Businesses are treated like people according to the U.S. federal government. It’s true. Just do a quick search on “soft money” and you’ll understand.
And just like people, businesses also have a lifecycle. Companies are born and they attempt to survive just like any other entity. Some thrive and mature, others sputter out around middle-age, and others fail early. Sounds a lot like life, right?
Of course, if you’re familiar with a business’s lifecycle, you know that there are five phases:
- Seed Stage
- Startup Stage
- Growth Stage
- Expansion Stage
- Maturity Stage
These five stages denote where a company stands in terms of its size, objectives, priorities, and future projections.
THE CHALLENGES OF A GROWING BUSINESS
Each stage requires a specific strategy for success. The strategy you implement during the first few days of your company is drastically different from the strategy used by a public company.
However, while many people know about a company’s lifecycle, not many people do anything about it. Only a select few actually implement strategies that are specific to a stage. And while every strategy is different, a good place to start when creating yours is to understand the challenges that each stage presents.
A company’s seed stage represents the very beginning of the business’s journey. In fact, while the term “seed stage” conjures up images of a seed investment round, the actual seed stage in the business lifecycle refers to a time before the company is technically in existence.
The seed stage is the moment when you refine your business idea and prepare to put it out into the wild. It’s an exciting time. But of course, it brings with it a wealth of challenges. When you’re in the seed stage, make sure you consider the following issues:
The most obvious challenge is the business structure itself. Until now, your idea has been just that: an idea in your head. Here’s the time when you decide on your partnership agreement, incorporate your company, and begin filing taxes on the business’s behalf. The issues you’ll face are such things as percentage of company ownership, type of corporation, back office management, and more.
How much of the company does each co-founder own? How much is the initial valuation? Should we incorporate as an S-corp or a C-corp to better take on investments? Who’ll do our accounting? All of these questions are challenges you’ll have to face at this stage.
Ok, now’s the time when we get into seed financing and angel investing. The startup stage is the phase of your business after the initial launch. It’s the point when you release your MVP and start taking on smaller investments. The investments are used to refine the MVP and get the company ready for growth and scalability.
Adaptability is key here. A lot of things aren’t going to work. There will be challenges with cash flow, your cash reserves, and especially sales. You’ll work hard to establish a customer base and set up your marketing funnels, but there will be a lot of growing pains and issues. Make sure you have a plan that efficiently utilizes what little capital you have to test marketing funnels and find the channels that’ll help you grow.
Congratulation, you’ve made it to growth! That’s a fine accomplishment indeed. It’s at this point where your company is generating consistent revenue, growing its customer base, and becoming profitable. Some companies are highly profitable during this stage while others use that potential profit to reinvest in growth.
It’s also around this time that companies take on larger investment rounds to scale quickly. Series-A and -B rounds are usually what catapult a company straight into and through the growth phase.
However, it’s not all roses and rainbows. There are many challenges, which include management issues, fierce competition, and legitimate growing pains. Sometimes companies grow themselves to death. They can’t scale their operations efficiently enough to deal with the growth in customers. Make sure during this time that you have a malleable business structure that can scale up quick.
After growth comes expansion. Well, it’s because of growth that we get expansion. But this is when all the processes are put in place, you’ve become an industry leader or carved out a nice niche, and the only thing left to do is to consistently hit your numbers. It’s common for companies to go on autopilot during this stage. Who cares, right, going public is one step away?
But therein lies the problem. Moving into new markets is challenging, especially when the company thinks it’ll be easy. Further, the competition gets even more fierce. Everyone’s gunning for you from below, and you’re now playing the game with the big boys up above.
It takes a strong company culture to survive this phase. It also takes a good strategy to keep people from getting greedy and overextending.
I doubt anyone reading this has made it to maturity. Still, it’s good to understand what lies up ahead for your business. The maturity stage is usually when a company goes public. Companies like GE, Target, Coca-Cola, and more are mature companies. It’s not necessarily based on size but more about growth at scale.
Facebook, for example, while having a comparable market cap, wouldn’t be considered a mature company because it’s still growing at a high rate.Coca-Cola, on the other hand, keeps a small but steady growth in earnings and pays out a nice quarterly dividend to compensate for its share price appreciation.
During this stage, it becomes tough to innovate. It’s hard to add new products and services. If you get this point, however, I’ll assume that you’re smarter than me and I’m sure you’ll figure out a strategy that works.