It’s fair to say that running a business is not easy every day! Whether you are at the early stage or further along in the life cycle of your venture, you are confronted by never ending challenges. An estimated 90% of startup businesses fail. But let’s be clear about it: bad luck or market conditions are not the culprit. No. Statistics say it was the entrepreneurs who failed to prepare and anticipate the trials they will be faced with. Understanding your position in the life cycle of your business and the systemic obstacles associated with that specific stage of growth might just help you stay ahead of the game and defy the odds.
Stage 1: Birth
You had an idea, thoroughly validated it, researched your market and took the leap. It is perhaps the riskiest stage of a business where any mistakes will have consequences for years to come. At this stage the main problem is to stay alive.
Can you get enough customers?
Can you execute well enough to become a viable business?
Do you have enough money to finance the operation?
The organization is simple: the owner is the business and performs all the important tasks, supplying energy, direction and capital. The key is agility: tweak your offering based on customers’ feedback. Don’t be afraid to change it. Focusing on the goal i.e. customer acceptance will power you through the confusion that iterations can create. A mentor can help you navigate through that noise.
Stage 2: Survival
You have done a great job demonstrating that you have a workable business model, having enough customers and satisfying them sufficiently with your services to retain them. At this stage, the main challenge is for the entrepreneur to divide their time between all the new demands that require their attention.
The organization has a limited number of employees, none of them making important decisions independently. Systems development is minimal. The business is still synonymous with the owner who wears all the hats: operations, sales, marketing, accounting, business development, etc. Consequently, not able to focus on what moves your needle, you see little return on the time and resources you invest compare to the existing potential.
The relationship between revenues and expenses might still be tense but outsourcing the nuances of running the business (project management, accounting, marketing, taxes, etc.) is necessary to augment your skills and give you back the freedom to do what you do best, in turn producing more revenues. You went into business because you excel at one thing, whether it is manufacturing cups, architecting data, etc., so DO THAT! Stop wasting your time being mediocre at everything else. Many companies stay stuck in that stage earning marginal returns on invested time and capital and eventually go out of business when the owner gives up.
Stage 3: Success
Your company has attained true economic health, has sufficient market penetration to ensure economic success. The organization is large enough and basic accounting, marketing and production systems are in place. Cash is plentiful and all may seem routine. You can choose to maintain the status quo and use the company as a mean to support you and your family, or you can choose growth as the path forward. If so, the challenge at this stage is to make sure that the core business stays profitable and to avoid cash drain.
Having cash in the bank is not a reflection of your profitability. With scale comes the need to implement systems with attention to efficiency. Sooner or later, any company that does not operate efficiently goes out of business. Efficiency is even more important for small to medium size businesses as their resources are still limited.
Have you implemented or upgraded your operational processes?
Have you revised your procurement methods?
What are your financial ratios per project or activity?
These systems also need to address the forthcoming needs of the business.
Do you have a budget in place?
Do you have cash flow projections to manage future cash flow gaps?
It is time for the first business savvy professionals to join the team, usually a controller and perhaps a project manager. Retaining seasoned business consultants on an outsourced basis is the best way to get more bang for your buck. Their expertise and experience will efficiently support your role as the head of the company, which is to establish cohesion and clearly define and communicate the goals.
Stage 4: Take-off
Your business has a strong footprint in the industry. In this stage you will experience rapid growth and two set of challenges come into play: financing your growth and understanding your capabilities. This is a pivotal period in a company’s life. If the owner rises to these challenges, both financially and managerially, it can become a big business.
At some point in this stage, whether the growth strategy involves acquisition of existing businesses, pursuing new market routes or engaging in large contracts, a business will outgrow its self-funding capabilities and/or its conventional credit facilities. There are many options available to you, from factoring, contract financing, etc., to private equity investment. Finding expansion capital can be a frustrating experience for the ill-prepared entrepreneur. Plan ahead and prepare a fundable business plan. However, looking for money is a full time job! Like in stage 2, don’t get caught in mediocre execution, but instead turn to capital acquisition experts while you keep steering your ship.
Now that the business environment is complex, the systems are becoming more refined and extensive. Managing the path forward and executing the growth strategies represent a two-fold managerial challenge.
Are you able to delegate effectively to make the company work?
Can you recognize your own limitations soon enough?
Omnipotence and omniscience syndromes are very common at that stage and their price is extremely high. You may no longer be the right person to lead the organization.
Are you the type of leader to further expand the business at this stage?
Knowing and understanding your limitations is crucial to reap the benefits of hard and often life-long work.
Stage 5: Maturity and Exit
Your business has now “arrived”. Having successfully controlled your growth through the take-off stage, your business sees stable profits year-on-year. The greatest concern of a company entering this stage is to remain innovative and agile.
Can you notice the environmental change before your competition?
Can your business sustain further growth?
What are the opportunities for expansion?
You don’t want to be the last buggy whip company! One of the most compelling business stories exemplifying the shortfalls of stiffness is the spectacular flame-out of BlackBerry. In 2009, BlackBerry aka CrackBerry controlled half of the smartphone market. Today this number is one percent…Even though they predicted all the flaws of the rising iPhone, they epically failed to recognize and adapt to consumers’ enthusiasm for Apple’s disruptive product (ref. Losing the Signal by Jacquie McNish and Sean Silcoff)
At this stage, you may look to move on through a sale. For many though, there will be some sort of resemblance to the stages defined above. Awareness and preparedness will virtually ensure that you secure the deal you want (cf. Selling Your Small Business? 3 Tips for Making the Deal you Want).
While each enterprise is unique in many ways, all face similar problems and all are subject to great changes. Knowing your business development stage enables you to make more informed choices and to prepare yourself and your company for success.