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The Business Lifecycle
One from the archives: Circa 1995
This is old. Not as old as dinosaur eggs. But old by Internet standards. It belongs back with the Dot Com boom. It is the notes from an eBusiness slide pack originally compiled for a group of Australian Business Banking Product Execs.
The punchline at the end will look familiar to any start up operating today. Because the forecast looks like our reality. But take the long ride if you want to get full value out of it. It is pretty easy to follow. It was designed for Bankers after all ;-)
Experience will teach you that a successful business evolves in a systematic way.
The grow as the focus changes from being on smart people to smart processes to smart systems.
A business will stop growing the moment the management team decide not to, or simply don't know how to, proceed to the next level.
Long term success in business is about planning the next phase of the cycle before it happens.
The objective for anyone hoping to enter into a long term strategic partnership with any business is to discover initially what stage the prospect's business is at and then to show them how you can help them to over come the inherent problems of that stage to grow into the next level.
Understand the seven stages and you'll understand where the seed of opportunity is hiding.
But, before we begin, the fundamentals are simply...
a. As a business grows the number of employees increase
b. As the number employees increase the average skill level across the organisation decreases
c. The reason being talent is thin and the business is competing in the marketplace for valuable human resources
The challenge is resolved by introducing systems and processes to improve the productivity of the talent available
d. This combination of low cost talent and smart processes is optimised via introducing automated technology to drive down the costs of doing business... and thereby increase profit margins
Note I have covered the ideas about start-ups elsewhere (i.e. Why do the smartest people operate the dumbest businesses?)
You own the customer!
Sales people dominate this phase of the business lifecycle.
They seek the freedom, independence and money of being in business for yourself without the effort involved in acquiring and maintaining a professional skill.
They are busy building networks.
They think in terms:
Where is my next job coming from and who is available to do the work?They also recognise that all business is brokerage.
"It’s not what I can buy it for that counts, its what I can sell it for!"
In doing this they come to embrace the old mercantile mantra of "Privatise the profits and socialise the costs".
A successful business in this phase means sales are always higher than business capability.
Consequently the business is constantly threatened by cash flow problems.
The primary focus on sales also results in significant quality control problems on the delivery of products and services OTIF.
This phase of the cycle is perhaps the most traumatic as management & staff struggling to cope with the constant changes to stay in business. This is because most sales expansion SME's suffer from a fractured value proposition. They attempt to be all things to all people.
In the end small businesses stay here because the owner lacks the expertise to make the quantum shift to professionalism and is unwilling to let others manage the business for them.
You own the system!
The successful business owner begins here by either purchasing a pre-existing system or developing a new one prior to starting the business
They are people who research, plan and think before they begin.
They think in terms:
Other people’s expertise, Other people’s time, Other people’s money
They are constantly strengthened by others: The weak present an opportunity to make a profit. The strong are invited to strengthen the business.
They recognise the role of process in co-ordinating all of the business's internal and external activities as a business fundamental and embark on a policy of successfully managing the relationship between talent, process and technology.
This means the primary challenge is to introducing a qualitative change in people, processes & technology.
It is achieved by the introduction of people adept at planning, administration, organisation, motivation, leadership and control.
Consequently a new “process driven” culture replaces the old “talent can do” culture.
The biggest problem is finding the funding to pay the people to develop these processes and fund the new infrastructure.
Why? Because they do not deliver a competitive edge they merely deliver the industry benchmark in quality management practices. As a result they do not provide a premium or value added offering to the product that allows this phase to be funded.
Businesses fail at this stage because they lose sight of the customer and most importantly the value of the BRAND in influencing the customer’s perception of the value of the company or product.
In the consolidation phase of the business lifecycle the business system has evolved to the point where is begins to own and manage itself.
The company has clearly defined its value proposition and the organisational structure is monitored and regulated to ensure the company fulfils its promise to the various stakeholders (e.g. Shareholders, Customers, Employees, Suppliers).
The greatest challenge is to ensure that management processes do not “choke” the life-blood (the people) of the company.
This means focusing on workable systems for planning, operations, organisation development and financial control.
The keyword is collaboration. Getting the various parts of the business to work as one.
Inevitably a culture of “gatekeeper politics” begins to dominate in response to the new dynamic. Particularly when the organisation focuses its efforts internally on the development of the system rather than externally on the marketplace.
At this stage of the cycle the successful business is looking to grow through acquisition or preparing itself for acquisition.
The next question is: We are established and successful in our market space.
Where do we go from here?
Companies diversify to enter into new markets, acquire new products or respond directly to their customer demands.
They manage this growth through acquisition or R&D.
Acquisition means introducing new customers, suppliers, people, processes and technologies to the business. To allow this to happen you need a semi-autonomous management structure focusing on in each single line of business. The result is the company becomes overtly complex and multi faceted.
In many ways acquiring another business is a "Silver Bullet" approach to fixing the problems in your own business. It looks great in theory but it is very difficult to achieve in practice.
It is very difficult to retain both the best features and benefits of both cultures without due regard for the conflicts of interest within each business culture and brand. Almost inevitably the combined business fails to retain either. So growth is achieved at great cost to the business (in both resources and culturally).
The barriers to change in any business are cultural issues. When two or more cultures clash the problems are compounded. The new influences fragment the company culture and value proposition
The take over equation: 1+1 =1/2
A more controlled method is to adopt the strategic pipeline approach to business renewal.
This investment in R&D is an investment in your own people, culture and ideas. Properly managed it strengthens the company because it attracts the best people and the best ideas to the business. So the business grows by osmosis.
In this way the company growth is managed as part of a long term strategic planning process.
More for less
Diversification injects new blood into the organisation but the inherent problem is the fragmentation of the independent business cells into fiefdoms.
The challenge is to integrate the diversified business units and business cultures.
The most common approach is to consolidate the market position through conservative brand management and filter easy profits through cost cutting.
This means flattening of management pyramid & controlling channels of supply.
Once you have achieved this you are ready for the next round of expansion through acquisition. (i.e. Successful businesses oscillate between Phases 5 and 6)
The overwhelming majority of businesses are designed and built for failure. Those that aren't can still suffer from a self inflicted mortal blow.
The average life expectancy of a corporation is between 40 to 50 years. As many as one third of the Fortune 500 companies of 1970 had disappeared by 1983. GE is the only company remaining from the original Dow Jones Index first published in 1896.
Corporate Collapse is not inevitable. But is is highly probable.
Why do they fail? Disruption, failure to revitalise and over reach tend to be the most common causes.
eBusiness is all about how businesses that have made the transition from Smart People to Smart Process to Smart Systems evolve to the next level by automating those Smart Systems using Smart Technologies.
In this context eBusiness is the highest form of business. But you need to understand that its impact will not be a new phase in the business lifecycle because eBusinesses will emerge at every point in the business lifecycle. Start-ups will disrupt incumbents by focusing on being specialist eCategory Killers. The incumbents will benefit from focusing on using the technology to do more with less and/or acquiring innovative start-ups to transform both their offering and their culture.
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