Posted on 19. Sep, 2012 in Kirchner Blog
When born, humans are an extraordinarily frail and dependent lot. Without proper care and nurturing, most infants cannot survive. As an infant matures into a toddler, child, adolescent, teen and adult, needed supports and guidance change. However, decisions made at various stages in one’s life can have profound consequences on the quality of life, wellbeing and even survival.
Businesses are similar. Without proper care and nurturing, most do not survive. Also similar to humans, businesses that survive move through several distinct phases during their lifecycle. At each phase the support and guidance that is needed also change. As with humans, the decisions you make at the plateau of each phase will have a direct effect on whether your business moves from the current plateau to the next in its lifecycle.
I am reminded of one of the “one liners” in our recent book, How Do You Know if You are an Entrepreneur: “If neither path at the fork in the road looks promising, but that doesn’t stop you”… you might be an entrepreneur. The fact you are at a fork typically means your business has reached a plateau in its lifecycle and the decision can make a difference in whether your business thrives or dies. Yet, some of us behave as if we have forgotten businesses can be and should be viewed in terms of the phases in their lifecycle.
When faced with decisions related to a new venture, even entrepreneurs who have been successful in a prior venture do not consistently identify the discrete phase or plateau that their business is positioned at a given point in time. They also may not appreciate the critical importance of decisions that are made at each at least four major plateaus in the lifecycle of the business. Most importantly, too often they do not adequately consider alternatives in the context of their related risks and possible rewards in moving from one plateau to the next plateau.
General lifecycle phases: While there may be many ways of characterizing the phases of the lifecycle of a business, for simplicity we will consider three broad phases: (1) startup; (2) growth, and; (3) liquidity event. During the startup phase, at least three discernible plateaus will be experienced. The first occurs after you have your “idea” or make your discovery. The second occurs after a prototype has been developed and market opportunities quantified. The third occurs after you have your first beta customer. During the growth phase, the may be many small plateaus, but for the sake of brevity in this blog they are grouped into commercialization activities. Finally, during the liquidity phase activities related to increasing market share are viewed in the context of increased valuation for and M&A, IPO or other liquidity event.
Value and reward versus risk: The point of laying out general lifecycle phases isn’t to engage in an academic exercise. Rather it is to illustrate that the resources, support and guidance needed at each of the plateaus raise a myriad of questions that must be addressed. The decisions that come from addressing those questions will likely make a difference in whether your business moves to the next plateau or stagnates and dies.
Your decisions should be guided by two sets of considerations. First, how will various decisions ultimately affect the creation of value in my business? This is true, of course, since your ultimate reward will likely be directly related to the value that you have created. However, on the other hand such issues as time, other resource allocation required and investment requirements can be viewed in terms of a risk continuum. Most decisions that you will make should guide you to the right spot to place the fulcrum to achieve balance on the risk-reward seesaw.
The lifecycle perspective: This blog is not intended to imply that using a lifecycle approach to conceptualizing the birth and growth of a business is the only conceptual framework that might be useful. It is also not a full articulation of the many subtleties and nuances that actually should be considered with making decisions at each plateau.