By Essie Bester
From the moment you decide to start a business, you are officially in a business life cycle. Each phase of this life cycle presents its own challenges.
Your challenges will change constantly and will require different approaches to be successful. By knowing in which phase of the growth curve your business is, you can determine what development and changes need to take place to ensure that the business’s growth tempo continues.
- Development phase
If you decide that your business idea is worth developing, the compilation of a business plan is the first step. A good business plan will determine the life-span of your business. Every successful business is sustained by continuously reviewing the business plan. In this way you ensure needs are continuously provided for. It also assists the business to track down new benchmarks for strategic growth.
After reviewing, the most important target areas are identified before once again looking at your business plan and this becomes the benchmark for the next repetition. A continuous business cycle enables the entrepreneur to increase his chances for success. A business plan is also an important instrument for entrepreneurs who wish to attract investments from outside.
At this stage you as the entrepreneur should ask yourself the following questions:
- Does this concept/product/idea meet a need in the market?
- Will it be acceptable in the market?
- How do I establish a business structure?
- Will this idea generate profits?
- Initiation phase
This phase of your business is extremely risky and stressful, and many entrepreneurs fail here. The actual budget might be even more than originally calculated. Challenges in the initiation phase include:
- The collection of funds/seeking investments
- Employment of personnel
- The management of expectations around sales and cash reserves
- The establishment of a client base and presence in the market
- Management of accounts
- Growth phase
Businesses that reach the growth phase have survived the intense initiation phase and are now earning income while enlarging their client base. Profits have increased but the competition is starting to catch up.
First focus on the refining of your business model by identifying ways to improve the operational efficiency and profitability before thinking about expanding, by calculating methods such as sales and marketing models.
Entrepreneurs who want their businesses to grow effectively, should start be analysing their most important profit/business drivers and then plan strategies to have these profit drivers grow with the least cost.
Challenges in the growth phase include:
- How to handle the growing client base and income
- Streamlining operations
- How to handle market competition
- Increasing profit volume
- Expansion phase
The expansion phase is characterised by a new growth season and increasing distribution channels. Businesses are now confronted with the need to obtain a bigger market share, as well as to seek ways in which to have new income and profits flood in. This phase requires a streamlined plan and research before moving into new markets.
Challenges in the expansion phase include:
- Increasing competition in the market
- Adding stock as well as services
- Expansion of the existing entity
- Mature phase
When a business reaches the mature phase, the idea that was merely a thought has now become dominant. The business is now earning a steady profit due to the strategies which you put in place during the first four phases. This phase relies on a financial source that can help you to overcome the challenges and keep the business at its peak.
Although maturity is the last growth phase, it still isn’t where you want your business to stay. Companies that wilt in the mature phase are perhaps still growing but at a sluggish pace. Should this be the case, you have to go back to the drawing board to see how you can get your business back into the expansion phase, or think of an exit strategy (strategic plan to sell your ownership to investors or another company).
In this phase you will focus on the following:
- How long the business can maintain and manage a negative cash flow
- The expansion of the business
- If necessary, looking for and executing an exit strategy
Not all businesses will go through all five phases of development. Some businesses experience astronomical growth from the outset. Others move faster through certain phases and take longer to move through others. It might even be possible that your business, depending on the market conditions or other external factors, move back a phase. However, it’s important for business owners to know in which phase of growth they fall, so that they can be prepared for the next step.
Stigter Edition 7