Simon Smith FCCA explains the phases of growth and the emotional journey of running an early stage business.
In our experience, entrepreneurs and the owner managers experience a vast range of emotions throughout the stages of the business life cycle. Whether you're just starting out, or already on the path to growth, you will likely find this blog very relevant to your current circumstances and future business journey.
The reason being by understanding the feelings you will experience during the business journey, you'll then be better equipped to identify and deal with them. That will in turn allow for greater clarity of thought and ensure for better informed strategic and investment decision making. Read on to discover and learn more about managing the emotional journey of running an enterprise.
How do the business life cycle stages work?
The business life cycle stages diagram refers to the phases of growth of a business over time. This cites the emotions owners go through at each stage with brick walls representing when there is a need for investment. Typically there are 5 phases: start-up, growth, advanced growth, plateau, and decline.
It is represented below and is a concept originally develop by Shirlaws. Emotions vary for each phase and you can can see the range of feelings an entrepreneur will experience during the business journey. We explore these in more detail in this post.
Preparing you and your start-up for expansion
Running a business can be hugely exciting because the possibilities appear endless. However, particularly if you’re a first time entrepreneur, you may lack the knowledge for running all areas of the business effectively which results in the other common emotions at play, tension and fear.
The start-up phase
This is the initial frantic period, you'll have a new product or service and you'll be trying to build a profitable business starting from scratch. It will be very exciting as the possibilities seem endless but also an anxious period with so much time, effort and money riding on it.
Your decision making will tend to be very quick only to then become more delayed as apprehension over the potential consequences sets in. Your prime focus will be on ideas that generate more sales and moving the business into growth.
Hitting the first brick wall
This represents the first stage of investment. At this phase the business will be generating turnover but you'll now have reached the equivalent of a brick wall. This means in order to continue developing your organisation, you likely need an injection of finance. This will be for things like new employees, new premises, software or IT equipment.
To summarise there are two types of finance in the form of debt and equity. These can be split by the length of time the finance is being offered for, namely:
Short term - to be repaid in less than 1 year
Long term - to be repaid in 2-5 years or so
Your organisation will likely consist of you as the owner and one or maybe even two staff at this point. You'll enjoy feelings of confidence because you'll see that the business is viable. Decision making will be both careful and considered while your focus will remain on making more sales.
Moving into good times (growth)
Post raising finance you'll likely experience frantic feelings about whether the investment is likely to pay off. Consequently decision making will be rushed. However, in time these feelings will become more relaxed and comfortable as your hard work comes together.
The investment has paid off! Income in the business is both consistent and improving. You'll be able to reward yourself by extracting money from the operation to pay yourself. You'll experience feelings of excitement about this new phase of growth and satisfaction at the achievement. Decisions are thus likely to be made confidently.
Your time will still be spent between customers and staff however, a warning sign will be your employees coming under increasing pressure as they will be experiencing both stress and frustration. This will be as a consequence of growth and having to handle more customers. Your focus though will likely remain on growing.
The perils of fast growth
This is where the business experiences accelerated turnover. The benefits of investment(s) will be fully realised. Unfortunately profits may not follow suit and may actually suffer as the business becomes increasingly harder to manage and run. You'll experience stress and frustration due to financial commitments and the pressures to maintain the rate of expansion.
There is also likely to be frustration with servicing a lot of customers, staffing matters and operational issues such as IT. This means the scale-up phase can lead to irrationality in decision making and time pressures as to where to focus on the business.
You'll likely end up working long hours which will impact on your lifestyle. Your staff will feel overworked and potentially out of control, being divorced from decision making. Your focus at this points should be on building infrastructure and systems to cope with growth however, many often erroneously continue to center their thoughts around how to increase turnover.
The need for more systems, controls, infrastructure and staff to manage current elevated levels of demand brings you to the second brick and the need for more investment.
Advanced growth and the end game
Having secured finance to get the necessary people and items in place to run your operations more effectively, so the business will begin to mature. Should the investment pay off and your business continues to grow then the overriding feeling will be one of pride at what you have created and achieved.
For many business owners this phase often represents something akin to reaching an end goal. Usually that will be either via a sale of the organisation or a listing on the stock exchange.
The content of this post is up to date and relevant as at 24/05/2017.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.