Growth is the lifeblood of any business. A leader’s job is to take that business to bigger and better places. The dilemma lies in how to get there. You’re often faced with a simple choice: keep growing the existing products or services or expand into new arenas of business. This decision has been at the core of strategy for many years and continues to be a critical question for any serious business manager.
To make an effective decision about whether to keep growing your core or expand into new areas, it is useful to understand the phases of a business lifecycle and to appreciate the nature of the managerial challenges in each phase.
It is also important to be able to pinpoint the phase of the cycle your business is in and to know what your options are for growing it into the next phase.
The Phases of the Business Lifecycle
For many years academics and consultants have recognised that a business moves through different phases of development as it evolves and grows. The sequence and nature of each stage of development tends to be fairly predictable and each is characterised by specific organisational activities, structures and challenges. The movement through different phases of development is commonly referred to as a business lifecycle. As a person moves from infancy into childhood, then into adolescence and adulthood before approaching old age, so a business also moves through different phases of development as it starts up, grows and matures.
|Stage 1||Stage 2||Stage 3|
|Initiation||Growth (early and later growth)||Maturity|
|Organisational age and size||Young and small||Growing larger||Large and older|
|Type of structure||No formal structure||Centralised formal
|Communication and planning||Informal
Rules and regulations
|Method of decision making||Individual judgement
|Make up of top management staff||Generalists||Specialists||Strategists
|Organisational growth rate||Inconsistent but improving||Rapid positive growth||Growth slowing or stagnant|
Key management challenges in different phases of a business lifecycle
The key issues and challenges vary for managers leading businesses in different stages of the lifecycle. Managers in the initiation phase face the challenge of creating a new product or service, then getting that product or service to market and having people test that product or service so that consistent market demand is created.
They often operate under high levels of uncertainty and ambiguity and sometimes need to make snap decisions with inadequate information. During this phase of the lifecycle the business generates very little revenue and managers need to rely on external capital or bootstrapping to survive. Operating in a resource constrained environment means that people often need to take on multiple roles and fulfil a diverse set of functions within the business.
Managers of a business in the early growth phase of development face the challenge of establishing an infrastructure within the business to serve a growing customer base. As the product or service becomes more popular, the leader in the organisation needs to establish systems and processes to consistently deliver a high-quality offering. In this phase, managers need to manage cash carefully because a growing business tends to absorb more money than it generates.
Managers in the later growth phase of a business face the challenge of keeping the growth of the business going. It is difficult for a manager to know exactly how big a business can become (i.e. when will the market become saturated with the company’s product or service?). Managers therefore face the critical decision of whether to invest further in selling the current product or service to the existing market, expand into new markets with the existing product or service, or consider offering new products or services that leverage the skills and competencies developed in the business.
Managers of a business in the mature phase of the lifecycle face the challenge of reinvention. The phase that follows maturity is decline, during which the demand for a product or service drops off rapidly. In order to avoid falling prey to decline, a manager leading a business in the mature phase needs to look for new streams of revenue and new opportunities that will launch the business onto a new growth curve.
This creates a challenge of balance. Managers in mature operations cannot neglect the existing lines of business; they need to continue to deliver these offerings as they are a source of cash for a mature operation. But while they maximise returns on existing offerings they need to invest in new products or new markets that will create growth in the future.
Analysing where your business is in the lifecycle
This is key to using the business lifecycle concept as a strategic tool. By recognising which phase of the lifecycle your business falls into you will be able to make sense of your current challenges and predict some of the issues that are likely to be problematic as you keep striving for growth in the business. In addition to dealing with challenges, the business lifecycle can be used as a tool to assist a management team in making a decision about whether to keep growing their core or expand into new business.
