Business-Growth-New – The Small Business Forum

BUSINESS GROWTH

Businesses grow from small to large.
Startup small businesses do not grow from small to large. They grow but remain small in terms of their definition in capital, employment, owner management, and sales, among other factors.
The enterprises may grow from a one-man guitar to a band, to an orchestra. A few even grow into large businesses, but the bulk remain and die a one-man guitar.
Even while remaining small, many of the businesses can be helped to grow into firms that yield substantial benefits for their owners and the community.

Small Business Growth

According to one theory, startup small businesses grow through a curve with stages characterised by different problems, and that by knowing at what stage a business is, it is possible to know the problems to expect and how to help the business grow to the next level.
In a simple way, this is compared to the growth of a baby. Generally, when a baby is a few months old, it begins to crawl. One may then expect and look out for the baby picking up and eating dirt, with the subsequent consequences. When the baby begins to walk, one would then expect that it could have injuries from falling and tumbling over things. A child of school-going age would have different challenges.
The commonly defined business growth stages include pre-start-up, start-up, survival, growth, expansion, maturity and decline

Pre-startup

Prestart-up is the period before the business is formed. Since the business is not yet formed, there is no production or sales.
The goal is to come up with a viable business idea and converting the idea into an actual business.
Main activities include the conduct of a feasibility study and business plan, mobilising resources, and establishing the business. The establishment includes legal registration and set up of the business premises, equipment, and inputs.
The owner works alone and does everything. Key activities include identifying and evaluating the business opportunity and finding the necessary finance.

Main constraints include information, credibility, and resources. As the owner, you do not have full information on the market, the product and clients. Many people will also not trust new businesses, and you may have difficulties finding partners and financiers.
To overcome the constraints, you need references to enhance credibility market survey, and networking with other people to close the information gap and raise the required resources.
Costs include the conduct of the feasibility study and business plan, business registration, and the setting-up costs. Financing may largely be your own funds.

Start-Up

Start-up involves launch of the business. The objective in the stage is to prove the business a workable idea. A business is shown to be a workable idea when the first set of customers buy the product. From there, it is a question of numbers, getting more people to buy more.
Sales are low and fluctuating, and the cost of production or purchases, high. As the owner, you direct all activities, and your presence on a day-to-day basis is crucial.
The main focus is on production and selling whatever is produced. A key problem is management. You are involved in doing and have little time for management. You also lack crucial information on the market, who buys what, when, to plan and stabilise sales.
Costs mainly include the short-term cost of stocks, production, and selling. Financing may include owner equity. It is difficult to attract outside investors. Loans are also difficult, and borrowing opportunities may, besides, have been exhausted in the setting-up costs.

Survival

Survival is the crucial stage where the business may move forward or slide back. The goal is to reach break-even. This is the level at which total revenue or sales equals the cost of generating that revenue, and the business makes neither profit nor loss.
A small number of employees may have been brought in, with the owner becoming more of a manager. You are, however, still responsible for many of the activities, and the business critically depends on your presence on a day-to-day basis. Sales are fluctuating and the cost of production high.
The key concern at survival is to stabilise production and increase sales to cover the high production cost. This requires knowing customers, who buys what, and when, and refining production.
Customer information increases with time. Skills improve with the workers’ experience and training. Transactions are still mainly cash. Customers are generally first-time clients and unpredictable, and purchases and sales largely cash. The break-even level is actually more of cash break-even, that the business generates adequate cash to meet payments.

Costs include mainly the short-term management, production, and sales costs. Financing may be in loan, equity or trade credit. Other parties are more likely to consider putting in money with the evidence of possible success. Suppliers may also consider credit as the business becomes more stable and better known.
New competition is likely to arise as others see some evidence of possible success.
Break-even may be by the second year of operation. However, after business start-up, efforts to reach break-even commence. Loss-making cannot continue for long. The loss period must be shortened, and break-even point reached at the earliest possible time. Many of the businesses remain at survival level, just making a small profit.

