Do you still remember the day you tapped into the idea of starting a business? Your gut feeling told you that you are able to do a better job than your boss and the opportunity was there, call on you to get started.
Do you still remember the day you managed to earn so much commission, more than what you have ever imagined? You could actually own your business rather than working for someone – it is not only highly profitable but also easy to execute.
Do you ever dream of being a millionaire and have all the free time for yourself to enjoy life with your friends and family? Yes, all of us do have dreams. Dreams to be powerful and rich with freedom, and a happy family institution established.
In the world we currently live in, there are only three possible routes that lead you to being rich. Joining an employment may not let you generate millions, however there is still an exception for certain multinational companies that you would need to climb the corporate ladder. So, what are the three possible routes for you? The first option, to be a famous singer or artist in the entertainment industry; or secondly, to be a champion in the sports industry. However, they may be unrealistic when viewing from several perspectives, and this leads us to the third and indeed most realistic option – that is for you to become an entrepreneur.
As we embark on our journey as an entrepreneur, we would have people calling us “BOSS” and this is where we begin to get one step closer to our dreams. Being a boss, we would end up learning everything on how a business runs, from sales to marketing, operations, human resources, finance, accounts, and also administration. You enjoy being a boss because a boss’ major task is to solve problems related to the business and as well as your customers. You have the skills to solve problems, you are trusted by customers, and as a result, your business is excellent.
However, after solving business problems for years, why does your revenue and profit remain stagnant at one point? You are not able to leverage other people’s money to invest more into inventories and equipment for the purpose of your business.
After establishing your business startup, why does your employee resign to work in the same industries as you? Perhaps, the worst scenario where they become your competitor? You paid them well, they knew your trade secret but at the end of the day, you were still struggling to make them your business partner. What had possibly gone wrong?
But what actually is business?
Your aim in a business is to generate profits in exchange for providing products and services, which acts as a solution to another person’s problem. Generally, business is all about making money and growing people after solving problems for the market.
Business starts from you, or your key partners. With different challenges being faced in every level, a business can be thoroughly defined through the following stages:
Level 1 Business stage = Seed; People stage = Physiological Survival (Me)
The seed stage of your business lifecycle is when your business is just a thought or an idea.
Money Sources: Early in the business life cycle, with no proven market or customers, the business will highly rely on cash from owners, friends, and family. Other potential sources include suppliers, customers, seed angels, and government grants.
Level 2 Business stage = Startup; People stage = Clan’s Well-being & Safety (We)
Your business now exists in legal terms. Products or services are in production, and you have your first customers.
Money Sources: Owner, friends, family, suppliers, customers, angels, and grants.
Level 3 Business stage = Growth; People stage = Raw dominance & Control (Me)
Revenues and customers are increasing with many new opportunities and issues. Profits are strong, but the competition is surfacing.
Money Sources: Banks, profits, partnerships, grants, and leasing options.
Level 4 Business stage = Establish; People stage = Meaning & Purpose (We)
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.
Money Sources: Profits, banks, investors, and government.
Level 5 Business stage = Expansion; People stage = Autonomy & Achievements (Me)
This life cycle stage is characterised by a new period of growth into new markets and distribution channels. This stage is often the choice of the SME owner to gain a larger market share and find new revenue and profit channels.
Money Sources: Joint ventures, banks, licensing, new investors, and partners.
Level 6 Business stage = Decline; People stage = Equality & Community (We)
Changes in the economy, society, or market conditions can decrease sales and profits. It may quickly end many small companies.
Money Sources: Suppliers, customers, and owners.
Level 7 Business stage = Exit; People stage = Knowledge of Natural Flows (Me)
It is a big opportunity for your business to cash out on all the effort and years of hard work. Or it can mean shutting down the business, or being acquired by other company
Money Sources: Venture capitals and private equity.
Level 8 Business stage = Mature; People stage = Harmony with Living Systems (We)
This stage is a whole new level, whereby you may have successfully listed a company or joined a parent company in everything they do to system and structure.
Money Sources: Equity funds from Stock Market, merchant banks, private debts security, including bonds, notes, loan stocks and commercial papers, whether convertible or redeemable or otherwise.
Could you identify which level are you? Do you know the challenges to move to each level?
Your business would go through various stages of development, facing different challenges throughout its life cycle. What you focus on today may not be of importance tomorrow as your challenges will change from time to time and require different approaches to be successful. You need to anticipate the upcoming challenges and source finances effectively to be able to succeed at each stage of the business life cycle. So, how do you tackle these challenges to ensure you are on the right track of your 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 passion. Other focal points include deciding on a business ownership structure, finding professional advisors, and business planning.
Challenge: If your business is in the startup life cycle stage, it is likely you may overestimate money needs and time to market. The main challenge is not to burn through the 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: Startups require establishing a customer base and market presence along with tracking and conserving cash flow.
Challenge: The biggest challenge growing companies face is dealing with the constant range of issues bidding for more time and money. Effective management is required, as well as a possible new business plan. Learn how to train and delegate to conquer this stage of development.
Focus: Businesses in the growth life cycle are focused on running the business in a more formal fashion to deal with 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.
Challenge: It is far too easy to rest on your laurels during this life stage; the marketplace is relentless and competitive. Stay focused on the bigger picture. Issues like the economy, competitors, or changing customer tastes are able to put an end all you have worked for in a blink of an eye.
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.
Challenge: Moving into new markets requires planning and research. Your focus should be on businesses that complement your existing experience and capabilities. Moving into unrelated areas can be disastrous.
Focus: Add new products or services to existing markets or expand the existing business into new markets and customer types.
Challenge: Businesses in the decline stage of the life cycle will be challenged by dropping sales, profits, and negative cash flows. The biggest issue will be determining how long the business can support negative cash flows. Consider if it may be 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 is vital for the declining stage.
Challenge: Selling a business requires a realistic valuation. It may have been years of hard work to build the company, but think about the real value in the current marketplace. 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 legal buy-sell agreements along with a business transition plan.
Challenge: The life after a company is being listed on the stock market, you’re no longer a SME, and you have a bunch of stakeholders under your responsibility. The challenges you face include culture, communication, management systems, etc., that spread wide across various countries or regions. With the dramatic changes of global trade, regulation and financial environment, as well as increased experience and enhanced capabilities of listed companies, the outbound mergers and acquisitions (M&A) practices evolve and the challenges are shifted.
Focus: Target search and screening of small and medium-sized, mature or fast-growing companies that are preferred as your strategic partner of M&A. Corporate governance is undoubtedly the focus of after company being listed or integrated with the parent company of a listed stock market.
In essence, each stage of the business life cycle may not occur in chronological order. Some businesses will be “built to flip,” quickly going from startup to exit. Others will choose to avoid expansion and stay in the established stage, just like David who has never liked Level 8 – he is the new rich that enjoys his success at Level 6.
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. Thus, understanding where your business fits in the life cycle will help you foresee upcoming challenges and help you in making the best business decisions.