The Lifecycle of a Business: How to Navigate the Different Stages of Growth
A business is akin to a living creature.
From the point of origin, the hope is that it will grow and flourish. However, to survive in a hostile and competitive environment with limited resources, it must evolve from an idea to a self-sustaining, adaptable entity—one that can eventually function without its progenitor.
Consider a redwood tree that goes from seedling to sapling, adult to ancient elder. Across the various stages of development, its characteristics, nutritional requirements, and growth challenges differ. But to reach the lofty heights of the ancient President, it must undergo and then push past each stage.
The same general concepts apply to your business. Understanding the current business lifecycle phase you are in significantly impacts how you strategically navigate it.
Truth be told, there are gradations to the stages of business growth, but for the sake of simplicity, we will focus on the major four turning points.
Startup and Infancy
At the most basic level, starting your business is about existence. This holds true whether you are founding a startup and seeking an early investment round or a “mom-and-pop” shop.
First, you must determine whether there is enough demand for your product or service that you can acquire the customers necessary to make it viable. Will you be able to expand from one type of customer into a broader sales segment? Do you have the money to cover the cash demands of this phase?
The main problems the business faces at this stage and the tasks each requires include:
- Concept development – Here, you have to turn an idea into reality. The first tangible steps involve conducting market research and then creating a business plan that outlines the objectives and the strategies it will take to achieve the goals. This can be used as a road map that guides your strategic actions and potential investment or loan.
- Setting up the actual business – To be a functional, money-making entity, the business needs to be official. This will include tasks like:
- Registering the company
- Developing a brand and logo
- Establishing a location
- Building a website
- Investing in capital
- Applying for an employer identification number (EIN)
- Launching the company
- Running the business – Here, the rubber meets the road. You have to begin acquiring customers and building your brand. For many brick-and-mortar businesses, this means building your local customer base by providing a strong product and service and good customer support.
- Hiring employees – Your first round of hiring will occur at some point (or several points) during this stage. The tricky part for some startups is finding talent who are willing to work harder and for less on the promise of greater rewards down the road.
- Growing the business – In addition to the other tasks above, business growth requires a combination of marketing and accounting. You need to spread the word about the company while monitoring and managing cash flow.
The significant majority of companies never manage to survive this stage, with 70% of fledgling startups going out of business within the first five years.
At this stage, the business has shown it is viable and capable of surviving. It has established a large enough customer or client base to keep the engine running, so the main concerns move towards growth. As Harvard Business notes:
“The key problem thus shifts from mere existence to the relationship between revenues and expenses… Can we, at a minimum, generate enough cash flow to stay in business and to finance growth to a size that is sufficiently large, given our industry and market niche, to earn an economic return on our assets and labor?”
If your company is at this point, you have likely hit your early major milestones and sales goals. Maybe, you have reached the million-dollar benchmark, which would put you in rare company and demonstrate that you have a sustainable business model.
Facing this crossroads, you have a decision to make—keep operating as is or grow in size and profitability. If you choose the more risky, less comfortable option, you will likely need:
- Invest in more employees and equipment
- Build internal teams and systems
- Hire upper-level people to run operations or departments
- Hire a full-time accountant(s)
- Enlist the services of a fractional controller and CFO to guide your financial strategies
- Identify new potential revenue streams or consumer bases
- Increase brand awareness through marketing
- Take on your first seed round of capital investment
Although this is an exciting time, growth can be a double-edged sword. Yes, you have momentum and potential. But if you grow too quickly or make the wrong strategic decisions, it could soon crash and burn.
Efficiency in operations is the goal. That means having a tight rein on your financial and market data. It also requires implementing systems, technologies, and integrations that optimize how the business operates.
After several years of weathering the chaos, your business may hit the stage where operations are smooth, stable, and predictable. The brand is established and generates strong cash flow. Ideally, the business should be growing at about a 5% annual rate.
In other words, you are in the groove.
The problem here becomes “what next?” Many businesses struggle to know how to proceed or where to go. You may have already reached your market saturation point.
At this stage, your major challenges and concerns may include:
- Loss of momentum
- Loss of flexibility
- Loss of talent
- Maximizing performance
To avoid lethargy, strategic financial advisory becomes essential. Whether it is budgeting and forecasting, financial modeling, or preparing the company for a sale, you will require expert guidance for your financial operations. Depending on factors like increased competition, a shift in consumer preference, or an opportunity for growth, the business may need to go through a transition stage.
Succession or Sale
For many business owners, this is the long-term goal—the finish line.
Eventually, if the business remains successful, you will reach the point where you are ready to sell it outright, retain partial ownership, or bring in a successor to control the day-to-day operations. And for that, you will need strategic guidance to:
- Provide an accurate valuation
- Prepare financial documents
- Find prospective buyers
- Negotiate the terms of the sale
- Close the deal
CFO Hub — Your Guide Through the Stages of Growth
Building a business is a long and trying odyssey. Growing a company from a concept to an established brand may take years of blood, sweat, and tears. But there are few things in life that are more rewarding than reaching the point where you can say, “We made it.”
Do you need a guide for that journey?
If you’re looking for strategic insights to grow and develop your business the right way, we can help with that.
At CFO Hub, our outsourced financial service experts can walk with you along this path, no matter where you fall in the business lifecycle. Whether you need a fractional CFO, controller, or the services of an entire accounting department, we offer solutions that scale with you.
Contact us to gain access to a team built specifically for the unique requirements of your business.