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Why paying attention to where you are in the business lifecycle will help you - part 3

Written by: Mark Gwilliam

Article Overview: In parts 1 and 2, I discussed the first 4 phases of a typical business lifecycle; from its very first days to reaching maturity. In this article, the last of the series, I’ll discuss typical characteristics of a business that has developed to a stage where its owners are expanding. I’ll also discuss how to identify a business that has reached its peak and is now declining and the merits of reviewing exit strategies for its owners.

Why paying attention to where you are in the business lifecycle will help you - part 3

5. Expansion or transition phase

This life cycle is characterised by a new period of growth into new markets and distribution channels. This stage is often the choice of the small business owner to gain a larger market share to find new revenue and profit channels. Moving into new markets requires the planning and research of an embryonic or start-up stage business. Focus should be on businesses that complement your existing experience and capabilities.

Moving into unrelated businesses can be disastrous.Add new products or services to existing markets or expand existing business into new markets and customer types. Funding is likely to be sourced from joint ventures, banks, licensing, new investors and partners.

The business is built. You have watched it grow and mature, now a whole new set of possibilities awaits. Is it time to buy, sell or merge? Are there new growth opportunities? Have you thought about succession planning? What about estate and retirement planning or family wealth management?

6. Decline phase

Changes in the economy, society, or market conditions can decrease sales and profits. This may quickly end many small companies. Businesses in the decline stage of the life cycle will be challenged with dropping sales, profits, and negative cash flow.

The biggest issue is how long the business can support a negative cash flow. Ask is it time to move on to the final life cycle stage…exit. You may need to search for new opportunities and business ventures. Cutting costs and finding ways to sustain cash flow are vital for the declining stage. Funding is now likely to be restricted to your suppliers, customers and owners.

7. Exit phase

This is the 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.Selling a business requires your realistic valuation. It may have been years of hard work to build the company, but what is its real value in the current market place.

If you decide to close your business, the challenge is to deal with the financial and psychological aspects of a business loss. Get a proper valuation on 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.

Find a business valuation partner. Consult with your accountant and financial advisors for the best tax strategy to sell or close down the business.

CONCLUSION

Each stage of the business life cycle may not occur in chronological order. Some businesses may quickly move through each life-cycle phase; some may skip some out all together. Many business owners will choose to avoid expansion and stay in the mature life-cycle stage.

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. Understanding where your business fits on the life-cycle will help you foresee upcoming challenges and make the best business decisions.

If you are interested in understanding more about why businesses fail and what you can do to avoid it happening to your business, I’ve written a short eBook called “7 common reasons for business failure…and what you can do to avoid it happening to you”. Further details can be found at: www.7reasonsforbusinessfailure.com

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Article Tags: business valuation, business ventures, small business owner, stage business



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Simple contest? - I agree with Brandon. It would be better I think to have a smaller contest to start off and show some appreciation for the people who are posting on the Forums (and not paying attention in class to do so!). can we do a marketing competition on a small scale or do something in the forums?
30 sec elevator pitch - I usually don't start with my name as it's usually on my name tag. I start the introduction with a benefit statement that speaks to the group. e.g. a business coach at the table could start by saying "I teach stressed out business leaders and professionals how be more profitable by working less and enjoy life in the process." this catches their attention to followup with me later and qualifies them to me as something I said catches their attention. You could finish off with another quick sentence stating your solution and that your business can help. You can also finish off with what Kevin said - what you are looking to accomplish at the networking event, what you are looking for to help you in your business etc. Basically these are elements of a "30 sec elevator speech". You can also use it while your meeting one-on-one at an event but I would focus your attention on helping the person your speaking too.. eg. If there was someone I could introduce you too who would that be or what can they provide you?
Re: Non Paying Clients - [quote="SageMediaDesign":3bsy6jfp] Another hard lesson led us to require all work orders and revisions in writing. You learn as you go along.[/quote:3bsy6jfp] That's great, I'd actually never thought of that, do you have any scenarios to tell us where a business owner has told you over the phone the changes they would like and then refused to pay? [quote="SageMediaDesign":3bsy6jfp] Some people balk at the idea of paying anything upfront, so you do lose a bit of business, but I suppose these would be the same people who don't understand that what they're paying for doesn't quite work like picking a box off the shelf... retailers can simply re-sell a returned item. Service providers like us can never get that time back, and we can't resell bespoke design work.[/quote:3bsy6jfp] I totally agree with this and support you in what you're doing. Another tip is for them to sign a legal contract and then if they don't pay refer them to a debt recovery agency but it's a lot of work for a small business and something you should not have to deal with. [quote="SageMediaDesign":3bsy6jfp] Luckily these clients are few and very far between. I've found that the deposit requirement has actually (for the most part) weeded this type of customer out from the outset.[/quote:3bsy6jfp] In retrospect other businesses don't let you have things for free, like you can't buy a car and if you don't like it down the track you don't have to pay for it, you pay for it either way. I also dislike working with people who don't know what they're paying for too, such as believing the installation of a shopping cart or content management system can be easily added on at no extra cost. Fortunately for me these clients have been few and far between too.
Re: Non Paying Clients - [quote="TheAnonymousMan":2eedmtzv]I would suggest asking for a 25% - 50% deposit before you even start registering domain names or producing any mockups.[/quote:2eedmtzv] Oh yes... there were a lot of difficult lessons learned in that first year of business. That particular experience was the catalyst for re-examining the administrative process being used... we've required 50% upfront ever since. Another hard lesson led us to require all work orders and revisions in writing. You learn as you go along. Some people balk at the idea of paying anything upfront, so you do lose a bit of business, but I suppose these would be the same people who don't understand that what they're paying for doesn't quite work like picking a box off the shelf... retailers can simply re-sell a returned item. Service providers like us can never get that time back, and we can't resell bespoke design work. Luckily these clients are few and very far between. I've found that the deposit requirement has actually (for the most part) weeded this type of customer out from the outset.
Re: What are reasons to stay in touch with your customers? - No problem. One could also send them cards for congratulatory type things in their family's lives (new house, graduating child, new baby, retirement). This really shows them that you are paying attention to them as an individual. Of course you would actually have to be doing that in order to find out. I know that we always contact our prospects when we are having a special. Especially if it's a blockbuster of a deal. This tends to bring in several sales. Ok, I'm out of ideas for now.


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