This week I'll be illustrating the most likely crises using the business
growth cycle as explained in the clip above.
Every business is unique and not all businesses will
follow all of the paths suggested and may in fact appear to be a hybrid of two
or more stages.
The four crises points are however a good pointer to
what may happen before the next stage of development. It is the anticipation of
these crises and the successful management of the change that they cause that
ensures the survival of growing businesses.
Stage 1 - Inception
Most likely crises:
- The emphasis on profit
The necessity to generate a positive
cash flow in order to survive. This requires a different management attitude
and concentration of effort on new and different aspects of the business
- Administrative demands
The push for profits increases
business activity and a need for some formalization of systems and record
keeping. On many occasions the business does not have people with all the
skills required at this stage and a crisis arises when the need for additional
skills is ignored.
- Increased activity and its demands on time
Many entrepreneurs are unable to
delegate even when increased activity demands become excessive. This tends to
create backlogs, bottlenecks and confusion. A change of management style and
structure many be required for the business to survive.
Stage 2 – Survival
Most likely crises:
- Expanded distribution channels
As the drive for sales growth
increases so does the existing customer base. There may be need to operate in
new geographic areas or sell to different type of customers. This would require
a change in the way business is done.
- Change to survive competition
If new competitors enter the market
and the business wishes to maintain market shares and relative competitive
strength, changes will be necessary
- Pressures for information
All of the above crises will put huge
demands on the business’s information systems. This will bring a change in the
management system.
Stage 3 –
Growth
Most likely crises:
- Entry of larger competitors
As the business moves through its
life cycle and starts to consolidate and attract larger competitors the basis of
competition changes once again. Large businesses often compete on the basis of
economies of scale and the result is pressure on price. To succeed the business
may require additional investment of time and resources in product or service
development. This is the reason why many businesses stay for long in stage 3.
- Demand of expansion into new markets of products.
There is usually need for a strategy
to expand into new markets and/or new products. Both of these will stretch both
the managerial and financial resources. Key issues facing the business is
financing growth and maintaining control of operations. This calls for yet
another change to management style. At this point the entrepreneur should
relinquish some of his/her power base if the firm is to grow further.
Stage 4 -
Expansion
Likely crises:
- The distance of top management from the action
If growth is maintained,
decentralization continues apace and the entrepreneur/founder finds him/herself
getting further and further from action. This is often completely against
his/her nature – the nature that allowed him to set up the new business in the
first place. The professional managers get more power
- The need for external focus
As the business matures and
consolidates so does competition for sales growth and product differentiation.
To maintain a competitive advantage calls for greater external emphasis and an
adaptation of yet another management style.
As your Business Scale-Up coach I will work with you to
manage these crises that come up during the transition of your
business from one stage to the other thus ensure success. Feel free to contact
me for your initial free consultation or for any clarifications on
wwmahinda@gmail.com
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