As there is metamorphosis in the life of living things so there is in human endeavours. The metamorphosis of human being, trees, plants, animals and other living creatures shows a natural progression of growth that starts from birth of the species.
Similarly, a business also has a life circle. A business should transit from a phase into another following the natural pattern of growth. Thus, we should see a business growing from its incubation stage to a maturity. Different management gurus have posited and all agreed that businesses have a life circle, with different stages of growth, but the differing opinions are on the stages of growth and the names for each of the stages.
As the business moves through each stages, it encounters different obstacles that require different approaches and resources to address them. Simply put, as the business develops and expands, so will the aim of the business, objectives and strategies change. Therefore, understanding the different stages, will help prepare business owners for the obstacles ahead.
In the early stage, called the Incubation or Existence stage, all a business owner is concerned about is to see the business take off from ground. The owner is the business, it revolves around him/her, he/she provides direction, goals and maintains momentum as well as performing most of the essential tasks that are crucial. At this stage, delegation of responsibilities is minimal or non-existent with the company generally typified by absence of formalised structure and planning.
Among the contending issues are the following: having enough money (cash flow) to cover the business expenses, the ability to increase the clientele base, would the product or services be accepted in the market and can it generate a repeat business?
How many companies can make it through this stage which usually can be from one to three years? Some companies do not have the market acceptance and the cash to stay afloat during this period and coupled with the fact that the business owners cannot meet the daily demands of the business place as regards energy and resources, subsequently the firm most fold up.
2nd Stage or the Survival Stage will be typified by an increase in the number of employees, Structures begin to be formalised, minor decision making may be decentralised, but the business owner may still be the custodian of power and authority as the business is still synonymous with the owner.
The business in this category as the name depicts are still trying to survive and maintain market presence to generate sufficient cash flow for operations and to stay afloat. Major contending issues are managing sales, establishing market presence and the need to keep on changing and inventing new ways of keeping up with market trends. Margins may be thin and here is where most companies that have scaled through to this stage, get extinct as challenges could be limiting enough to affect motivation to continue.
3rd stage or the Growth Phase: Here, the business has faced and overcome many of the unsettling issues that are common to start-up companies. The business may be generating regular cash flow to keep it afloat and fund other growth initiatives, depending on the owner’s goal. There may be the possibilities of expanding the business by considering a backward integration model to have all the business chain of the industry type. Major contending issues are competition, staffing issues as a result of increased staff strength and managing the increased revenue etc.
4th stage or Rapid Growth Phase is characterized by growth in revenue and cash flow as a result of entrenched market presence facilitated by proven sales and marketing model. The business is now a flourishing one and to further entrench itself in the market, you will need to find new income stream. Companies hire more members of staff to help handle increased scale of operations. The owner will need to decide on whether to increase the debt-equity ratio by seeking financing to expand. Such examples can be through issuing of stock. More often than not in Nigeria, those who started the company may no longer be at the helm of affairs and the business owner may also not be present again, owing to the collapse of the company as the owner was trying to grow too fast or ran out of cash to sustain the business. Another way may be the through the dearth of management skill, which can be typified through the inability to delegate effectively.
5th stage or Maturity phase is typified by well defined structure, dominant market presence and stable profits. The business and the owner are quite distinct and separate in spirit and letter. Decision making is decentralised with more managers having responsibilities backed by authority. The business must take advantage of its size, finance and industry strength to be a market leader. The contending issues are whether to introduce new products or services, expanding into a new market and expanding existing business lines among others.
Not all businesses will naturally transit from one life cycle to another. Some companies will by-pass some stages and move directly higher stages. Examples of such are the growing technology companies with broad product offerings. However, there would be some semblance in the stages highlighted above and all business owners need to be prepared and know what obtains in each of the stages.
Be prepared is the name of the game, but sadly enough, you will not see most of Nigerian companies getting to the third to the fifth stages. How best you want to grow your business depends on what you know and what you do with it.
Enjoy your week!