How to Survive Beyond the 5 Stages in a Life Cycle of a Business
You may have started your small business, and it’s well thriving congratulations! Don’t relax; from the time you start your business, you progress through five common phases. Which phase are you? Your business journey will be a progression through these phases, launch, growth and expansion, shakeout, maturity, and exit.
The above phases form the life cycle of a business. Each stage comes with a new set of challenges. As the business owner, you need to review your strategies to overcome these challenges. If your vision is to do business for many years to come, then, this article will help you. It details the five life stages of a business and how to manage through all of them.
Here are the five stages in a life cycle of a business and how to thrive through each of them.
1. The Launch
The launch is the onset of your business life cycle. It comprises the conception of a business idea and converting the idea into a business. It is at this stage where you develop a product or a service your company has to offer. You then begin marketing and selling your product or service. Without understanding this stage, you are likely to fail. It requires persistence, passion, and motivation to go beyond this stage.
It is like planting a fruit-tree. Expect no immediate celebration or recognition of your work. It may take you up to three years before realizing any profit. It is about watering the ‘seed.’ It is here where you recognize the importance of adequate preparation. Such preparation includes having sufficient capital for the business and money for your living expenses.
Any feedback from the customers should be your action point. Sales are usually lowest at this stage, and you will be tweaking your product or service according to the market demand. This translate to a lot of cash demands. Again it suggests that you can only underpay yourself and key employees. The low salary will not retain your employees for long as they will need jobs to help them move up in their career ladder.
Do you need to close business as you continue losing employees? You must replace your workers as they exit. For your business to survive, you must invest about 100 hours of your time per week. Therefore, you need others to help you. Low sales, high cash needs and frequent exit of employees are the challenges that tie with this phase.
It clearly suggests that your business model should overcome these challenges to move forward. Therefore, at this stage adaptability is the key
2. Growth and Expansion
It is at this stage your business starts generating a consistent income. You also experience taking on new customers regularly. Cash flow should begin to improve as increasing sales can cover ongoing expenses. You should now expect to see your profits growing gradually. At this phase, your existing customers should be able to sell you to other prospects.
Your pricing level should modestly increase for new clients. Your relationship with existing clients should now be maturing within the 3-4 year mark. Staff turnover should start decreasing as salaries increase. It is in the growth and expansion stage that your business grabs a firm position in the marketplace.
The growth then sets in a new challenge. Your time is divided between customer demands, increased levels of revenue, competition, and workforce. To make the most of the potential of your company, hire smart people with excellent skill-sets. This also includes building the skills of the existing workforce. To ensure the success of this exercise, be directly involved in the recruitment process.
Your role as the head of the company should now be evident in establishing order, cohesion among the workforce. At this stage, goals should be defined and communicated. Here you may start capitalizing on expanding your offering and entering new geographies. More growth both in revenue and cash flow is most evident in this phase.
With good events unfolding, don’t be too comfortable though. Carry out careful planning for continued success. Check out how the expansion might affect the quality of service to existing clients. Also, consider that what has worked may not work in other markets. Take new challenges diligently to secure your business from all eventualities.
In this phase, sales continue to increase but at a slower rate. This outcome results from approaching market saturation. It can also happen if a new competitor enters the market. Though the sales continue to increase, the profits start declining due to the significant increase in costs. This phenomenon drill slow growth and the focus shifts to bringing down the costs.
The demand for your product then continues declining. Many companies usually start cutting prices to pull up demand. The resultant scenario is significantly reduced profits as it becomes hard to reduce costs with the expanded workforce. Also, in trying to keep up with increased competition, the marketing costs increase.
A few companies survive this shakeout phase. But even with shakeout threatening most companies in the market, it offers an opportunity to those who see it coming. A shakeout comes with its predictable patterns, and those well-tuned can predict the path it will follow. Thus, armed with foresight, you can cope with paralyzing uncertainties of a shakeout. You should develop strategies and help your firm land on its feet.
The shakeout never lasts forever. If you can develop strategies to get around shakeout, your company should start seeing stable profits. If this happens, your company is at the top of its industry and has now matured. Your business should be growing at a steady rate of about 5%, so not as substantially as before. You have a dominating presence in the market, and you feel more secure than any other point since conception.
Revenue gets steady and predictable. While profit margin gets thinner, cash flows remain relatively stagnant. Business owners here are faced with two options, seek further expansion or exit the business. To move beyond this stage and not exit, you need to reinvent yourself and invest in emerging markets and new technologies. It is the way to reposition yourself in your dynamic industry thereby refreshing your growth in the marketplace.
This is a phase every entrepreneur should seek to avoid. It is at maturity stage where you choose either push for expansion or exit. A business that cannot continue but is faced with an option to exit has the following characteristics:
- It cannot sustain further growth
- It finds no opportunities out there for expansion
- It is not financially stable to accommodate an unsuccessful expansion attempt.
Thus, the exit becomes the inevitable option.
It is evident that every new stage brings new encounters. A solution that worked for one stage may not work for another. It is the reason why you must adopt strategies and operations that work with your phenomenon. Ensure to carry out a routine financial analysis to gauge your business performance. Having an accounting software will help in this and also foresee upcoming challenges
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