NFIB

The Four Potential Stages of Business Growth, Part I
04/ 01/ 2002

In today's and next week's Workshops, contributor Jeffrey Moses talks about the four potential stages of business growth and shows the most common sources of failure at each. Today's article focuses on Stages One (Creation) and Stage Two (Growth). Next week's article discusses how to avoid having your business move from Stage Three (Maturity), to Stage Four (Decline).

During Stage One of a business (Creation), certain activities are always required, including setting up lines of financing, establishing marketing and networking systems, setting up lines of suppliers and distributors, determining pricing and establishing internal operational processes.

Through the initial phase of Stage One expenses may be more than sales, so every new business needs to have adequate cash reserves to survive cash-flow shortages. The single greatest reason for failure of new businesses during Stage One is lack of financial reserves. These reserves can be in the form of cash on hand, established lines of credit through banks or ongoing loan agreements with banks and other loan sources. Cost containment is important and will continue to be so throughout the stages of a business' life cycle. But during Stage One costs will almost always outstrip income, and sources must be secured to avoid business disruptions that can cause bankruptcy or withdrawal of financing.

During Stage Two (Growth), businesses are just beginning to find their core customers and to establish their niches within a community. They need to continue creating new customers. The most common source of failure during Stage Two is not creating loyalty among a large number of existing customers. Continually creating new customers is extremely cost inefficient. It's far more cost effective to establish and maintain successful customer loyalty programs, which keep customers coming back.

The perfect example of a customer loyal program is offering steady customers a discount on future purchases. Customers may have to purchase an initial amount to obtain this ongoing discount, but after that, the discount applies to everything they purchase. When people know they're going to get an additional 20% off on everything that they buy from you, they'll look to you first.

There are innumerable types of customer loyalty programs, depending on your type of business. Check out what your competition is doing, or what other successful businesses have done in your particular field.

In next week's Workshop, Jeffrey Moses continues this topic with discussions of Stages Three and Four in the life cycle of every business.

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