There are a number of clues that can help you identify where your business is in its lifecycle. The most obvious set of clues relate to sales growth and time. If your business is relatively young and sales growth is slow, it is likely that you are in the early initiation stage. As you sense sales are beginning to pick up and new customers are emerging to buy your product or service, it is likely that you are moving into the later stages of the initiation. However, in the initiation phase growth may be irregular and sporadic, meaning that you might have a few months of decent growth followed by a month or two of flat or declining sales. As you move into the early growth phase of the business lifecycle, sales growth will become more consistent. You can generally expect ongoing increases of at least 5% month-on-month in this phase of the business lifecycle. During the early growth phase you are also likely to feel more and more removed from your customer.
As your customer base expands, it is increasingly difficult to feel close to the customer and the focus of the business tends to shift from external to internal as you struggle to deliver on the increased demand. There will come a time when sales growth is not achieved as easily as it once was. You are likely to invest in increased marketing and promotional activities and although these activities yield positive results, it will start to cost more to sustain the growth of the business. At this stage you will begin to get a sense that you are working harder and harder for the growth you are generating. You are moving into the later growth stage of the business.
When growth begins to slow it is a sure sign that the business lifecycle is reaching maturity. It is not always easy to recognise when the business is reaching a stage of true maturity as many other factors can cause growth to slow down temporarily. One of the critical issues for a manager is to assess when true maturity in a market is being reached versus a temporary slowdown caused by an external factor. The mature stage hits when, despite what you do in the existing market, sales don’t grow significantly.
Options for growth
The growth options and strategic focus for a management team will be different depending on the stage of the business lifecycle. In the initiation phase, the focus should be on the core activity of the enterprise and on looking for ways to adapt and tweak the business model and customer offering around that core. Many entrepreneurs are tempted by the multitude of opportunities that appear to cross their paths in this phase of the business. It is foolish to go after any of these opportunities unless they are core to what you set out to do. Being successful as an entrepreneur takes hard work, dedication and focus and it is tough to be dedicated and focused if you are attending to too many things at once. Therefore, the strategic focus in the initiation phase should be to attend to and adapt around the core.
In the early growth phase, the focus of the organisation tends to shift towards delivery. Because sales are growing significantly, it is challenging for the internal operations to keep up. Managers therefore need to focus on building and refining systems so that the growth can continue without service being compromised.
In the later growth phase, the leaders of the organisation should begin to explore options for taking the existing product or service to new markets or diversifying into new lines of business that can be sold to the existing market. Factors that should be considered in deciding whether to take existing products or services to new markets or to diversify include the following:
1. Regulatory or contractual factors. Regulation, legislation or contractual agreements may prevent you from taking your business into new markets. For example, you may have licensed a product for a particular region and be prohibited by the licence agreement from taking the product to new territories. Another practical example relates to many of South Africa’s most successful enterprises, such as SAB, Barloworld and Anglo American; they were restricted from moving into new overseas territories in the apartheid years due to sanctions. As a result, they had no choice but to diversify to grow their businesses.
2. Core competence. Core competence is an activity that a company can do really well. It is usually developed through years of experience in a particular area. If a business is able to clearly recognise its areas of core competence, it may use that as a basis for deciding whether to diversify in existing markets or to move its existing products or services into new markets. This is demonstrated in the South African banking sector. FirstRand Bank’s core competence is in growing and managing a diverse range of innovative organisations each with its own brand and unique culture. The bank has chosen to focus on diversifying into new services in the local market, for example, Outsurance, Momentum, Discovery, Futurefin and Standard Bank, on the other hand, recognise their core competence as managing risk in less stable emerging market economies. They have chosen to take their existing brands and businesses into new markets such as Turkey, Russia and Argentina.
3. Networks and relationships. Networks and relationships are a source of strategic opportunity. Therefore, it is often wise for a business to look for growth in areas where it has developed relationships or strong networks that could open doors and facilitate linkages. This could work in either direction. A business that has strong relationships with companies or people in the same industry in a new market may be better off growing its business in that market, whereas a business with a diverse set of good relationships across multiple industries in the existing market may be better off staying in the existing market and diversifying its business.