The Growth Stage

Businesses continuously grow from start-up to maturity. The growth stage is defined as the period a business starts to make profit. At survival, the business reaches break-even: It makes neither profit nor loss. The objective in the growth stage is profit, but at the level of average profit in the industry.
The business has increased professional staff. Communication is more formal, and the owner can delegate more. His role then becomes more of management, and day-to-day presence is no longer critical. Established systems and the more formal communication help keep pace with what goes on in the business, even when away.
The key drivers of the business growth include human resources, technology, and cash.
Sales can be increased by selling more of the same product in existing or new markets, or the introduction of new products. It can also be by selling to new customers or repeat customers, getting existing customers to buy more.

Repeat customers are critical to the continued growth of a business. If those who have bought from you in the past would not come again, your business could be headed for trouble.
Repeat customers involve converting customers into clients. Clients are customers who have loyalty. They help stabilise sales. Having clients can also reduce costs. Retaining existing customers is less costly than recruiting new ones. It largely takes customer relations.
Sales may also be increased by offering credit, quality control and branding. Credit allows customers who do not have ready cash to buy and pay later. People will also buy more of a quality product, and branding your product helps create repeat customers. Buyers can trace their source.
Increasing profitability requires sales, efficiency, and cash generation.
Efficiency is reducing the quantity of output per unit of input or cost. It can be improved by:

Cash generation requires – Credit control to ensure the sales translate to cash. Cash is important to finance the sales growth.
Costs include working capital costs to cover the increased sales operations, staff, and marketing. Finance includes loans and equity. Loans can be obtained at this stage. The business also generates cash flow and profits that can be reinvested.
Growth stage may be reached by the third year of operation. The length, however, varies and may be shorter or longer for different businesses and sectors.

Expansion or Rapid Growth

Expansion is a period of rapid growth.
While the growth stage aims at a profit similar to the average level in the industry, the objective at rapid expansion is super profit, profit above the industry average.
The rapid growth and expansion may be by:

The choice to go into expansion may be due to identified:

The unmet market demand may be in unreached groups or regions. Limited range or poor quality of products may be opportunities in innovations or product diversification. Poor business management may be in unused capacity, wastage, underutilised resources, or lack of skills. Low-level and limited use of technology indicates opportunities in better and more efficient technology and equipment
For an enterprise to expand, it should be in an undersupplied or growing market. The firm may also capture market from competitors. This requires a competitive edge with product quality, price, promotion, place, technology, or a combination of all these.
Key activities include:

◦ Increase in professional staff.

◦ Management systems.

◦ Cash flow and management.

◦ Quality assurance.

With the expansion, the business is decentralised. The owner brings in more staff to manage the semi-independent units and become a manager of managers.
Systems are strengthened to enable management of the units. Cash flow management includes increasing cash to support the expansion and improved cash control in the different branches. Quality assurance includes brand maintenance and quality control for customer satisfaction.
Costs include the long-term and short-term costs of setting up and operating the increased activities of the branch network. Possible sources of finance include internally generated funds, equity and borrowing. An operating business may generate funds that can be put back to finance expansion. Based on past and projected future performance, the business may also attract investors or loan funds.

Maturity

At maturity, the business performance has reached its peak and flattens out.
The business has a strong performance and market presence with stable sales and financial performance. It has a committed market niche, and the products are a well-known brand.
The organisation has strong sales and technical, and management staff. The owner largely hands over to professional management and maintains contact with periodic meetings and formal communication in budgets, board meetings and periodic accounts.
Key focus is on sales and efficiency to maintain the market and profitability.
Main activities aim to remain competitive, maintain brand awareness, and market share. Cost includes the production, maintenance, promotion and staff expenses. Financing may be from internal generation, past equity investment, and borrowing.

Managing Growth Stages

Managing growth stages