Every business goes through four phases of a life cycle: start-up, growth, maturity and renewal/rebirth or decline. Understanding what phase you are currently in can make a huge difference in the strategic positioning and the operation of your business. We have encountered many business owners who believe they are growing because sales are increasing at 2% annually when in fact they are declining.
Largely in fact because they are losing newer, smaller customers and only slightly growing the older more established ones. These entities are not investing in the necessary systems, processes and people to begin a renewal phase. Alternatively, many businesses in the growth phase are not allocating the proper resources to fuel the continued growth and miss out on excellent opportunities.
So then, the question begs: How do you identify which phase your business is currently in, and what can you do about it? Well, we here at Quinxi are experts in the field. Join us as we explore some of the nuances of each phase and give you some advice on how to ensure that your business gets the most out of every step.
During the start-up phase, you spend your time meeting people, coming up with new ways to sell your products and services as well as consistently implementing new ideas. At this point, you will not have many processes and you should be tweaking your business model to get a sense of the market and how to most effectively generate profit.
Your employees might be wearing many hats. Few job descriptions and titles should exist because you are still creating a corporate structure. Although it is an exciting time, it is here where most businesses fail. The cash demands often mean you can only underpay yourself and key employees for so long because you will only retain people for a short period before they will feel like they need to move out to move up in their careers.
Use this time to figure out a business model that allows for sustainable cash flow, consistent growth and the ability to hire other people to run it. A business in this stage cannot succeed if you need to be working “in” it all the time instead of “on” it. The difference is subtle but important.
In the growth phase, your clients should be able to explain your business model to other prospects. Keep your pricing consistent with modest incremental increases for new clients. Existing client relationships would have matured by this point and should be actively cultivated. Turnover should be decreasing; employee retention should be good and all worries about payroll should be a thing of the past.
The growth phase is where your business consolidates its stance in the marketplace. The biggest challenge 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.
Turn your focus inward as you build teams and hire key employees to run operations. Spend your time on activities that help the company grow and identify what barriers could inhibit your growth. Take the time to strengthen your relationships with clients. Invest in your employees and push them to take more ownership of both internal processes and client relationships.
The growth phase will require investment. You will have to give back profitability to fund growth or seek outside investment capital either through investors or debt. With investors, you give up equity and gain advisors. With debt, you retain all your equity but will likely have to sign personal guarantees with banks to secure funding.
Your business is showing consistent annual growth and your first employees are reaching eight- to ten-year tenure. You feel more secure than you have at any other point since you started out and are able to take regular dividends out of the company. Management should be running the day-to-day business. Things are relatively predictable.
Mature businesses are dependable and consistent. They have a strong cash position and grow through acquisition or spin-offs of other product lines Here you might start to think about capitalizing on this certain level of stability by broadening your horizons with expanded offerings and entry into new potential markets or sectors.
Operations are relatively smooth, and people do not feel burned out. Revenue is steady and predictable. Enjoy this period but be on the lookout for signs that you need to start making a change. Keep your wits about you and proceed with caution. Expand cautiously and while there is no guaranteed recipe for success you can increase your chances by taking this time to strategically position your enterprise for things to come.
Having navigated the treacherous waters of the maturity phase successfully, your company should be seeing stable profits year-on-year. Some companies continue to grow their bottom line at a decent pace, others struggle to enjoy the same success that they have become accustomed to, and many owners never even realise that their business is in decline.
They feel that that their top customers are growing and demanding more of their services, this provides them with a false positive overview when it comes to the market.
If revenue has declined for three consecutive quarters, you have entered the “Decline” phase. Act now and start looking for ways to innovate. 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?
Most businesses do not begin investing in the renewal phase until they are already in a state of decline. Strong business leaders identify that their business and/or the market is changing and will decide to start renewal efforts early. If you choose to sell, assemble a team of investment bankers, accountants and others knowledgeable about mergers and acquisition.
Every business falls somewhere on this spectrum and many owners never take the time to identify where they are and act accordingly. Research shows that the failure rate of SMEs in South Africa is estimated to be between 70% and 80% (Adeniran and Johnston, 2011) and their owners do not acknowledge where they are in the business life spectrum or decide to change.
By the time they decide to act - or sell - the business is no longer worth much to potential buyers. You do not want to get stuck in this situation. Take honest stock of which of these phases your business is currently in and ask the tough questions. Are you doing the right activities now to ensure your business will have lasting power?
At Quinxi our team of Industrial Engineers and consultants draw across a number of methodologies and techniques to deliver better value to our clients. The aim is to strike the right balance between your organisation’s people, processes and other resources, which in turn contributes to your organisation being competitive and sustainable within today's turbulent business landscape.
Reach out and get in touch today and let Quinxi show you how we can help.