4. Market factors. Market gaps and market need could prove to be a key factor in deciding whether to expand into new markets or diversify in existing markets. If there is an unclear need or desire for the business’s product or service in potential new markets, managers may be better off taking a decision to diversify. Conversely, strong market need in new markets creates an incentive to expand into new markets. For example, MTN’s recognition of a deep need for wireless telephony in Africa created an incentive for the company to take its existing offering into new African markets.
Avoiding Errors In Driving Growth
If one understands the concept of a business lifecycle, it is possible to avoid some of the typical errors that entrepreneurs and business managers make in trying to grow a business.
Such errors include the following:
1. Being distracted in the initiation phase.
The initiation phase is a critical time for a venture. It requires focus and discipline to get a new product or service to market. Because entrepreneurs are endowed with freedom and choice they may get distracted by a multitude of opportunities around them in the initiation phase and therefore fail to deliver the core product or service they set out to create.
2. Expecting the growth phase to continue into perpetuity.
The growth phase is a happy time in a business. It is exciting and fun when the market buys your product or service in large quantities. Yet there is the risk of creating an illusion that the growth will last forever and failing to explore opportunities for market or product diversification in the later stages of the growth phase.
3. Not investing wisely in new opportunities as the existing business reaches maturity.
In the maturity phase of the business lifecycle, a business typically generates healthy amounts of cash. No further investments are required to keep the existing business running and the business has a high, but flat volume of sales. It is tempting just to keep generating cash in this phase and not worry about investing in the future.
Yet it is important to use much of that cash to develop new products or new markets so that the business has a growth curve in the future. The challenge for managers is to stay disciplined and focused in the early phases of a business’s lifecycle and to actively look for expansion opportunities in new markets or through developing new products or services in the later phases of the business lifecycle.
Why Growth Could Be The Worst Thing To Happen To Your Business
Focus on the next customer and the next level will take care of itself.
We’re constantly fed this idea that if our business isn’t growing, it’s failing. Fortunately, like anything in business, one rule doesn’t always apply.
This is where business advice and reputable studies differ. Rapid or unchecked growth can end up being the downfall of a business, instead of its guiding light. It’s not that growth is bad or should be avoided at all costs, it’s just that it should be questioned before proceeding.
Growing our businesses could be the worst decision we make for the longevity of them. Let’s look at five reasons why growth may not make sense for our companies.
As Dean Becker, CEO of Adaptiv Learning Systems, told me, the amount of resilience a person has is the most important part of their ability to succeed – and accounts for more than even their training, education or experience.
Luckily, our ability to be resilient is not just an innate trait we’re either born with or not. Being resilient requires that we focus on and work towards developing three traits:
- Having a greater sense of purpose for why we’re doing what we’re doing, even if things go wrong or aren’t currently working out.
- Recognising that we cannot control everything, and recognising accepting reality for what it is – something we can steer but not fully be command of at all times.
- Developing an ability to adapt as things change, so we can pivot with differences in the market, in customer requests and shifts in technology.
Being resilient as a business is much harder for a large organisation because there are simply too many resources at play, too many moving parts and too many shareholders making decisions to move quickly enough to adapt.
Smaller businesses, at their core, have less resources, less moving parts and less decisions makers, and can therefore be nimble enough to move with changes that could negatively affect a company.
Companies of one are becoming more popular because people want more control and autonomy in their lives, especially when it comes to their careers. This is why so many people are choosing this path: staying small (or even working for ourselves) lets us control our own life and job.
Smaller companies also set up Results-Only Work Environments (ROWEs), in which employees don’t have set schedules, all meetings are optional, and it’s entirely up to employees how they spend their time working. They can choose to work from home, they can work from 2:00 AM to 6:00 AM if it suits them, and they can sculpt their job however they want, as long as the results benefit the company as a whole. Cali Ressler and Jody Thompson have defined and then studied ROWE implementations for more than a decade, and they found that in these kinds of autonomous environments, productivity goes up, employee satisfaction goes up, and turnover goes down.
