There are different stages of growing a business – but do you know what they are? Steven Furman, the executive director of TIM Finance reveals more
What stage of growth is your business at? How do you see it developing? And what are your plans?
These are key questions that every entrepreneur and business owner get asked, and with good reason: good business practice suggests that the business should ultimately be working for a business owner, not vice versa.
Believe it or not, this means a business may well be headed for resource maturity. Can they handle it?
Let’s look at the stages of business growth and how you can help your SME clients plan their way to maturity with a suitable assessment of the risks and rewards.
What is resource maturity?
Resource maturity can be a somewhat confusing term. It is used by business consultants to describe one of the final stages of growth - the point when a business can essentially be considered a mature, large business.
This is not necessarily the goal of every SME, but many entrepreneurs and business leaders do ultimately want to see their creation establish itself on this level. For others, lower points in the growth scale represent a reasonable exit point or plateau to operate at.
In their Harvard Business Review whitepaper entitled The Five Stages of Small Business Growth, Neil C. Churchill and Virginia L. Lewis called those five stages: Existence; Survival; Success; Take-Off; and Resource Maturity.
While the first two essentially relate to start ups, many SMEs will operate for long periods at the point where they are profitable and safe. Those with ambitions beyond being a successful SME will have to take a risk and enter stage four.
“This is a pivotal period in a company’s life,” Churchill and Lewis say.
“If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold — at a profit — provided the owner recognises his or her limitations soon enough.”
Succeed at take-off and they will soon reach resource maturity.
Is resource maturity good?
A business can be said to have reached maturity once it is ready for diversification: the growth potential in its initial market segment is largely played out.
In order to entrench the success so far, sustainability and stability is the next goal. For an entrepreneur who has come the full distance through the five stages, the focus should be on reflecting, assessing and realigning the business’ resources to meet this goal.
Lewis and Churchill say: “The company has now arrived. It has the advantages of size, financial resources, and managerial talent. If it can preserve its entrepreneurial spirit, it will be a formidable force in the market. If not, it may enter a sixth stage of sorts: ossification.”
Rather than stagnate and ossify, the new challenge lies in finding other, related products and markets to tap.
Challenges of resource maturity
The company is now big and runs at a slower pace: but this doesn’t mean its financing issues are over.
Brokers can look to a company’s finances as a mirror for its true position - and as a weathervane for approaching storms.
Nobody wants to risk a business this big, and shouldn’t have to. Any further growth should come from a solid base, with business funding backed one way or another by serious cash flow.
Writing in Entrepreneur, Neil Petch, chairman of Virtugroup, says: “Having navigated the expansion stage of the business lifecycle successfully, your company should now be seeing stable profits year-on-year. While some companies continue to grow the top line at a decent pace, others struggle to enjoy those same high growth rates.
“It could be said that entrepreneurs here are faced with two choices: push for further expansion, or exit the business. If you decide to expand further, you will need to ask yourself the same questions you did at the expansion stage: Can the business sustain further growth? Are there enough opportunities out there for expansion? Is your business financially stable enough to cover an unsuccessful attempt at expansion?”
Leadership and funding
A business at this stage will need a healthy mix of financing options, and a tight rein on its cashflow. The differences in being paid on time or a few weeks late will be huge. On the other hand, large sums will be tied up in the accounts receivable, which invoice finance could turn into a safe stream of operational and investment capital.
Perhaps most importantly, Petch says, the owner must ask themselves if they are the type of leader who is up for the task of further expansion at this stage.
Once they have decided this, brokers can help them achieve it.
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