Small Business Cycle

The Lifecycle of a Small Business: The Complete Roadmap

Publish Date: 29 Jun 2021

Whether it is your 1st or 10th... Starting a business is always exciting. However, as exciting as it is, it can also be daunting, scary, and unforgiving. Before you start your small business, you should have a few guidelines set out, and no, we are not just talking about your business plan. You should know what the five phases of every small business are.

The five phases are Creation  >>  Growth  >>  Expansion  >>  Maturity  >>  Decline. It can be a long and arduous process to work your way through the stages. But... once you hit the final phase, you need to reinvent yourself or release a new product so that you can restart the process, except this time with the foundation of your brand, knowledge and resources.

It may seem pretty simple when you read out the first five phases of every small business. However, if you plan to start a business, you need to do yourself a favour and read through what you can expect during these five phases. The main objective from this article will be to inform you how to deal with the different phases, and what is expected during the transition. Hopefully, by the end of this article, you will know what you are getting yourself into.

The 5 Phases of a Small Business

When you speak in general terms, there are five phases of every small business. These phases should be used as a guideline because you cannot always predict the future and how your business will perform in a market that might become more competitive in a year or two after starting your journey into small business.

For this section, we will try and assume that you have already gone through the preparation and research prior to launch, so that when you start a small business, you can hit the ground running. With that out of the way, here are the five phases that every business goes through in its life cycle.

Business Cycle

Phase #1: Creation

To start the creation phase of small business, you must realise your initial goals:

  • Prepare & Research
  • Register with all the Required Authorities & Tax Agencies
  • Create all the necessary start up materials (Website, Marketing Info, Admin Processes, Business Plan etc)
  • Get your 1st Client!

 

The creation of your business is your first step, and it takes a lot of patience and dedication to prepare. During the creation of your business, this is where all the hard work you have put into drawing up your business plan, creating a product or service, is put to the test.

You must know that just because you sign a few documents and register your business does not mean your business has been created. Getting your first clients is what I count as starting your business.

The creation phase of your business depends on you in terms of how long it will last. Some people say that it lasts a few weeks or months, but in my personal experience, the creation phase of a business takes up to 2 years as you want to properly establish yourself with the community or group you intend to do business with. This does not mean you'll be broke for 2 years, this is just how long it may take you to break into the wider market.

The creation of a small business can be challenging, but mostly it will test your patience. You could have weeks where you feel nothing has been achieved... But rest assured, you have completed more than you know!

Many small businesses bleed money at this phase because everything they do and all the profits they make go straight into the business. Also, you will find you don't make that much profit. Remember, during the 1st year, your main goal is getting clients. 

While you are getting clients, you should be making connections with people you need and want for your business to grow. Remember the saying 'it takes a village?' Well... It couldn't be more true for small business, everyone needs a network to bounce ideas off of, or even ask for inspiration from.

We run our own little community over on YouTube & Facebook via our sister company PainFreeInvesting.com. Check them out, I'm always happy to answer questions, as is everyone else.

Phase #2: Growth

Once you have gone through your creation phase, you should have established yourself in such a way that not only do you get new clients, but you also get repeat clients. To add to that, you as a small business must never forget that keeping clients is often more important than gaining new ones. Doing this is the best way of building "Brand Loyalty."

However, if you can successfully hold on to your existing clients while finding new ones, that is considered growth. It is almost impossible to tell you how long the growth phase will last because your company could constantly grow. It could also stagnate for a few months before shooting up again. It is hard to say. The most important thing is that you continue to provide the best service or product for your customers. Don't reduce quality for quantity or output.

The growth phase is often the most difficult phase of them all. It is a phase where you are kind of established but still fragile. During the growth phase, you will probably work harder than you have ever worked in your life. People often become overwhelmed with work, or they are disappointed by the lack of it... Your mindset is everything in this phase, growing a business requires persistence and motivation, but also a few breaks along the way.

The graph below will help you understand how your profit and cash positions change throughout the phases. As you can see, the growth phase is where you establish your reserves.