Companies like Basecamp have a four-day workweek during the summer (no work on Fridays) because it helps them prioritise what’s important to work on and what they can let go of. The key for their employees is to figure out how to work smarter to accomplish tasks with the time they’ve got, not just harder. Smaller companies are afforded the same opportunity. We can question our systems, processes and structure to become more efficient and to achieve more with the same number of employees and in less time.
Speed is not merely about working faster. It’s about figuring out the best way to accomplish a task with new and efficient methods. This is the concept at work in the ROWE method: Employees no longer have to work a set amount of time, but are rewarded when they finish their tasks faster. By being smarter at getting more work done faster, we can create a more flexible schedule that fits work into our life in better ways.
Another aspect of speed in a company that questions growth is the ability to pivot quickly when a customer base or market change. As a solo worker or small company, this can be much easier to do, because we have less infrastructure to cut through.
Typically, as companies gain success or traction, they grow by taking on additional complexities. These complexities can often detract from a business’s original or primary focus, resulting in more costs and the investment of more time and money.
For a company at any size, simple rules, meaning simple processes and simple solutions typically win. Adding complexity is almost always well intentioned, especially at large corporations, where, as complicated processes are added to other complicated processes and systems, accomplishing any task requires more and more work on the job and not toward finishing the task itself. It can be a slippery slope. One step is added to a process without increasing its complexity too much, but then, after a few years of adding steps here and there, a task that once took a handful of steps now requires sign-off by six department heads, a legal review and a dozen or more meetings with stakeholders.
The current business paradigm teaches us that to make a lot of money or to achieve lasting success, we need to scale our businesses – as if larger businesses are less prone to fail or to become unprofitable. Before our imagined businesses are even off the ground, we need to create them with the sole purpose of growth – and possibly eventual sale for a huge profit. This paradigm, however, isn’t rooted in truth, nor does it hold up against critical investigation.
Although contrary to most popular business advice, growth as a main goal or performance metric can actually be quite dangerous to the long-term operation of a business. In 2012, researchers from the Startup Genome Project looked at data from more than 3,200 high growth startups and found that more than 70 percent scaled prematurely through rapid growth and ended up failing – closing shop, selling off the business for cheap or having massive layoffs – because of it. The findings in this study where echoed in a similar study done by the Kauffman Foundation, where they found that 5 to 8 years after starting, more than two-thirds of high growth companies had to shut down due to the same reasons as the first study.
With these reasons in place, it may make sense to not grow and instead focus on where our business can do things better – instead of just in a bigger way. Let’s start to consider the idea that perhaps the byproduct of business success isn’t always growth and scale, maybe it’s just being able to have the freedom to make decisions that are best suited for the longevity of our business, the happiness of our customers and what makes the most sense to improving our bottom line.
Staying small doesn’t have to be a stepping-stone to something else, or the result of a business failure – rather, it can be an end goal or a smart long-term strategy. For businesses that question growth using the Company of One mindset, instead of assuming growth is always beneficial, we can think about what we can do to make our businesses better instead of just bigger.
This article was originally posted here on Entrepreneur.com.
Local Study Reveals Formalized Boards Drive Growth
Sirdar Group study outlines the key elements of high performance boards in South Africa driving SME growth.
One of the key differentiators between high-growth companies and listed businesses, and SMEs that do not grow beyond a certain ceiling, is whether or not the business has a formalized board structure in place.
Sirdar Group, Africa’s leading educator, appointer and guide to high-performance boards of privately-held companies and family businesses, has long held the belief that in order to truly scale, businesses need high-performance boards.
A new study conducted by Sirdar Group has focused on the value that high-performance boards offer companies in a bid to encourage SMEs and family-run businesses to follow best-practice in order to realise their growth potential.
Carl Bates, founder and CEO of Sirdar Group unpacks the key lessons from the study, and how SMEs can use these to drive growth.
1. What value do independent directors bring to boards? Why is this particularly important for privately-held companies and family businesses?
Ensuring you have an independent board member on your board is tantamount to ensuring your company makes use of an independent auditor. It’s imperative to have an independent perspective of the current performance, strategic direction and operational strategies of the business, not one that could be swayed by power, being a family member, job status or seniority on the board.
