All businesses start the same – someone has a product, an idea or a particular set of skills that can be exchanged for value. Whether you are selling storage to the world or selling your harvest to a local grain distributor, most business owners experience the same concerns and challenges as they pass through the various levels of business development over time.
We refer to these phases as the Business Effectiveness Cycle. Some businesses work through all the levels quickly and are sold off for a tidy profit. Some grow very slowly and remain in the early stages of development for a variety of reasons, despite the owner’s efforts to grow.
We’ve broken the Business Effectiveness Cycle into four phases:
Every business owner takes the first steps to make their dream of financial independence come true, and they have similar experiences. There is a frenzy of activity during this time, and business owners are often left wondering what to do to get their business to the “next level”.
During this time, business owners:
- Develop the product or service for sale
- Identify target markets and opportunities
- Set Prices
- Build brand recognition
- Develop business referral sources and distribution channels for products
- Build the infrastructure of the business, online and offline
- Operate the business themselves, and enjoy the freedom of ownership
- Find themselves stretched to the limit
- Struggle to achieve profitability
As an organization establishes a foothold in the marketplace, the owner can grow the business beyond the one-person band. During the period the challenge is to handle “growing pains” and delegate, laying the foundation for reaching the Executive level.
- Need to hire and train employees, but the initial impact on the bottom line hurts cash flow
- It’s difficult to find trustworthy outside experts
- Feel pressed to develop new ways to manage vendors who directly impact the customer experience
- Exponential growth in demands on the owner’s time and resources (some owners don’t realize they can become a bottleneck preventing growth at some point)
- Struggle to find time and expertise to analyze and improve systems that don’t keep the business running smoothly
- Efficiency and profitability are becoming an obsession
The third level is where the business owner can step out of the role of manager of daily operations and into the role of director of operations and strategic planning for the business. The owner will have a management team reporting to him or her who help the owner shape the future of the business. Few business owners reach this level of Business Effectiveness Maturity and those that do concentrate on these larger issues so that they can continue to grow to the next level.
- Changes in the company’s target market
- The entry of competitors into the field
- Expense management to prevent profit margin erosion
- Create an executive team to help the owner to lead the organization forward
- Maintain a healthy corporate culture with everyone aligned to the company’s vision, mission and values
Finally, the business becomes systematized so that it virtually runs itself. A solid management team is accountable to the business owner, its employees, vendors, and clients. The business owner is more of a director than the CEO, ensuring that things are going well. Providing leadership, often from afar, the owner is not involved in day-to-day operations, and only intervenes in operations in times of transition or stress. The business owner can now focus on other opportunities, leveraging the management team, and the business is an investment more than an occupation now.