Seven Stages of Starting a Business

The Seven Stages Business Development
Every business faces definite stages in its life, each presenting its own set of challenges. Knowing ahead that these obstacles may appear can help business owners avoid the dangers they present. Equally important is the chance at each one of these points to turn a company in new directions to strengthen it. Be aware of these problems, and they won't damage your business. Ignore them, and you'll find the lessons they teach to be expensive.
The seven stages are as follows:
 
1. Start-Up
If you attempt to begin a business with no qualifications or applicable experience, you probably won't get past this first stage. Each industry has its own peculiar problems. Don't learn about them after you've already started. Take time to gain experience in that industry, even if only for a few months. Learn about the different challenges faced by businesses. Through trial and error, experiment with different options until you find the best solution.
A slightly different problem is lack of well-rounded managerial experience. The two most frequently mentioned causes of early business failure are lack of adequate information systems and capital. You can't manage without information, and with insufficient capital you won't have anything to manage. Ensure that adequate experience, information, and capital are all in place before you begin your venture. Later may be too late. Make informed decisions. Rely on timely, accurate, and appropriate information as your guide.

2. Cash Flow
Suppose you survived the initial start-up — you have enough capital, and the information is flowing to you in a reasonable way. Sales go up faster than you anticipated. So do receivables.
As a new business, your bank may not wish to lend against your receivables. What do you do?
Or, the economy hits a pothole and your sales drop. As a rule, expenses don't fall in proportion to sales. What do you do?
Or, your sales stay level, while inflation drives your expenses up. How do you cope?
There are ways to survive these cash crunches, but if you have to come up with solutions while undergoing one of them, chances are the solution won't work for long. What's the survival plan for your business? What if you do hit severe problems? You must have a contingency plan.
With enough capital, credit, and constant attention to your costs and expenses, you will survive. The trick is to determine how much is enough. When financing a small business, or any new business for that matter, you must take into account both capital needs and cash flow contingencies. As a rule, try to keep near industry averages for profitable businesses.

3. Delegation
Experience, money and information are key, but some of the most troublesome problems are caused by the change in skills that is needed as a business grows. When a business goes from start-up through a cash crisis, the owner/manager must have the ability to keep going in the face of adversity, to do a lot of things him/herself, and have total control of all aspects of the business. The person with that kind of energy, however, is often the kind of person who cannot delegate anything.
If you have more than two or three employees, chances are this problem will come up. It may help to have an outsider assist you in deciding whether or not you are stifling growth by not delegating authority to your employees. If it is a problem, there are a number of resources. For starters, promote or hire the right person, preferably someone bright and efficient to simplify and standardize the normal business procedures.
Entrepreneurs are often unable to give up control over every aspect of their business. On the other hand, people who excel in managing skills and keeping things running smoothly are often unable to cope with the pressures that come with starting a business from scratch. Determine where you fit into the equation and hire your help accordingly.

4. Leadership
There's a difference between being in a position of leadership and being a leader. A leader must know how to motivate others, have a comprehensive knowledge of the business and industry, and delegate day-to-day operations in such a way that long-range goals are clearly defined, achieved, and considered policy (while performing a thousand other functions).
Although some effective leaders are task-oriented, people-oriented, or more interested in technical aspects of their business, they all have common characteristics. They make the most use of their time and get people to work together to achieve corporate goals. If you can accomplish this, the rest will follow.
After the initial excitement of start-up and the struggle to survive is past, many businesses flounder because they are lacking in the leadership area. Where direction was previously imposed by outside events, now there is little of that excitement. Businesses operate on energy and momentum -- and a leader must maintain these qualities.

5. Finance
A company that has stabilized at the leadership stage can proceed in one of three directions:

•Continue to operate at a static level
(growing slightly or not at all by using cash flow as the primary financing tool).
•Go downhill.
•Try to take a quantum jump in size and scope of operations.

For most people, the growth lure is powerful. In physical terms this means more space, manpower, brainpower, and money.
To achieve this, capital is the lifeblood of a business. If it grows thin, the company suffers. If you want to grow -- do you have the skills in your organization? Here is where the shift from the multi-hatted owner to a professional staff of middle managers must occur, which increases the break-even point severely.
Your company is strong — good leadership, strong track record, positive image in the industry, everything going for it. Now, debt or capital? And who should decide this? What kind of debt? And what kind of capital? At what costs?
Go to the experts here. These are extremely delicate decisions with long-range effects on your company. Substantial money (which is needed to fuel long-term explosive growth) won't be generated by amateur efforts, and a poor choice of financing a vehicle for your company can destroy even the most profitable operation.

6. Prosperity
Only a small percentage of businesses ever get this far -- the company is strong, growing rapidly, and promising to become even bigger.
Complacency suddenly appears as a hazard. Beware of the tendency to sit back, relax, and spend carelessly. Prosperity, at least in its initial stages, should be carefully nurtured. Steady growth does not mean that you don't need budgets. You know how hard you've worked to get this far — keep a watchful eye on the business and the assets you built.
Less dramatic but far more common is the sudden growth in supporting personnel as a business gets larger. Staffs that have grown at a rapid rate tend to have some internal problems. Talents adequate for running a small business may be out of place in a larger outfit, and some hard choices may have to be made.

7. Succession
Who do you have groomed to take over your company?
Stepping down may be the most difficult thing you will ever have to do, but it is inevitable at some point. Especially for any company that outlives its founders. The skills needed to stabilize a company have to be replenished periodically, if only to avoid stagnation and boredom. But more important than that is the need to assure an orderly transition of power.
While some people recommend grooming a replacement, it is better to ask your board for help. We all have our prejudices and weaknesses, and they may interfere with our choices. Better yet, ask some of your professional advisors for the kind of person who should run the business at this stage. Succession cannot be avoided, except by closing your business. If you do not make a wise decision on how to arrange for an orderly transfer of management, you will find that the decision will be made for you.

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