Businesses go through stages of development and growth from start up to full maturity. At every point along the way there is a risk of failure, but the further your business goes toward third stage the more stable and sustainable it becomes. Still, most businesses never progress beyond first stage. There are a lot of reasons for this, but many times the key reason is simple. Business owners don't know what the stages are and they don't know how to go about moving from one stage to another.
In this brief article I outline each of the stages of development and offer just a few simple suggestions about what a business owner faces at each stage and what they can do to help accomplish the transition from stage to stage. The one common theme you will find throughout is my core belief that every business owner can benefit from a relationship with an experience coach or mentor. I also highlight the value of peer learning and the development of business acumen as key factors in growing the business through each stage.
Startup
During the startup stage a business is focused almost 100% on survival. This business is all about developing a market, producing sales, accumulating cash and other resources, and reaching past the break-even point. A startup business is more than just an idea, but it is not yet a stable business that will produce steady income for its owner.
The business owner's focus during startup is typically on sales and production to achieve their initial goals for revenue and profits. During this phase the risk of failure is very high and many businesses simply don't survive to reach first stage. Startup business owners can improve their chances of survival by working with an adviser or mentor very early in the process. Those most likely to succeed at this level are owners who spend the time to create a solid operating plan for the business and have a very strong grasp of the key numbers that will produce success. Strong financial systems are often the most critical factor and an area where almost every startup business can benefit from the advice of an experience coach or mentor.
First Stage
The First Stage business has grown up a little bit from the startup. At this stage the business is usually producing regular revenue and is somewhat stable. Business owners at this stage must answer some critical questions to define what happens next. First among these questions is do I want to grow? This may seem like a no brainer, but it is often the most difficult question to answer truthfully. The reality for first stage business owners is that growth will require changing the business significantly over time and it will require that the owner's role change as well. Many business owners decide, either consciously or by default, not to grow beyond this stage. These owners usually end up with a "lifestyle" business that provides them a modest income as long as they work at it.
Most fist stage businesses generate less than 1 million dollars in annual sales, usually much less. They typically have fewer than 10 employees and often have only the business owner and his or her family active in the business. Growing beyond this stage requires that the business owner be willing to trust others to carry out many of the tasks of the business. They will also need to be flexible and creative to make adjustments to the business model to bring in more sales. They may even need to change their own role in the business as the needs of the company change over time.
For many business owners the most critical decision during first stage is how to get information they need to reach into second stage and beyond. It is during this first stage that many owners discover the values of peer group learning and of a business coach, mentor or adviser. Both peer learning and coaching have real world value and the most successful owners find ways to incorporate both.
First stage business owners also face the reality that "you don't know what you don't know." To get to first stage these owners had to be good service or product providers, but they often do not have training in or knowledge of many of the key elements of business that can impact their long term success. For these owners a program for developing their business knowledge base and increasing their personal acumen is incredibly valuable. Finding the right program and engaging regularly can be the key foundation element to position these companies for growth into the second stage.
Some business owners decide that growth is worth the effort. For these owners business success means getting to second stage and beyond. Getting there involves risk, but the rewards can be amazing.
Second Stage
Second Stage businesses are those that have grown through first stage but are not yet fully mature. They tend to enter this stage as they approach 1 Million dollars in annual sales and continue in this stage through 50-100 Million in sales. Early second stage companies usually have several employees and possibly one or more managers, but they do not yet have all the systems in place to develop to their full potential. The leaders of these companies have already demonstrated their ability to create vision and to implement a business model. At the second stage they are ready to develop or improve their skills in leadership and team development and to create systems to ensure a sustainable business model for the future.
At the center of second stage business identity is growth. In fact, many business owners at this level find that while growth is a blessing, it is also often their greatest risk. Growth for these leaders means adding staff, increasing inventory, adding new capacity for production or service delivery, and the list goes on. All of this means increased cash requirements, changes in leadership and management functions, and the development of systems that keep every part of the business on track.
The Edward Lowe Foundation has made second stage businesses their focus. Their research and experience highlights the challenges second stage business owners face including:
1. Many people are not aware of what others are doing.
2. People lack an understanding of the firm's ultimate goals.
3. A precipitous drop in product quality occurs for unknown reasons.
4. Turnover increases sharply, just when the company needs more personnel.
5. You wake up worrying about operational tasks that someone else ought to be handling.
6. All your customers want to meet with you, but finding the time to do so seems impossible.
For the owners of second stage businesses the keys to success are often difficult to see. Creating business systems is a very high priority along with developing a reliable management team to lead critical areas of the company. Often the most difficult task is changing the owner's personal role in the business as they transition from doer to leader. Making this transition requires that the leader have the information, motivation, accountability systems and vision to make it all happen. Having the support of a peer group and a coach or mentor are often critical to this business owner's success.
Like first stage businesses, those at the second stage often find that they don't have all of the knowledge base and skills sets needed to achieve their goals. Here again, a program that is focused on developing business acumen and increasing the knowledge base of the owner is often the key to success. Peer learning can play a huge role but there is also room for targeted learning based in a solid system for business growth and operations. However the learning is developed, it will be most successful if it provides a broad base of knowledge that gives the owner the tools to make sure that every part of the business is operating at peak performance.
Clearing the hurdles of second stage is not easy. Most businesses will face more than one crisis during this stage. How the business owner responds to those moments will determine if they achieve third stage or not. Some owners will face the struggles and decide that it is too much and return to first stage where there is less money, but hopefully less struggle as well. Some will engage in an ongoing struggle that can carry on for years without breaking out of the second stage. A few will develop the tools, resources, and skills needed to push through to third stage where they can enjoy both the financial rewards and the long term stability they want.
Third Stage
At the third stage a business has reached full maturity. These businesses are marked by strong leadership at both the executive and management levels. They typically enjoy steady growth supported by strong operating and administrative systems. Their owners have a solid understanding of what the business needs to continue to succeed and they have the tools and resources available to them to make those things happen.
The greatest risk for businesses in the third stage is often complacency or stagnation. It is easy at this stage to fall into the trap of believing your own PR. You are a great company and you have achieved success, but you can't afford to sit comfortably on what has happened in the past. To stay at this level and continue your success it is critical to keep focused on what made you great and continue to look for ways to improve and grow.
Success at any stage
The bottom line for every business owner is that you want to have a business that meets your financial goals, offers you some level of personal satisfaction, allows you to have balance in your life, and provides some form of security for the future. All of this is possible for owners at any of the three stages of business. What you need to decide is where you want the business to land. Are you OK with a business that will always be about your personal production and will remain dependent on you for its survival? If so, then first stage is a good place to get comfortable. The trade off for most business owners is that your income potential will always be limited by your personal ability to produce. If you want more, then you will want to reach for second stage and beyond. No matter what your choice, having the right team helping you succeed and working with the right coach or adviser can make all the difference in the world.