All businesses go through lifecycle stages; start-up, growth, maturity and renewal/rebirth or decline.
You have to know where your business sits to make plans for the future.
Clarifying which stage of the business lifecycle is will help you manage your business, life and goals for the short, medium and long term.
Following is an outline of the lifecycle of a business and how you can successfully navigate through them.
Start-Up stage of the business life cycle
During the start-up phase, you are excited, motivated and have lots of grand plans to take on the world. You most likely have had an idea brewing for a long time, and you want to take the plunge and start up your business. Opening a business is a massive step for most people, but many entrepreneurs out there relish the challenge. At this stage, you are feeling your way. There will be mistakes, but these are valuable lessons for the future. The start-up phase usually lasts about one to two years, and it’s the most critical period. According to the UTS, one in three new small businesses in Australia fail in their first year of operation, two out of four by the end of the second year, and three out of four by the fifth year.
The above statistics are frightening for young people wanting to dip their toes in the business world, and the reality of success is a distant dream.
By the time you have the funding to start the business, you are at a level where you’re confident enough to open the doors, whether online, retail, bricks and mortar or a trade. You have the skills, experience, know-how, but you are still green and inexperienced ( unless you have a mentor ), which is the danger zone. You have to tread cautiously and make prudent decisions without overspending or over-committing.
The majority of businesses fail, not because of the idea or concept but because of the lack of funding. They run out of cash. They might be good at implementing ideas, but they didn’t create or follow a strict business plan. And this is their downfall. Rent, wages, utilities, bad debts had ended the business before it reached the next stage.
However, a decent percentage of businesses survive the start-up and are lucky ( if you can call it that ) to move to the next stage in the business life cycle. The start-up phase is a time of trial and error, determining what works and what doesn’t and making the right decisions to keep navigating the path forward.
Questions all start-ups should be asking.
a) Will I be able to scale the business in future? Or is it destined to be a small business forever? Many people are happy to keep it small and micro-manage it, but most people want to scale the business up to a level where it can employ staff and grow.
b) When will I be able to step back from running the business? Most people have dreams of running a large business from their luxurious home or swimming pool. If only it were like this! The reality is you can put a manager on once you have all the procedures and processes in place to run the business. However, you will still have to maintain a level of control to oversee critical decisions.
c) How will I be able to sell the business in the future? If you are a micro-manager, it might be hard to sell the business to another person as they’ll need to be a micromanager as well. But, if you have successfully scaled it up, you can probably sell it to another business or competitor.
Most businesses that make the growth phase would be going for at least three years. They would have established some excellent repeat and loyal clients and have the sales channels firmly in place to generate new business and maintain revenue growth on an existing basis. You shouldn’t be too worried about payroll, rent, and even giving yourself the odd pay rise here and there. This phase of the business is the fun time where you can stretch your legs and go for the competition. This phase is all about making money, paying back business loans, and taking it to the next level.
The growth phase may require investment in capital equipment, or you may want to buy a commercial property, or you may want to raise capital to fund business expansion.
Other considerations at this stage are dealing with competitors as they start to see you as a threat and looking at ways to solidify your place in the market.
Maturity stage in the business life cycle
Your business should now be growing about 3-5% annually, and you would have completely ironed out any issues in your business processes. Everything should be running smoothly. You should feel secure, safe and be able to look at your business with a sense of pride and accomplishment. You would be looking at taking periodical bonuses or dividends and having a management team or at least a manager in place to help you out or take over some of the business’s day-to-day responsibilities.
At this stage, you should get an idea of the business’s long-term trajectory and where you see yourself finally ending up. While you may not have set the world on fire, you have most likely done a great job and be earning some decent money. Plus, you could now be looking at natural expansion into other states and take on larger businesses as you’ll be able to afford more marketing and have the capacity to handle new clients.
Most businesses through the maturity stage can get a bit too overconfident and still make mistakes like overextending themselves with finance and not managing their cash flows, especially if there’s an economic downturn like we are currently experiencing in 2021 with COVID.
At this stage, they should be starting to think about an exit or buyout strategy. This won’t happen immediately, but it’s something that should be in the back of your mind, especially if you are running it profitably.
Renewal or decline in the business lifecycle
Even though you have made it this far, you still might fail, and this is where businesses start to decline. Yes, it’s true! You’ve put in all the hard work, yet you can still lose your business and end up in debt. Complacency, laziness, bad debts, ATO tax bills, staffing issues can all play a part in undermining your business. So, while you think things are cruising along nicely during the maturity phase, dangers always lurk.
To understand this phase better, see if your revenue has declined over the past 3 or 4 quarters. If so, then your business is in decline. If you want to turn revenues around you, have to take immediate action and look at variables like:
- your marketing
- pricing models
- staffing costs
- new technologies
This list goes on and on, but you have to step up, step in and stop the decline asap! If you feel burnt out or don’t have the energy to invest, it’s time to think about selling up before the situation worsens. Only the most competent and dedicated business owners will recognise this decline, take matters into their own hands, and look at ways to renew and reinvigorate their business. If you decide to sell up and cash out, get in touch with a business broker who will value the business.
All Australian businesses are somewhere in this lifecycle. According to the Australian Bureau of Statistics, a vast percentage of these will never sell and give up. They’ll walk away without any reward for all the years they’ve put in. Many owners aren’t sure where they are in this spectrum and often miss out on golden opportunities to sell. It’s a real shame, and the fault lies squarely on the business owner. Conversely, other businesses take off like a rocket and skip the growth phase, straight into the mature and sell phase. IT businesses are notorious for this, as are other start-ups that have a great idea.
Knowing where your business sits is exceptionally vital. If your business is growing and you need to help it succeed with some extra funds, the team at Sparrow Loans is here to help your business grow and live a full life!