We all have a decent idea of what we need to do to set up and a business and keep it afloat. But if we want more than just survival, the kicker is often knowing WHEN to do what, WHICH elements to prioritise, and HOW to do the right things for resilient growth.
The Stages of Business Lifecycle is one of the first models we introduce to new JCV Leadership Group members. It breaks business growth into four broad stages, defined by: revenue; the key drivers of the business; and the areas of focus that are most relevant for each stage. Here’s why I find it a helpful framework to use for small businesses looking to grow:
- It helps pre-empt common problems arising in each stage of development
- It allows us to invest in resources at the right time to get the best bang for our buck and avoid unnecessary expenditure
- It gives us a proactive strategy to develop team and leadership capability to match the increasing complexity of the business
- It provides a roadmap to get investment lined up for key growth points
- It helps us track a path to a clearly-defined ‘exit’
- It allows us to manage expectations around our time investment, and how this affects other factors in our lives
A brief overview: start by building a foundation with an excellent product and place; then grow with marketing and sales; next, build a team and develop your company culture; and finally, consider investment and the leadership required for scale. What you need to bring to the table at each stage will be different – and so will the focus of your efforts.
Here’s a breakdown of each of the four stages.
Stage #1
Revenue: <£10k per month
Driven by: Personality
Focus: Product, coaching, energy
Stage One is all about existence. The main problems of the business are obtaining customers and delivering the product successfully. Some key questions at this stage:
- Can we get enough customers, deliver our products, and provide services well enough to become a viable business?
- Can we expand from an initial client group to a broader sales base?
- Do we have enough money to cover the considerable cash demands of this start-up phase?
At this stage, the business’ organisational design is very simple – the owner does almost everything, including directly managing any employees. Systems and formal planning are likely to be minimal, as the company’s strategy is simply to remain alive. The owner IS the business, performs all the important tasks, and is the major supplier of energy, direction, and (with relatives and friends) capital.
Stage #2
Revenue: <£30k per month
Driven by: KPIs
Focus: Marketing, sales, systems
In Stage Two, proof of concept and viability are established. The business has enough customers and does a good enough job of satisfying them to make them stick around. The key problem now shifts from existence to sustainability – bottom line revenues and expenses. Key questions:
- In the short run, can we generate enough cash to break even and keep the business up to standard?
- Can we generate enough cash flow to finance growth to a size that yields sufficient economic return on our assets and labor?
- Can we generate a sufficient pipeline of incoming clients to replace those leaving?
There will usually be some core systems and basic planning and strategy in place at this stage. The team may have expanded, but will usually be a single layer of staff under the owner/manager. Many business remain at this survival stage for some time, earning marginal returns – and eventually go out of business when the owner gives up or retires.
Stage #3
Revenue: <£50k per month
Driven by: Team
Focus: Culture, financial management, team development
At Stage Three, the business owner usually faces a choice: either keep the business stable, providing a steady return (Option A); or prepare for further growth (Option B), which takes them onto Stage Four.
Option A may mean hiring a manager to free up the owner’s time and energy to focus on other things – other business ventures, partial retirement, etc. The business has to be sufficiently profitable to allow this to happen, and effective systems need to be in place.
In Option B , the owner consolidates the company and gathers resources for Stage Four, using the accumulated cash and the established borrowing power of the company to finance growth. It’s essential to keep a solid cash position to allow this to happen, keeping the business running profitably while also planning future development.
A second major task in Option B is to be proactive about creating a staffing pipeline, recruiting and developing the people needed to make the growth a success. Similarly, systems need to be made scaleable; and detailed financial plans are a must.
Stage #4
Revenue: >80k per month
Driven by: Leadership
Focus: Investment, leadership, future planning
With the foundations laid in Stage Three, Stage Four is ‘take-off’ – implementing the growth strategy. Making a success of this relies on the owner’s ability to lead from behind, delegating responsibility and keeping their arms around the entire project.
Common pain points at this stage are cashflow issues, issues finding and upskilling staff to delegate responsibility to, or a lack of proactive organisational design and operational systems. Despite this, the rewards can be significant – allowing the owner to continue to scale or sell the successful enterprise.
The JCV Leadership Group gives support to businesses at every stage in the lifecycle: you can get more info here.