Why do some businesses grow and are successful over many years, while others struggle to “move beyond” their initial growth stage and early successes?
It is recognized that small to medium-sized businesses grow systematically and experience similar challenges in similar stages of their development.
The business life cycle is the progression of a business in phases over time and is most commonly segmented into six stages.
The six stages of business growth stages for small and medium-sized businesses are:
- Stage 1: Existence (struggles to win customers)
- Stage 2: Survival (an operating business at breakeven)
- Stage 3: Early Success (operating business with modest profits)
- Stage 4: Rapid Growth (revenue and business growth)
- Stage 5: Maturity (consolidating the business and the financial gains)
- Stage 6: Decline (revenue falling and financial losses)
What is the Business Life Cycle?
The business life cycle is the progression of a business in phases over time and is most commonly divided into five stages: launch, growth, shake-out, maturity, and decline.
In this article, we will use three financial metrics to describe the status of each business life cycle phase, including sales. Sales Revenue is the income received by a company from its sales of goods or the provision of services.
In fact, throughout the entire business life cycle, the profit cycle lags behind the sales cycle and creates a time delay between sales growth and profit growth.
The Transition From Stage 3 To Stage 4 Is Described As Breaking Through The “Growth Wall”.[1]
The fundamental decision facing the business owner at Stage 3 is whether to exploit the business accomplishments and expand or to keep the business at its current size. If the decision is made to grow the business, the next challenging question is how does the business owner plan for growth?In order to answer this question, we need to understand the differences between small businesses and entrepreneurial businesses.
Differences Between Small Businesses And Entrepreneurial Businesses
The typical characteristics of small businesses that find it challenging to move beyond their early growth stages (i.e. existence, survival and early success) are independently owned and operated, not dominant in their field, and do not engage in any new marketing or innovative practices.Whereas entrepreneurial businesses that have progressed to the rapid growth stage are exploiting business opportunities (introducing new goods and services; introducing new methods of production; and opening new markets); creating a new business model; and focusing on business growth.
These differences help us to understand why entrepreneurial businesses have broken through the growth wall.
Rapid Growth Stage
For small and medium-sized businesses struggling to break through their growth wall, rapid business growth can be achieved by launching new products and services, moving into new markets, winning new customers and combining existing resources in new ways.The following diagram highlights some of the different approaches between small businesses during their start-up stages and the entrepreneurial businesses that have broken through their growth wall [2]
The Essence Of “Entrepreneurial Business Growth” Is Found In The Strategies That Link The Business With The Marketplace.
The business owner and their management team need to develop and execute effective strategies addressing the critical market, product and service delivery, management, and financing issues.
Planning for Entrepreneurial Business Growth
Planning for entrepreneurial business growth addresses three fundamental questions:- What business opportunities should we explore and capture?
- How much should we invest in each business opportunity?
- What are the critical issues we need to address to ensure the success of the existing business and the success of the business opportunities?
Entrepreneurial Business Strategies Enable The Business Owner To Develop The Strategies That Enable New Business Growth.
Such an entrepreneurial business strategy will include the following:- studying the environment to identify unmet marketplace needs;
- screening and shaping business opportunities, such as:
- evaluating the window of opportunity;
- developing products/services to respond to needs and marketplace trends;
- marshalling the resources to capture the business opportunity; and
- managing the implementation.
Business planning is a critical success factor for the entrepreneurial business strategy.
Reference: Timmons[3]
The benefits of business planning include focusing the organization on a single outcome that enhances clarity; enabling the organization to develop the appropriate business model; analyzing the cash flow requirements during the rapid growth stage, and addressing the risk and uncertainty issues.
The amount of planning depends on the type of venture:
- Large-scale – will require detailed planning; verses
- Small-scale – undertake a quick screen and then implement.
The entrepreneurial process needs to be managed, i.e. doing things right – where execution is the key to success.
Protecting Existing Business
The business owner and management team must protect their existing business as they explore and capture new business opportunities.“Organic growth” strategies are equally crucial to the new business growth strategies and require careful management attention.
These organic growth strategies include:
- Customer retention - identifying and quantifying customer defections and fixing their true root causes.
- Product and service extension - understanding your “core customers” cost and service gaps better than your competitors and improving products and services.
- Reducing costs - get the most out of your systems by decreasing costs and risks.
Business Growth Program
The biggest challenge for entrepreneurs is dividing time between a new range of demands requiring your attention– managing increasing revenue levels, attending to customers, dealing with the competition, accommodating an expanding workforce, etc. However, if you plan carefully, you can identify a strategy that will give you a good return on investment.
Our 12-month Business Growth Program provides business leaders with a strategic framework for business growth. The program aligns sales and marketing strategies, human resource management, financial management, and business operations to deliver a strategic growth plan. It is also essential to think about you
your exit plan.
[1] Osborne, R.L., Second Phase Entrepreneurship: Breaking Through the Growth Wall, Business Horizons, Jan-Feb 1994
[2] ibid
RELATED READS
RELATED READS
![[Block//SEO Page Title]](https://app.ontraport.com/images/opt_default_image.png "[Block//SEO Page Title]")
Turn your business case into success.
