginning, you will need managers you can trust.  And to progress to stage 3, you will need people who can manage and lead.  Some managers may need training, while other areas of your business may need an entirely new leader to make the transition successful.

If you have any questions about this article or would like to speak to one of our advisors, please do not hesitate to contact us or call our office on (08) 6212 7200.

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Chris Mandzufas

Chris Mandzufas

Chris has a diverse range of skills and experience as a result of providing accounting, taxation, advisory board and management consulting services to owners and directors of fast growing businesses.

Chris Smith

Chris Smith

Chris Smith has been a member of the Chartered Accountants Australia & New Zealand since 2006, a member of the Tax Institute of Australia since 2013, and a registered Tax Agent since 2018.

Tony Monisse

Tony Monisse

Tony’s key focus is the integration of strategy and financial management. To this end he has developed tools and process that facilitate this integration, including business modelling, target setting and rolling cash flow forecasts.

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