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The Five Stages of Growth
Here is an amazingly simple idea that can help business owners figure out what it will take to help their company reach the next level of growth. It's called the Business Life Cycle.
The concept is relatively straightforward: there are five distinct stages that most businesses go through as they mature. Each stage of the cycle poses a different set of challenges and requires the owners to apply a different set of skills and resources in order to ensure the continued success of the business.
Stage One- Existence
The first stage is known as the Existence phase. During this time, the major goal is simply to get the business up and running. Owners are required to be entrepreneurial and hands-on during phase one. They supervise everything directly and business systems are minimal to non-existent. The emphasis here is on producing products or services and selling them, period. (A sobering note: 75% of businesses fail during stage one.)
Stage Two- Survival
During this phase, the business is experiencing moderate sales growth but is still in jeopardy of failing. The founders are still running the company and there is minimal emphasis on management systems, planning, etc. Problems that occur during this stage include conflicts between founders/partners in the business, working capital shortages, and temptation to diversify into unrelated businesses.
Stage Three- Success
At this stage, the survival crisis has been solved and a leader has been chosen (usually a strong salesperson or inventor/designer). The company is profitable and more attention is being given to formalizing business functions. Companies in this phase often rely upon a small number of customers for most of their revenue. Problems that occur during this phase include the following: access to the leader becomes increasingly difficult, key employees become disenchanted and leave, reactionary planning is the norm, and financial reporting and control systems are inadequate for sales volumes.
Stage Four- Take Off
At this phase the company has achieved a track record of sustained profitability and has resources for growth. There is a professional management team in place and a strong emphasis on organization. The company has a solid financial base. The problems that occur during this phase include the following: senior management feels they are losing control of day-to-day operations, increased vulnerability to inside factors (such as politics, bureaucracy, culture), slow reaction to new business opportunities, and increased threats from strong competitors.
Stage Five- Resource Maturity
At this stage the company has extensive systems in place and the primary goal is maximizing the return on investment (or ROI). However, companies in this stage may have started to lose their competitive edge. There may be a lack of new ideas and a trend of eroding profitability. As a result, owners may feel frustrated or bored and may want "out" of the business. At this stage, the biggest challenge is for the company to innovate and renew itself (i.e. sort of like going back and becoming a stage three company all over again).
Conclusion
So, what good does it do to know about the five stages of the business life cycle? One of the biggest advantages is simply psychological. Identifying what stage your business is in right now can help you understand that many of the problems and frustrations you're experiencing are typical. In fact, all growing companies face them. So don't worry, you don't need to start taking anti-depressants.
Equally important, knowing what stage your business is in can help you determine what skills will be needed in order to reach the next level. If your company is struggling with the "classic" symptoms of one of the stages and is having a tough time breaking free, then it might be time to make an investment in new skills or start looking for external sources who can help. (Source: Principa)
Posted by
at 10:45 PM November 4, 2005
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