How To Optimise The 5 Growth Stages of A Business & What To Do With the 6th (Decreasing Revenue)
Major Points of the Article
There are 5 growth stages of a business. Each requires certain actions to keep the business growing optimally.
A startup is different to a new business and will require different strategies.
There are pivotal decisions to be made before or when the business reaches maturity.
Decreasing revenue is not the end of a business. It can be regrown.
All businesses go through the same 6 stages of growth: existence, survival, early success, rapid growth, maturity, and decreasing revenue. The first 5 growth stages of a business have unique opportunities, while the 6th requires some special attention. No matter what stage you are at in business, read on to learn how to optimise your growth.
What is Business Growth
Firstly, let's establish what business growth is as it is not the same for everyone. In most circumstances, business growth is measured by the amount of revenue generated, but you may want to measure it differently such as the increase in
awareness of the brand, product or service
and much more...
Whatever you choose, make sure you can, and are, measuring it. That way you gain focus, making your goal more achievable.
How to Fund Business Growth
In business, there are generally only four ways of funding growth.
Gain investment through selling shares in the company
Take out a loan that will need to be repaid with interest
Receive in-kind contributions. Essentially people or another business working for free or at a discounted rate.
Boot-strap, which means to use the company's retained earnings or cash flow to fund the growth.
And with each method, they all come with a certain element of risk that you will need to consider when funding your growth. Such as a loan creating a lingering debt that needs to be paid off or when selling shares, there is a limit (you can't sell more than 100%).
Major Factors Affecting Business Growth
There are many internal and external factors that will affect your business growth such as
a poor performing team
changes in government policy
the supply of manufactured goods from third parties
new competing innovation
and so much more
Be wary, and watch for anything that can affect your business
NOW LET'S CONSIDER THE GROWTH STAGES
At this stage, the business is new, not many people know who you are, what you do, or what you stand for. It is best for you to test the market and determine if people actually want your product or service. The key point here is, that you need to start small, as most will fund their business with their own, family's or friends' money (investment). There is a huge risk of failure here so avoiding a loan is optimal. More so if you are a start-up.
Note: A start-up is new, providing innovative products or services to industries that normally have never seen such a thing before and you have none to some competitors. A business is a conventional product or service that industries have seen or are already using and you have many competitors.
How to optimize
To optimize this stage, you should work on building strong relationships with customers and gain a tonne of testimonials, and reviews. This will push greater word of mouth and increase your organic reach. You should also work on building your content (Content is King), especially on your website to build up your SEO. It is best to start now, as SEO can take potentially years to grow.
This is the struggle time when all you are trying to do is stay afloat and meet all of your costs. Your reputation is building, but leads and sales are not where you would like them to be. Your operations are likely to be rough and not fully established yet.
How to optimize
When you are in survival mode, your fight or flight instinct response kicks in. In this stage, it will kick in again and it is best for you to fight. But, take the time to decide when and if a particular action is necessary. Too many businesses (and start-ups) do something that is too early which often suffocates the business. At this stage usually, the funding is boot-strapped or accelerated with investment that is heavily focused on marketing to rapidly increase the brand's awareness, sales, or membership numbers. Alternatively, a joint venture can be used (in-kind contributions) to help leverage the growth. However, be cautious about who you work with as people (or a business) can affect you negatively. Spend this time to also systemise your operations in preparation for the next growth stage.
3. Early Success
Depending on how you measure success it could mean your first million dollars, your first 10,000 users, your first six-figure sale, or even your first sale. Essentially, this early success creates a huge feeling of joy as the business is likely to be profitable and is showing signs of scaleability.
How to optimize
Promote, advertise, shout it from the mountains. Celebrate your success and tell everyone, that you are gaining sales. By doing this you are showing your potential customers that people have trusted your brand, bought, and are happy.... so they will too. This can help to accelerate your growth. This is also the time to keep reviewing your operations to improve your customer acquisition rate, satisfaction score, fulfilment and more... You might also consider seeking investment to accelerate the growth as boot-strapping is likely to be slower.
4. Rapid Growth
Using the investment or your cash flow, you are now in rapid growth with a greater revenue growth rate, faster sales, or higher membership acquisition rate. The point here is to keep that increasing for as long as possible.
How to optimize
It is important to keep the rapid growth going for as long as possible, to gain more and more market share, as you want to maximise your position and become the leader in the market. This will also inhibit potential new competitors from seeing your success and entering (and stealing) your market share. Keep this growth going by promoting your product and service for as long as possible. You should also consider acquiring any new entrants or tired businesses to remove your competition, increase your intellectual property, talented people pool, and even customers. Overall this action can rapidly increase your growth and there are many ways to fund it. It just takes negotiation.
This point is where your business has reached its maximum market share; essentially the market has been saturated and the majority of your potential customers know who you are. Your customers are likely to stay with you, or your competitor, and are unlikely to switch.
How to optimize
Your business has been successful, you have made money, and there is not much room to grow. This is where you need to make some pivotal decisions, which could be:
to work towards making your offer better than the competitors, encouraging the potential customer to switch to you.
to sell the business (exit) for a maximum return, then retire or start another business.
to work on re-launching a new business, product, or service that satisfies the needs of your current customer pool. This can be to complement or replace your current service or product. Just think about how Apple, Samsung, etc... releases a new mobile phone every year... It's so you buy it and they maintain their market share.
6. Decreasing Revenue
So this can happen at any stage and can be the death of the company. It can be at the fault of the business such as from a huge debt, poor performing team or it can be caused by an external factor, such as a mining operation has a sudden drop in the global price of ore, making the operations insolvent. Additionally, it can happen after the maturity peak, however, if you have planned for it (see 5. Maturity) this should not happen.
How to optimize
This is the tricky one, as you might be paralyzed with fear and any action could potentially make it worse. Additionally, you might only see half the picture. The best course of action is to bring external business growth consultants in to independently review your business for opportunities and improvements. They are unbias, providing a wider perspective on the business.
Common problems we see at Paradelta Strategy are:
poor-performing sales and marketing teams
too much cash held up in stock
a lack of technology
no marketing, no brand awareness
drowning in debt
Typically, we also find at least an 8% saving in costs, which can mean millions of dollars and a business turnaround. We even see this in businesses at the rapid growth or maturity stage. With such a saving this cash can then be better spent on accelerating the growth of the business.
In fact, you should consider Paradelta Strategy, a business strategy and brand equity building company that specialises in this area to review and improve your business. Over the years, we have helped businesses across Australia to grow and expand, nationally and internationally and grow significantly in profits. To get assistance with your business, simply email us at email@example.com or schedule a no-obligation discovery call here.