Let’s define what independent means in this scenario. An independent board member is not a director, shareholder, or employee, nor do they have any capital invested in the business. They are essentially paid consultants that are intellectually involved in the success and growth of the business.
Based on our recent survey, statistically it is shown that boards that comprise of at least one independent board member outperform those that do not have any. It therefore goes without saying that the more independent board members on a board, the higher the impact the board will have on the company performance.
When asked about the various directors and the value they add to the board, Independent Board Members were the least likely to be removed as the contribution they add is vital. Along with higher performance, the survey showed that boards with Independent Board members are more likely to implement a performance evaluation process, which is strongly recommended in most African governance codes.
2. Boards with independent directors are more likely to result in improved business results. Why is this the case?
Boards with independent directors tend to be those who have embraced the value of a third-party independent perspective. Whether they be family-owned or privately-held, they recognize the fact that they hold a shareholding in the company does not mean they have all the answers.
In turn, independent directors tend to have engaged in understanding what a high-performance board is, more so than where the only directors are also shareholders (and therefore not independent). Independent directors therefore understand the value of self-evaluation and taking time to consider how the board is actually performing.
The old adage ‘you manage what you measure’ comes to mind here. If a board is not measuring its own performance, what is its driver to improve? An annual board evaluation ensures this focus on a board being, as we would say at the Sirdar Group, ‘exceptionally critical’ of its own performance.
3. Do strong performing boards lead to businesses that perform well? Why?
Both the research and our own anecdotal evidence suggests that businesses with high-performance boards performance better. Internationally, the research also reinforces this. First, it is about understanding that a high-performance board is not one that is driven by compliance to codes and standards, it is one driven by ensuring increased performance for shareholders and other stakeholders. An effective methodology enables this to happen.
The reason businesses with a high-performance board perform better, in our view, is because they are being truly challenged by an independent party about the performance of the company. People who are removed enough to stay objective, yet involved enough to understand the business and its true indicators of performance, can add huge value to high-level strategic discussions and decisions.
4. Why did you conduct research into non-listed African board practices, particularly relating to privately-held company and family business board fees?
Remuneration and performance of boards of directors has been the subject of extensive conceptualisation and empirical research over many years. Internationally, most of this research has dealt with European and American-based companies. Alternatively, and particularly in Africa, it has focused on listed companies and public entities. We decided to fill this gap. Specifically, we want to support the achievement of meaningful economic impact by companies across the continent by supporting their ability to have truly high-performance boards. This research is one aspect of enabling this to happen.
How Matt Brown Quadrupled His Business By Becoming A Niche Player
Matt Brown turned down a high-six figure deal the week he made the decision to become a niche player in his industry. Here’s why you need to learn to say no if you really want to grow.
- Player: Matt Brown
- Company: Digital Kungfu
- What they do: Storytelling production company for tech businesses
- Launched: 2015
- Visit: digitalkungfu.co.za
In today’s highly competitive B2B landscape, growing market share requires a business to be a low-cost provider, the differentiated option, or operating in a niche market.
For many businesses, low-cost is not an option, either because it’s difficult to maintain value while driving price down, or because if you’re selling on price, you will always lose to a provider who comes in at a lower price point. It’s a race to the bottom.
You therefore need to differentiate or dominate a niche. Matt Brown, founder of Digital Kungfu, a storytelling production company, has focused on doing both. The business is focusing exclusively on helping tech companies with their marketing needs. The week Matt and his team made this decision, they needed to turn down a high six-figure deal with a company that didn’t align with their chosen niche target market. It was a painful decision, but it’s paid off. Within six months Digital Kungfu had quadrupled in size.
Entrepreneur chatted to Matt about making the decision to become a niche player, knowing when to say no, and the art of developing differentiated products.
