The Typical Business Ownership Life Cycle
Kenny Rogers Sings a Song “You Gotta Know When To Hold ‘Em and You Gotta’ Know When To Fold ‘Em”
Every business goes through a number of changes during the course of its lifetime, and business owners should make sure they understand exactly where they are in the cycle so they can prepare for the next stage.
In this brief report, I’m going to do my best to identify each stage of the business cycle from a 30,000ft view so business owners can identify where they arena the cycle and take action, and people interested in buying a business will have a better idea of where to look and why.
The 7 Stages:
- Growth Slowdown
All Business’s have a lifecycle commonly referred to as the Business Stage.
- Start Up
The seed stage of your business life cycle is when your business is just a thought or an idea.
This is the very conception or birth of a new business.
There are numerous challenges for a business start-up.
- Money is tight and resources are thin
- Marketing is new and not established
- Customers have not yet been identified
- Front end customer service systems are not yet established
- Back end product delivery systems might be a bit hap-hazard
At this stage of the business the owner is way over-worked and under-paid.
You need to really watch your pennies because this is where most start-ups fail, and the number one reason is they run out of money to operate.
- Growth Stage
Your business is born and the doors are open. You’re selling your products and services to customers.
The phone is ringing, you are having fun and are very excited about the future!!
Money’s a bit tight because you’re building inventory and hiring employees, but you don’t mind because you are doing what you set out to do and are living the dream!
The Future Looks Bright!
- Growth Slowdown Stage
Your business has made it through the infancy stage.
Revenues and customers are increasing as well as other opportunities.
You’re making money and find yourself somewhat mired in the mud of day to day operations. Dealing with employees and customers.
The fun and exciting part is beginning to wain because you are busy working “in” the business more and more.
You begin to realize this thing you created is growing bigger than you can effectively handle and you realize you can’t do it all.
This is the optimum time for a business owner to sell – This where the business will sell for the most amount of money because it has a solid growth record. It is also at the point that it isn’t fun anymore for the owner.
If nothing else, it at this stage of the business cycle that the owner should begin planning an exit strategy.
- Sustaining Stage
Your business has now matured into a thriving company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become more routine.
This is where you begin to rest on your laurels and begin to back off a bit. You feel you have worked hard to get where you are and deserve a bit of time to coast. Most business owners at this stage begin to get bored and neglect to pay attention to the competition.
This is where ALL business owners should at least BEGIN thinking of selling – right when they begin to get bored with the business. The owner has reached their peter principal and stop growing.
This is where the business owner should do one of two things –
- SELL: This is the big opportunity for your business to cash in on all the effort and years of hard work. before its too late, or
- EXPAND: Begin Expansion through acquiring the competition – especially the competitors that have entered stage 6 or 7.
- Decline Stage
This where the business owner has mentally checked out.
They might be bored to tears with the business and lost interest, turned it over to management, or simply lost focus.
Competition might have taken a bite out of the business, or changes in the economy or market conditions. All of which can decrease sales and profits.
Unfortunately for most companies, this is where the owner has to take immediate and drastic action to get the business back on track, but in realty, they tend to do the exact opposite.
Instead of investing in the business and taking back the reigns, they make cuts to marketing and advertising, they stop investing in the business and begin cutting back on everything.
Unfortunately for the owner, they are in denial about just about everything pertaining to the business and they tend to look the other way.
They are unknowingly becoming “Don’t-Wanters” in the business.
- Decay Stage
Denial has set in completely and it shows – the more revenue drops, the more the cutbacks.
This is about the time when most business owners snap out of it and decide to sell the business and get out.
Unfortunately, it is way late in the game for them to get a good price for the business because previous sales show a negative trend and buyers are quite hesitant to buy a declining business.
This is the last chance for the business owner to get honest with themselves and face reality. It is the last chance for them to either get with it and grow revenue, or get out.
If they don’t, Stage 7 is imminent.
- Failure Stage
Game over – the business owner puts a lock on the door and liquidates inventory in a “going out of business” sale. All those years of hard work and sacrifice are down the drain. Dreams shattered, employees lives turned upside down, jobs lost, etc.
According to business broker statistics, only 24% of business sell, leaving about 76% of business listed for sale that end up closing their doors with a going out of business sale with shattered dreams.
According to the Largest Business Selling website BizBuySell.com, they claim 4 out of 5 businesses listed for sale by owner never sell. Simple math, that equates to 80% of businesses listed for sale by owner end up closing their doors in silent defeat, dreams shattered and a lifetime of work and sacrifice down the drain.
Understanding where your business fits on the life cycle will help you foresee upcoming challenges and make the best business decisions.
Whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles.