What stage of the business life cycle are you in?17 February 2016 Category :
Note: This article also appeared in Entrepreneur Middle East, and can be viewed on the site here.
From the moment you make the decision to set up a business, you’re in the “business life cycle.” This will see you journey from idea to startup, and if successful, through to the growth and maturity phases.
While fair to say that business is never not challenging, a look at each of the stages of the business life cycle highlights a unique set of obstacles to deal with and overcome. You will have to be flexible in your thinking and adapt your strategy as you move along. Indeed, different approaches are required for market penetration versus, for example, what may be required to achieve growth or retain market share.
According to the recent Startup Genome Report, an estimated 90% of those startups that fail do so primarily due to self-destruction. It was their founders’ own bad choices or lack of preparedness rather than so-called “bad luck” or market conditions that were out of their control. Understanding your position in the business life cycle just might help you stay a bit ahead of the game here and defy the odds, as you anticipate the potential challenges and obstacles that are upon you or are on the way depending on what phase you are in or about to transition to.
Simply put, as your business grows and develops, so too do your business aims, objectives, priorities and strategies – and that’s why an awareness of what stage of the business life cycle you are currently in can be helpful.
Stage 1: Seed and development
This is the very beginning of the business life cycle, before your startup is even officially in existence. You’ve got your business idea and you are ready to take the plunge. But first you must assess just how viable your startup is likely to be.
At this stage, you should garner advice and opinion as to the potential of your business idea from as many sources as possible: friends, family, colleagues, business associates, or any industry specialists you may have access to. Ultimately the success of your business will come down to many factors – including your own abilities, the readiness of the market you wish to enter and, of course, the financial foundation in place (how are you going to finance your launch?).
In some ways, this is the soul-searching phase. It’s where you take a step back and consider the feasibility of your business idea, and also ask yourself if you have what it takes to make it a success.
Stage 2: Startup
Once you have thoroughly canvassed and tested your business idea and are satisfied that it is ready to go, it’s time to make it official and launch your startup. Many believe this is the riskiest stage of the entire life cycle. In fact, it is believed that mistakes made at this stage impact the company years down the line, and are the primary reason why 25% of startups do not reach their fifth birthday.
Adaptability is key here, and much of your time in this stage will be spent tweaking your products or services based on the initial feedback of your first customers. It can even get to the point where you are making so many changes to your offering that you start to feel a bit of confusion. That’s just noise, and the main advice here is to power through the blurriness, because extreme iterations upfront will naturally seem confusing. Rest assured the clarity will once again come.
Stage 3: Growth and establishment
If you’re at this stage, your business should now be generating a consistent source of income and regularly taking on new customers. Cash flow should start to improve as recurring revenues help to cover ongoing expenses, and you should be looking forward to seeing your profits improve slowly and steadily.
The biggest challenge for entrepreneurs in this stage is dividing time between a whole new range of demands requiring your attention – managing increasing levels of revenue, attending to customers, dealing with the competition, accommodating an expanding workforce, etc.
Hiring smart people with complementary skillsets is necessary to make the most of your company’s potential during this phase, and so any good founder will be spending a lot of time directly involved in the recruitment process.
It is essential that you start to come into your role as head of the company in this stage. While you’ll still be on the front lines often enough, you need to be aware of how your expanding and highly qualified team is going to be taking over a great deal of the responsibilities that were previously tightly under your control. It is your job now to start establishing real order and cohesion as you mobilise the teams according to clearly defined and communicated goals.
Stage 4: Expansion
At this stage you might feel there is almost a routine-like feel to running your business. Staff are in place to handle the areas that you no longer have the time to manage (nor should you be managing), and your business has now firmly established its presence within the industry. Here you might start to think about capitalising on this certain level of stability by broadening your horizons with expanded offerings and entry into new geographies.
Businesses in this stage often see rapid growth in both revenue and cash flow as the blueprint has now been established, but be warned about getting too comfortable. In business, if you are not moving forward you are moving backwards, and without a constant, almost nervous itch or desire to expand, complacency can set in, and you might get caught off guard.
There is of course two sides to this coin, the other involving a risk of expanding too carelessly. While there is no crystal ball and it is very hard to get an idea of what will be the results of your undertakings, you can give yourself the best possible chance of continued success through careful planning. Look at your resources, be realistic about the effort and cost and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers.
Remember, while having a successful business model behind you is undoubtedly an advantage, it is not a guarantee that it will work elsewhere within other markets, or that new offerings will result in the same success. The business graveyard is littered with organisations who took on too much and failed. Your task is indeed to take on new challenges as you look to constantly expand, but measure your risk and do your best to secure the company for all eventualities.
Stage 5: Maturity and possible exit
Having navigated the expansion stage of the business life cycle successfully, your company should now be seeing stable profits year-on-year. While some companies continue to grow the top line at a decent pace, others struggle to enjoy those same high growth rates.
It could be said that entrepreneurs here are faced with two choices: push for further expansion, or exit the business. If you decide to expand further, you will need to ask yourself the same questions you did at the expansion stage: Can the business sustain further growth? Are there enough opportunities out there for expansion? Is your business financially stable enough to cover an unsuccessful attempt at expansion?
And, perhaps most importantly, am I the type of leader who is up for the task of further expansion at this stage? In fact, many companies change leadership here, bringing in a seasoned CEO who is more fit to navigate the new challenges.
Many at this stage also look to move on through a sale. This could be a partial or full sale, and of course depending on the company type (for example, public or private), the negotiation may be a whole new journey in itself.
Navigating the business life cycle
Not all businesses will experience every stage of the business life cycle, and those that do may not necessarily experience them in chronological order. For example, some businesses may see astronomical growth right after startup, and the founders may decide to cash out right away, jumping straight to that “exit” stage.
For many companies, though, there will be some sort of resemblance to the stages defined above, and awareness may help you anticipate what is coming next and how you can best prepare yourself and your team to maximise your chance of success. Making the right decisions at each stage is another thing altogether, however, and that will require your usual mix of gut instinct and practical business sense.
About the author
Neil Petch; Chairman at Virtugroup
With a history of business successes, Neil Petch is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. Neil founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching Virtugroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.