Short Description
Business phases are often compared to the stages of growth human beings experience as they mature.
Description
Business phases are often compared to the stages of growth human beings experience as they mature. Both businesses and people are born, go through growth stages, reach maturity, can get ill and decline. A difference with a company, however, is that it has the ability to continually regenerate its growth spurts if some basic concepts, combined with a lot of hard work, are applied to its vital processes and products. Just as humans can visit their medical professionals to obtain guidance for maintaining and regaining their physical and mental health, businesses can revisit the historical reasons for their success and dust off their strategic plans.
Businesses are to startups as humans are to infancy. Both need guidance, constant attention, and nurturing. Both learn how to cope with their new worlds by experimentation. Babies are watched over and fed nutrients by their parents; startup businesses are watched over and fed cash by their founders. Although babies receive constant care, often the food necessary to keep startups in business can get scarce. They run out of food, i.e., cash, and thereby lose all energy. Half of small businesses fail within their first two years of existence, and lack of cash flow is often the culprit.
As a business evolves into its adolescent years, it begins to demand more and more time and money. Any parent of teenagers can understand this similarity. On the home front, allowances get raised. In the business world, employees request more money and benefits. Both teenagers and employees need education and training. The need for mutual trust and respect grows while management gets stretched thin. Many businesses have difficulty getting past this stage. The entrepreneur is often wearing several hats of technician, salesman, manager, and planner. At this adolescent stage, the entrepreneur must learn to delegate effectively and hire personnel to wear different hats. If the owner cannot learn to delegate, the business may not survive its adolescent years.
In the early adult stage or late adolescent period, the need to learn budgeting principles arises. Just as kids begin to leave home, suffer the loss of their allowance and learn to manage their own resources, a business must have the ability to generate cash without any additional owner investments. Similar to how career options are explored by individuals, processes are examined by businesses. Many businesses don’t survive this phase because entrepreneurs are often averse to having documented processes and procedures. They want maximum flexibility.
This is a critical time for a business because as it begins to grow, it needs structure to survive. This can present a Catch 22 since the entrepreneur’s preference for the lack of any rigid structure is often the primary reason for launching the business rather than remaining in corporate America. At this stage, the entrepreneurs who are averse to the structure may seek to sell the business. This can present another Catch 22, i.e., without structure, the businesses may not be sellable at an acceptable price. If not sellable, it will wind down.
In the adult phase, growth slows as the business’s markets also become mature and competition increases. Just as individual metabolisms begin to slow and muscles get soft, a business also must now refocus on getting lean. Emotionally, business executives know what needs to be done, but starting the physical activity can be strenuous. “Business Process Re-engineering” is a scary term often used to describe the needed activity. Reengineering can be overkill. Most businesses only need to revisit their business plans and critical success factors. The vision and values of the company should be explored similar to getting a physical from a physician. This is the time for both humans and businesses to manage backward from the future, i.e., they should envision what they want to look like in five years and see what needs to happen to get there. If the business cannot manage for future growth, it will become ill.
To regenerate, the creation of a balanced scorecard should be explored. Look at the business from four perspectives: shareholder, customer, internal/operational, and learning needs. Look at communication mechanisms, the alignment of processes, learning skills, and workflow dynamics within the business processes. The entrepreneur must transform from being the technician and hands-on manager to being the strategic planner.
Throughout the regeneration process, the small business is essentially acting like a big business. Even if it doesn’t want to be listed in the Fortune 500, the questions and issues it faces are very similar to those of large companies. Answers may differ, but the questions and process are very similar.
Businesses are like people, they are born, they age, they go through phases, they get sick, they get healed and if not healed, the diseases can be mortal. Throughout the business’s life span, the entrepreneur must be constantly aware of the changes, growth spurts, and health issues the business experiences as it matures. Entrepreneurs should be asking three fundamental questions, both from a personal and business perspective:
• What Do I Have?
• What Do I Want?
• How Do I Get There?
Answering the first two questions should help to answer the last one. Just as humans get annual checkups to maintain their physical health, a business needs an annual physical, i.e., a review of its strategic plan.
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Daniel J. Maloney CPA CBI CFP® CM&AA is the founder and principal of Certified Acquisition Advisors LLC, a business intermediary and Exit Planning consulting firm specializing in business planning and brokerage for sales, mergers & acquisitions.
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