Why is the business lifecycle important?
On my blog site I have focused on six specific stages in the business lifecycle. These are important because they are all very different and need different skills sets and knowledge to execute successfully.
Using the Six Minute Strategist method, I have identified Six facets to the Business Life Cycle to try to look at its complexity from different perspectives. The challenges that these begin to unearth is the reason I believe that Entrepreneurs need all the help they can get and that my 20+ years of corporate advisory experience which I am sharing on this site, can bring very real benefits to you.
1. The Human Analogy – this encourages you to consider the different challenges individuals face at different stages in their personal lives and the difficulties they create for others.
- Gestation and Birth
2. Business Evolution – this requires project management and planning to execute a business plan. As they say in the military arena, no plan ever survives contact with the enemy and the flexibility to adapt and evolve the strategy while not losing sight of the key objective can be critical to achieving success
- Development and Launch
- Growth to Maturity
3. Finance – the financial characteristics of the business change too. Simply stated the Revenues and Profits (the lifeblood of the project) vary as the business develops. The management of the working capital and cash are vital. I have heard it said that any entrepreneur worth his salt knows his opening cash position in the morning and the closing position at night (well his CFO should know).
- No Costs
- Loss to Maximum Losses
- Shrinking Losses
- Growing Profits
- Stable Profits
- Falling Profits
4. Investment – this leads on from the previous point. If you are burning cash you need to raise capital and if you are generating it, you need to make fine judgements about whether and how to reinvest it or whether to distribute it to shareholders. This impacts the condition of the balance sheet and the management of financial leverage within a business.
- Slow Start
- Growing to Maximum Cash Burn
- Working Capital
- Further Investment
- Cost Cutting
- Cash Harvesting
5. Investors – Sources of capital evolve as the business evolves. This impacts not just the availability of finance but critically the impact on the ownership of the business. Equity investors inevitably dilute the proportion of the company owned by the founders and the management of this process is one of the cornerstone skills of successful enterpreneurs.
- Government Grants/Bootstrapping
- Friends, Family and Fools
- Venture Capitalists
- Private Equity and Banks
- Stock Markets
6. Personality – let us not ignore the importance of personality in this. By definition Entrepreneurs are more prepared to take (calculated) risks in business but as the business evolves, they need to adjust their approach and often bring in a skilled management team who can complete the skill sets. I am not talking at the granularity of the Belbin personality types but the different approaches needed to manage the business as the CEO.
- Bean Counters
These issues are summarised in the Magic Hexagons illustrated below:
Time waits for No Man
As an Entrepreneur you will have a view on the time you want to spend developing the business before realising the value you have created with an exit. A typical five year timetable is not unusual but when you start to think about the complexity of the issues involved it feels like a roller coaster ride. Consider the typical time taken for various activities
- Any major funding round – 3 to 6 months
- M&A Project 4 to 9 months
- Building a Trading Record – 2-3 years
- IPO – 6 to 12 months
- Trade Sale – 3 to Six Months
- Running the business – FULL TIME !
All this brings into focus the fundamental purpose of value maximisation for shareholders, particularly the company founders who came up with the idea and took all the risk in the first place. At each stage of this journey, decisions will need to be made which affect this outcome and it is the management of that process that will ultimately decide whether the project was a financial triumph or a fiasco. As they say, timing is everything!
I hope this has helped you to start considering how to address the complexity of the challenges that face an Entrepreneur. The secret to success I am sure is in anticipation and planning. Looking ahead to see what needs to be done; tomorrow, next week, next month and next year and trying to ensure that you are well informed enough to have a plan for what you anticipate (and several alternative plans for a range of different scenarios as well)
If you like this please share it and if you have any comments please leave them on the Blog or email me at jbdcolley[at]aol[dot]com or connect with me on Twitter (@jbdcolley).