Phase #3: Expansion

Once your small business starts growing, you will need to start expanding your operations. You should still be experiencing your growth phase while in your expansion phase. What exactly do we mean by this "expansion?" Let's use a few examples.

If you own a construction business, you might have to buy new vehicles, hire new staff, and buy new tools. If you do not do this, you might be losing out on potential business.

If you own a small restaurant, you might have to expand on your current premises, hire more waiting staff, kitchen staff, and possibly need new tables, chairs, and more.

If you run a small digital marketing business from your home, you might have to buy new laptops, desktops, stationery and perhaps even hire one or two new staff members to help you keep up with your growth.

If you sell products, you might have to find a manufacturer who can keep up with your demand. If that is not an issue, you might still have to find different ways of distributing larger quantities of your product.

This is what we mean when we say you will have to expand your company. There are a lot of ways you can do this.

Basically, for growth to continue, you need to constantly expand. Develop new revenue streams, expand your target market, increase you capacity for new work. However, doing these things requires either more time, or more resources, you can have both but it can become very expensive. Which is why this phase either comes with more employees, so you can efficiently use your time on expanding the business, or it comes with more expensive equipment which can be automatically ran or that produces more output.

You may see your cash reserve become stagnant in this phase as you are spending more and more of your profit on the continuation of growth. All is revealed in the graph below.

Phase #4: Maturity

Right, what does the maturity stage mean, and how does a business mature? Does it mean you make decisions that are more rational and less impulsive than you would have when you were starting? Maybe, but not really.

When do you enter the maturity phase? Your small business should have the financial resources available for you to start planning for the next phase, which we will get into. 

During the maturity phase, you might not be trying to add additional staff to the business; that should be done during your expanding phase. However, you could start looking at replacing old staff members who might leave the company with more qualified employees. As this stage is all about solidifying your position in the marketplace as a highly regarded brand.

Another alternative is to invest in the current employees you have by sending them on a course that might make them better at their jobs even if they were outstanding employees.

The main thing to take from this stage is your time... You as the business owner, now needs to focus on the growth and efficiency of your business, and leave the day to day work to members of staff. You should only get involved in the biggest projects, or in new areas of service that you provide. Your main focus is to develop a self sustaining corporation that doesn't require you to hold anyones hand.

At this phase, you could also start looking at improving your assets to streamline the business.

A lot of people have a lot of definitions of what the maturity phase includes. For some, it means making sure that your business is now as efficient as possible to handle the growth that you have experienced. I think this is a great time to develop new goals and move your role in the business to more of an administrative one. It also means you should set yourself up to handle what comes in the future, and let's get into that now.

Small Business Cycle

Now to the graph...

You can see the 4 main stages leading to the business decline, which we will come onto in a minute. But what people fail to do in the maturity stage is what sets them up for failure.

Every business needs to innovate and pivot to stay alive. Amazon at one point only sold books, now they are the worlds largest online retailer. Apple only sold computer systems, now they sell mobile phones, tablets, laptops and TV's. What I'm trying to touch on is, that every marketplace changes over time, and you need to move with it no matter how small or big your business is.

The maturity phase should be the most thought intensive phase, because you should spend most of your time thinking of new revenue streams, new ways to get customers, new services to provide, and new efficiencies to make the already established sectors work better and cheaper.

The next section is the decline phase, but I will mostly point you in directions that will help you avoid it.

Phase #5: Decline or Adapt

No small business can last without the ability to adapt. There might not be a demand for your product at this phase anymore, or there will be competitors trying to steal clients away from you.

When you reach the declining phase, the only thing to do is reinvent yourself or expand your business operations by starting a new venture. However, adapting and reinventing yourself is probably the best option.

When you start seeing profit margins become thinner and the cash is becoming less, you need to think of new ways of bringing in new clients or new products. 

Remember, reinventing your business does not mean starting over. You will be using the foundation of your brand name, your old products, your customer loyalty, and your financial resources.

While it is called the decline phase, you can use it as an opportunity to springboard your business into a new level instead of sitting back and watching your competitors take your business and your clients.

Revisit the maturity stage of your business and figure out what you've done to improve your business. You need to continue to innovate in the world of small business as there is always someone else around the corner.

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