Lately, I’ve been led to thinking about the various stages of a business. A current assignment triggered the need to articulate the stages, what they mean to the owner, and what comes next.
Let’s label them. The first stage is simply a beginning. For convenience sake, let’s call it Stage 0: The stage where you gather your gear to start. Often, the gear is a little money and a desire to be on your own and pursue your passion. Often, the new owner really doesn’t know what gear to gather. Trial and error is a mainstay of this stage.
Stage 1 is where you build your base. You establish a business, get a few customers and begin the push toward profitability. Most business owners lack a financial background, and this can make things especially difficult because some basic financial systems must be put in place if there is to be a chance to succeed. Needed systems include sales planning, cash-flow planning and control of spending among others.
Many entrepreneurs stay in this stage for a long time, some stay forever. I label this the entrepreneurial trap. Perhaps the primary outward sign of this trap is the classic situation of hard work for a modest income. Although the owner doesn’t realize it, the lack of financial understanding of business and financial systems is taking its toll.
To escape the entrepreneurial trap requires advancement to stage 2, which I describe as escaping the entrepreneurial trap. The essence of stage 2 is implementing financial, marketing and tax processes or habits. These habits are financial systems and tools that provide information and guidance allowing strategic planning. This is the beginning of taking control, of the owner beginning to run the business instead of the business running the owner.
Unfortunately, businesses trying to escape the entrepreneurial trap continue to follow the keystone of stage 1, working hard. The answer to all business problems – work harder. Need more sales – work harder. Need more production – work harder. At some point it is no longer possible to work harder, and burnout looms.
The habits and tools must be phased in over time if the stage 2 business is to thrive, not just survive. If the owner matures in financial management, the future will follow this route. The early stage 2 business is reaching profitability. It is proving its business concept.
The middle stage 2 entrepreneur is putting core systems in place. These include setting specific financial goals, specific as to amount and timing. The correlation of marketing and sale goals with financial goals has begun. Sales are in mid-six figures and profitability is growing.
The advanced stage 2 business is adding a management team, increasing capacity and getting ready to scale.
While all this is happening, the owner is making a decent salary while working decent hours. A vacation, perhaps several, is taken every year.
Bowser@BusinessValueInsights.com. Dan Bowser is president of Value Insights, Inc. of Durango, Chandler, Arizona and Summerville, Pennsylvania.