While starting your own business is appealing, there is a very high failure rate. 1 in 4 businesses fail in the first year, 7 to 10 businesses fail within the first 5 years.
A business passes through many stages as it develops. There are four recognised stages of development, including:
- Establishment
- Growth
- Maturity
- Post maturity
Establishment
- Establishment is the newly formation stage of a business
- The main goal is to survive and set a firm foundation for future growth.
Challenges at this stage
- Low sales and profit – usually at a loss
- High risks and low cash flow
- Informal management (usually limited ability/skill)
- Low market share
Growth
- Increase in sales & profit
- Regular customer base
- Introducing new products
- Increase in the number of employees and management
- Possibly losing the control and direction of the business.
The goal is to constantly increase the average level of sales; to continue growing through mergers and takeovers; to diversify business activities.
Merger and Acquisition (M&A)
- At growth stage, Merger & Acquisition (M&A) can occur to expand its market share and profit.
- Merger: owners of two business entities agree to combine together.
- Acquisition or Takeover: a business is taking control of another by purchasing the control of business.
Maturity
- It reaches its peak sales and profits.
- Business has a strong presence in the market (global and domestic)
- It is well known, trusted and continues to hold a high market share in their industries.
Challenges
- Market saturation - hard to find ‘new’ customers
- Hard to maintain a high level of profit
- Hard to maintain strong growth rate
- Slow response to market change
- Lose energy and passion
Strategies
- Continued product innovation (ie. differentiation) to find new increase area.
- Social listening: listen to customers on social media
Post maturity
At this stage, there are a few possible outcomes a business can go through.
- Steady: continue to be profitable, but saturated (not declining or expanding). Everything is the same without any new marketing campaigns or product lines, no innovation, research or development.
- Decline: loss of market share, sales and profit. Ultimately, poor cash flow which can lead to failure. It will be harder to obtain extra loan and suppliers will become stricter in their credit facilities.
- Renewal: increase in profit and sales through new growth areas to stimulate sales and profit (eg. product diversification, M&A).
Sell new shares
- Redevelop management and review business vision
- Sell new shares
- Invest into R&D
- Diversify business activities and sell unprofitable activities
- Identify market niches and conduct market research analysis