1. What is the business case for focusing on a niche instead of a broader – but bigger – market?
You can’t be everything to everyone. If you try, you’ll just end up being invisible anyway. Take the Cloud services space for example. There are thousands of software resellers offering similar (or even the same) products to SMEs. Everyone is flooding the market with competing messages, trying to show their target audience the value of their product or service, and why customers should buy from them instead of their competitors.
The only way to combat this flood of information that your customers are receiving – and to differentiate yourself – is through positioning. Positioning is all about framing your scarcity and dictating your value.
People want to know that you understand their pain. It builds trust. Focusing on one sector helps you to become laser-focused on the problems that players in that sector face. When you become a niche provider, you’re immersed in your customer’s industry, needs, problems and solutions. You understand their problem best, and they accredit you with the solution.
2. Why does saying no to some things open new opportunities in others?
For three years Digital Kungfu was positioned as a storytelling production company for any client who wanted help telling their brand or product stories to their customers. When we looked at our client base though, we realised that over 90% of our portfolio was technology companies.
There was clearly something we were doing that aligned with technology clients, but we hadn’t made the decision to focus exclusively on this sector, which meant we were still trying to be everything to everybody. Our messaging and product offerings weren’t clear as a result.
The realisation that we were predominantly focused on tech companies made us step back and evaluate why. What made us different in this space? We started asking the companies we worked with and discovered that it was our agile approach to delivering branded content solutions that was really resonating with them. Our storytelling, branded content and agile marketing approach aligns extremely well with the way tech companies work. We’re fast, we’re affordable and we’re effective. In the technology space, speed is everything. Once I understood that, it made sense to focus all of our energy on this one sector. Yes, it means saying no to a lot of other sectors, but it also opens the opportunity to dominate this sector.
We made the decision that if we can’t own a market or an idea, we won’t do it. By focusing on tech clients, we’re becoming intimately involved in their business challenges, needs, language and how the sector as a whole works. That expertise is driving better solutions and engagement from our side, which only serves to add greater value to our clients.
3. You had to turn down a six-figure deal once you made this decision. How did you do it?
It wasn’t easy. Saying no to money when that is what your business does is incredibly difficult. Within a week of making the decision to niche down, we had to turn down a high six-figure deal with South Africa’s largest SME investment fund. We knew that if we didn’t make that choice however, that we would never be able to focus on our chosen niche. We wanted to go after a much bigger pie, and that begins with the right focus. It’s not what you say yes to that makes your business grow – in many cases it’s what you say no to.
4. Was there any lesson or advice that influenced the decision to become a niche player?
The book Play Bigger by Christopher Lockhead has been instrumental in shaping the way we approach category design thinking for our technology clients. I realised that we were utilising this methodology for our clients, but we weren’t following it ourselves at Digital Kungfu.
The theory behind category design is that companies that own their categories (the Category Kings), don’t sell better than their competitors – they sell different by introducing the world to a new category of product or service.
Uber, Amazon Web Services (AWS) and Salesforce all did this. They own the markets that they play in because they marketed a different problem that the market didn’t know it had yet and when they did, they were accredited with the solution to the problem. They then gobbled up all the economics in their category, instead of feeding off the scraps of available market potential. To put this in perspective, Uber is valued at $120 billion, an eight times high valuation than their nearest competitor, Lyft which is valued at $15 billion.
I was already a big believer in this methodology; we just needed to implement it in our own business model and strategy. By focusing exclusively on a category, defining its problems and delivering a solution that is tailor-made for technology companies specifically, we are aiming to own the economics in our market.
I’ve received validation for our strategy from Christopher himself, who I interviewed on the Matt Brown Show. He literally wrote the book (Niche Down) about how to become legendary by being different. Most of us are tricked into believing that achieving personal and professional success means fitting in. What it really takes is the courage to stand out.
Choosing to become a niche player can be daunting – particularly if you’re an entrepreneurial business that has always said yes to everything – but when you become the niche player, you also become the expert in your category, and that will drive growth.
Inside B2B Lead Generation 2019 is a white paper and interactive webinar researched and produced by Digital Kungfu, a purpose-built lead generation company for tech businesses.
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