Each business has four stages of its life cycle. These are startup, growth/maturity, renewal/rebirth, and decline. Understanding which phases your business is in can significantly impact your company’s planning and operation. I have met business owners who think they are growing when their sales increase by 2% yearly. They are declining because small customers are leaving, and the big ones are only increasing slightly. They don’t invest in the systems and personnel needed to start a renewal phase. Many businesses are in the growth stage and don’t allocate the resources necessary to continue the growth. They miss out on valuable market shares.
What can you do to identify the phase in which your business is? What are the signs and signals of each step? How can you ensure your success in every stage?
Startup
During this phase, you will spend time meeting new people, developing new ways to market your product or service, and implementing new ideas. You will have a few processes at this stage, and you will be tweaking your model to understand the market and make a profit. Your employees wear many hats. It would help to have a few job titles and descriptions because you are still building a corporate structure.
It’s a time of excitement, but it is also a time when most businesses fail. Cash demands can make it challenging to underpay key employees and yourself for long periods. People will only stay with you for a limited period before needing to leave to advance in their careers. This time can be used to develop a business plan that will allow for a sustainable cash flow, consistent growth, and the ability to hire others to run it. If you can’t run your business without working 100 hours a week as “chief, cook, and bottle washer,” it won’t grow.
Growth
During the growth phase of your business, your clients should be able to describe your model to others. Maintain your current pricing with small increases for new customers. Client relationships that have lasted more than three to four years should be mature. You should see a decrease in turnover and no longer have to worry about keeping your employees and making payroll.
In the growth phase, your business will solidify its position in the market. As you hire higher-level people to manage your operations, turn your attention inward. Spend time on tasks that will help your company grow. Identify any obstacles to growth. Spend time strengthening your relationship with clients. Invest in employees and encourage them to be more responsible for internal processes and client relationships.
Growth will require investments. To fund development, you will either have to return profits or borrow money from investors or other sources. You give up equity to gain advisors when you use investors. You retain your equity when you borrow money, but you must provide personal guarantees to banks to get funding.
Maturity
You should see your business grow by 5% per year, and you’ll have employees who are eight to ten years old. You should be feeling more secure now than ever before. You should be able to withdraw regular dividends from the company. Professionals should manage the day-to-day operations. While some situations may require immediate attention, most are predictable.
They may not be the most exciting businesses, but mature companies are reliable and consistent. Many mature businesses are well-funded and can grow by acquiring or spinning off other product lines. Brand recognition allows mature companies to expand and defend their position in the market. People feel energized, and operations are smooth. Revenue is predictable and steady. Be sure to enjoy this time and be alert for signs that it’s time to make changes. You can decide whether to sell or invest in the business to ensure its growth and sustainability.
Renewal/Decline
Owners of businesses in decline often need to be made aware. They believe that their top customers are increasing and demanding more services. They view the market as stable.
You might have entered the decline phase about two years ago if your revenue had declined for three quarters. Start looking for new ways to innovate. Owners who are only interested in what they can get out of their business before retiring and don’t want to invest in marketing, new technology, or people are in decline.
You will need to decide whether to reinvest or cash out. Most businesses wait until their business is in decline before investing in renewal. Leaders who recognize that their market or industry is changing will start early in the renewal process.
If you decide to cash out your investment, assemble a team that includes accountants, investment bankers, and other experts in mergers and acquisitions.
Talk to sales and marketing about how you can pivot your business to adapt to changes in the marketplace. Change your current product to suit the needs of a new customer or create a new business. It will cost you money and time.
Many business owners need to take the time to understand where their company is on this spectrum. According to the Exit Planning Institute, 80% of businesses with annual revenues less than $50,000,000 never sell. They need to recognize where they are on the spectrum of business life or decide to make changes. It isn’t worth it to buyers when they choose to sell their business. This is a situation you don’t wish to be in.