Business growth is the stage where a company reaches a point of expansion and looks for additional opportunities to generate more profit. It depends on the life cycle of the business, industry growth trends, and owners’ willingness to create equity value.
Great personalities have said many inspiring things that can inspire any middle-aged frustrated human to quit his job and to pursue entrepreneurial ventures. These high-spirited individuals are full of passion and self-confidence, ready for any challenge the world throws at them, and overcome all the difficulties to become the perfect leader. But out of loads of hundreds of humans quitting their jobs to begin their very own enterprise venture, the range of successful marketers are pretty limited. People have exceptional and world-changing ideas however when it comes to implementation, maximum are failures. This brings us to the bigger question.
What is business?
Business is an economic activity that involves the production of goods and services, buying, selling, and exchanging items to satisfy the needs of the consumer, to earn profit. Once we hear the term business, the first idea that comes to mind is selling products at a cost higher than the cost price and earning the difference as profit. But business is not always about tangible products. The bigger business scenario is the selling of services.
Like a great man once said, “If you are good at something, never do it for free“, people are not content with the payment they receive for providing the same service they have been providing for years, and are the master of the art. This is where the idea arises: “Why work in an organization and get paid in peanuts even after becoming a master in my field of work, when creating an organization of one’s own and providing the same experience directly to clients can make more money”? Sound like a plan. But the definition of the word ‘entrepreneurship’ states it as taking a financial risk in hope of profit. The bigger the risk, the bigger the profit they say. But starting small and enjoying increasing profits with business growth seems more logical.
Now, let us move to the ‘Stages of Business Growth’. It is at a point in the business life when it reaches a stage, where it can seek additional business ventures along with the mother company and hence expanding the business to generate more profit. There are 5 business growth stages: Existence, Survival, Success, Takeoff, and Resource maturity
In the initial stage of the startup, the mind of the owner is filled with uncertainties. The obvious question arises if it will be possible to obtain customers, deliver the promised product or service in the given time, quality of the product or service, and most importantly the capital required to kick start the venture.
These newly started companies often fail to gain sufficient customer acceptance or deliver the expected quality of product or service before they run out of the accumulated capital which they had borrowed from friends and family. The fate of many such start-ups is getting prematurely shut down without getting the chance to stabilize. These companies are often sold for their asset value and the companies that survive the existence phase, move to the Survival phase.
Once the business is in this stage, it has enough customer base and satisfactory quality of product or service to keep the customers devoted. But the concern now shifts from mere existence to the ledger showing revenue and expense. If the business can make enough cash for administration, replacement, and repair of the assets; if the cash flow is enough to stay in business and also to finance for growth of the business.
Above are the uncertainties that some businesses overcome and move to the next phase which is ‘success’. The others remain in this survival phase for some time, earning marginal profits, till it is deemed as a lost cause and scrapped.
In this phase, the company has achieved its economic stability, a substantial market for its product or service, earning above-average profits. The company can remain in this phase indefinitely provided there is no inefficiency at the end of the management or involvement of any ‘Act of God’.
In this phase, the company has matured completely and now involves different managers to take care of the functioning as a priority. In such scenarios, the fate of the company can change. The company and owner can drift apart due to the presence of a management team to take care of business on their terms or the owner can now start on a new venture with one company that can remain completely stable without their 100% involvement.
Or, the owner can consolidate all the company resources, borrow cash from financial institutions and risk it all for further growth of the company. This can either result in bankruptcy or distress sale of the company but if successful, the business will move forward to the ‘Take off phase’.
Take off Phase
Once the business has accumulated enough cash, the main concern now is growing the company rapidly. In this phase, the concern lies with the delegation and cash allotment. It now comes down to the owner, if they are flexible in delegating responsibilities to ensure fast growth and also be open to accepting mistakes without interfering. There should be involvement of specific managers for operational and strategic control of the business yet dominated by the presence and stock control of the owner.
If the owner overcomes the challenges of a financially and marginally growing company, it can become a big and successful business. If not and the owner can realize the limitations and can sell off the business at a good profit.
It is also possible that the owner is voluntarily or involuntarily replaced by the investors when the business is in a high growth phase. In this phase, if the company fails to make it big then it can be stuck at a successful equilibrium, drop back to the survival stage, or even fail altogether.
“This is a pivotal period in a company’s life” as Churchill and Lewis said. Now that the company is big, it runs at a slower pace. But this does not mean an end to its financial issues can say that entrepreneurs here are faced with two options: to seek further expansion or to stop the business altogether. If you decide to continue expanding, you will need to ask yourself the same questions as during the expansion phase: “Can the company continue to grow? Is there enough room for expansion? Is your company financially stable enough to cover a failed expansion attempt?“
We have now seen the stages of business development in small business growth. Each company’s growth stage had a factor that mattered only till moving on to the next phase. Owners must anticipate and deal with the factors accordingly. There are risks and challenges in every turn of the venture, not only in the beginning but increasingly with success. But there lies the whole beauty of entrepreneurship and a small price to pay for being your boss.