Working on your business versus Working in your business

There comes a point in the lifecycle of a business when the proprietor/s know that unless things change the business will start going backwards, or, at the very least it will stop growing.

These moments of realisation often coincide with thoughts that the business controls the life of the proprietors; that personal lifestyle choices are being compromised; and that sometimes, it’s just all too much worry and stress.

Some business commentators liken these scenarios to situations where there is too much emphasis on working in the business, while little attention is paid to working on the business; that is, there is little or no heed to strategic planning.

In fact, these change points are a regular feature in a growing business. The trick is to identify them and act appropriately.  But what constitutes “appropriate action”? The answer to that question is to first identify what type of change is taking place.

Businesses cycle through the process of Birth, Growth, Maturity and Decline. During the first two stages of the business life cycle, the positive, growth forces outweigh negative, eroding forces.

Thus, a young business is often able to operate effectively and profitably, albeit inefficiently. However, during the consolidation phase (maturity) of the life cycle, the positive and negative forces tend to cancel each other out, and during the final stages (decline), the negative forces will outweigh the positive by degrees which vary depending upon the inefficiencies within the business.

Management theory suggests that the business cycle occurs over seven, identifiable stages during the evolution of a business enterprise. The stages, and the relevant features of each stage are:

Stage one:                    The Ideas Stage.

This encompasses the stage of the initial business idea, and the development and nurturing of the idea into a business concept.

Appropriate action: Create and implement a formal Business Plan.

Stage two:   The Entrepreneurial Stage. The principals of the business get their idea up and running and enthusiasm ensures products are developed, customers are found and sales are made. The latter part of this stage often sees the organisation experiencing high demand for a product or service, and the need to expand. However, orders possibly cannot be fulfilled due to lack of capacity, capital or appropriate systems. The business can be prone to repeated crisis, and management needs to commit itself to becoming more organised and systems-oriented. Many businesses do not leave this stage of evolution, and may ultimately fail under the weight of repeated crisis.

Appropriate action: Develop a formal strategy that identifies ways and means of addressing every area of weakness.

Stage three:             The Systems Stage. This stage is a crucial stage for a business to negotiate if it is to survive and prosper in the longer term. The principals of the business need to “pull back” from the day-to-day operation of the business, and develop systems that ensure products are made and sales happen in an automated process. The systems must ensure quality remains consistent, and that standing orders provide consistent cash flow. The principals concentrate on building the brand, cementing strategic alliances, and increasing profitability through improved operational efficiencies.

Appropriate action: Develop Customer Relationship strategies that formalise all sales processes, including how leads are dealt with, how sales are closed, and how client communication is maintained.

Stage five:     The Bureaucracy Stage.  The business has grown to a stage where the systems are divided into divisions, or operational areas within the organisation. There may be a “manufacturing” division and others for “sales”, “administration”, “R&D” and so on; in other words it has become mature.  Whilst the business may be performing well, there is a risk of inefficiencies creeping into the systems, with falling profitability a result. The organisation needs to ensure there is a pervasive culture of innovation throughout all divisions, and maturity doesn’t automatically lead to decline.

Appropriate action: An outsider’s view would be useful. Have a management consultant take an overview of the business, and if required, initiate a plan to re-introduce an innovative culture.

Stage six:                 The Project Stage. With the organisation operating effectively and efficiently, teams are formed with representation from the various divisions. These teams explore ways in which the core competencies of the organisation can be used to develop new business ventures.

Appropriate action: Again, a formal Business Plan with its associated procedures is applicable here.

Stage seven:       The Next Idea Stage. The teams have identified a viable business concept that utilises the support, expertise and experience of the parent organisation. It can now launch a project into Stage One in its own right, and the cycle is thus perpetuated.

Stage four:        The Delegation Stage. This is a potentially dangerous stage in the evolution of a business enterprise. The organisation is working well, and the goals and aspirations of the principals are being met. However, the principals can feel they are invincible. They take their eyes off the ball, so to speak, delegating full authority to others, while they embark on another business enterprise (often quite unrelated to their core business), and fail. Delegation is OK if the principals have systems strong enough to provide checks and balances, and if there are articulated long-term goals in place.

Appropriate action: For some, this might be an appropriate time to sell the business. For others, seek out a mentor who can play the devil’s advocate, and provide an opposing view.