The Seven Stages of Business Life
1. Seed Stage
The seed stage of your business life cycle is when your business is just a thought or an idea. This is the very conception or birth of a new business.
Challenge: Most seed stage companies will have to overcome the challenge of market acceptance and pursue one niche opportunity. Do not spread money and time resources too thin.
Focus: At this stage of the business the focus is on matching the business opportunity with your skills, experience and passions. Other focal points include: deciding on a business ownership structure, finding professional advisors, and business planning.
Money Sources: Early in the business life cycle with no proven market or customers the business will rely on cash from owners, friends and family. Other potential sources include suppliers, customers and government grants.
2. Start-Up Stage
Your business is born and now exists legally. Products or services are in production and you have your first customers.
Challenge: If your business is in the start-up life cycle stage, it is likely you have over under estimated money needs and the time to market. The main challenge is not to burn through what little cash you have. You need to learn what profitable needs your clients have and do a reality check to see if your business is on the right track.
Focus: Start-ups need to establish a customer base and market presence along with tracking and conserving cash flow.
Money Sources: Owner, friends, family, suppliers, customers, or grants.
3. Growth Stage
Your business has made it through the toddler years and is now a child. Revenues and customers are increasing with many new opportunities and issues. Profits are strong, but competition is surfacing.
Challenge: The biggest challenge growth companies face is dealing with the constant range of issues bidding for more time and money. Effective management is required and a possible new business plan. Learn how to train and delegate to conquer this stage of development.
Focus: Growth life cycle businesses are focused on running the business in a more formal fashion to deal with the increased sales and customers. Better accounting and management systems will have to be set-up. New employees will have to be hired to deal with the influx of business.
Money Sources: Banks, profits, partnerships, grants and leasing options.
4. Established Stage
Your business has now matured into a thriving company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become more routine.
Challenge: It is far too easy to rest on your laurels during this life stage. You have worked hard and have earned a rest but the marketplace is relentless and competitive. Stay focused on the bigger picture. Issues like the economy, competitors or changing customer tastes can quickly end all you have worked for.
Focus: An established life cycle company will be focused on improvement and productivity. To compete in an established market, you will require better business practices along with automation and outsourcing to improve productivity.Money Sources: Profits, banks, investors and government.
5. Expansion Stage
This life cycle is characterised by a new period of growth into new markets and distribution channels. This stage is often the choice of the small business owner to gain a larger market share and find new revenue and profit channels.
Challenge: Moving into new markets requires the planning and research of a seed or start-up stage business. Focus should be on businesses that complement your existing experience and capabilities. Moving into unrelated businesses can be disastrous.
Focus: Add new products or services to existing markets or expand existing business into new markets and customer types.
Money Sources: Joint ventures, banks, licensing, new investors and partners.
6. Decline Stage
Changes in the economy, society, or market conditions can decrease sales and profits. This may quickly end many small companies.
Challenge: Businesses in the decline stage of the life cycle will be challenged with dropping sales, profits, and negative cash flow. The biggest issue is how long the business can support a negative cash flow. Ask is it time to move on to the final life cycle stage…exit.
Focus: Search for new opportunities and business ventures. Cutting costs and finding ways to sustain cash flow are vital for the declining stage.
Money Sources: Suppliers, customers, owners.
7. Exit Stage
This is the big opportunity for your business to cash in on all the effort and years of hard work. Or it can mean shutting down the business.
Challenge: Selling a business requires your realistic valuation. It may have been years of hard work to build the company, but what is its real value in the current market place? If you decide to close your business, the challenge is to deal with the financial and psychological aspects of a business loss.
Focus: Get a proper valuation of your company. Look at your business operations, management and competitive barriers to make the company worth more to the buyer. Set up a business transition plan.
Money Sources: Find a business valuation partner. Consult with your accountant and financial advisors for the best tax strategy to sell or close down.
Each stage of the business life cycle may not occur in chronological order. Some businesses will be “built to flip”; quickly going from start-up to exit. Others will choose to avoid expansion and stay in the established stage.
Whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles. What you focus on and overcome today will change in the future. Understanding where your business fits on the life cycle will help you foresee upcoming challenges and make the best business decisions.