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| Developing
the Small Business (III):The business life cycle Think of yourself. When you were born, you needed to be taken care of, fed, clothed and nurtured. As you became a toddler, your needs changed as did your body and mind. Similar changes took place when you became a pre-schooler, pre-teen, teenager or young man or woman. As you matured and grew older, your needs kept on changing. They will keep on changing until you die. Your business is like you. It too goes through different stages during its life. That is what we refer to as the business life cycle. Depending upon the phase its needs will also change. Understanding where your business is today is important for growth and development. Your business requires your attention in a different manner at the different stages. Just as pre school education differs from secondary, tertiary or adult education, the way you need to tackle growth or development issues will differ depending upon the phase of growth. What stages does a business go through? There are four basic phases in the business life cycle. Let us find out what they are and what characteristics they bear at each phase. Start-up: At the start, the entrepreneur is mainly interested in making his business dream come true. Things are not organized. Employees are inexperienced. Customers are new. As a result, the entrepreneur has to spend most of his time on operational issues. He has no time to focus on long-range plans and long-term goals. In short, things are rather chaotic. At this stage costs are high. Profits and sales are low. Selling prices are also usually high. And there are no established norms to go by. Systems and controls within the business are non-existent. Employees are not experienced. All these tend to increase costs even further. It is also good to remember that most businesses fail-according to the international experience-during the first few years of their life before they reach the other phases. Growth phase: The business is gaining recognition and acceptance. Costs generally tend to come down with experience. So do the prices. Sales and profits begin to increase. Maturity phase: The business is established. The market remains relatively stable. The owner and staff are experienced. There are systems and controls within the organization as well as established norms to go by. Most costs are at their lowest, except possibly promotional and selling costs. Price is usually at its lowest. Sales have reached a peak and profits reach a plateau as well. Often, business owners tend to take life easy and to loosen the reigns at this stage. The business is also having sufficient assets and resources and bankers start coming behind the business rather than the other way round which was the norm at the previous stages. This is actually the stage at which development and growth issues become critical. Or else, the business will go into the next phase. Decline: The products of the business have outlived its usefulness. Competition overtakes the business until it goes into gradual decline. You don't want your business to reach that phase, do you? Ask
yourself: At what stage is my business in the business
life cycle? If you have reached the growth stage, it is time to focus on the future. Now you need to make medium and long term plans and identify your growth objectives. Where do you want to get to by the time you reach maturity? How is competition? What issues can keep you in the growth phase longer? What factors, internal and external can hasten you towards maturity? You need to ponder on these issues while at the same time putting in systems and controls, establish norms, train and develop your staff, expand your product range and do all those things that a start-up business can ignore, but a growing business needs to attend to. The growth challenges you face as the owner of a growing-phase business are entirely different from those faced by the owner of a mature business. You will have more options to consider. A mature business is, in a way stuck with limited options. But, that does not mean you just await the grave. You can spruce things up, infuse new energy, new ideas, new blood, new technology and new practices to give your business a new lease in life. In
future articles let us discuss how all this can be achieved. The writer is the Managing Editor of Athwela Vyaparika Sangarawa (Athwela Business Journal), the only Sinhala management monthly targeting the small and medium enterprises, Ezine Athwela Email Magazine and www.smallbusiness.lk, the bilingual small business website. |
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