Why are some businesses in a marketplace more successful than others?
Over the course of my career, I’ve met hundreds of businesses, some very successful and many only just surviving.
The difference between the successful businesses and the survivors had nothing to do with how hard the owner was working or how much money they started with. And all these businesses were doing more-or-less the same thing, in the same marketplace selling the same systems and solutions.
Yet, years after starting, some business owners had built multi-million-pound businesses and only popped into the office when they felt like it, whereas others were only just surviving.
In this article, we’ll look at what makes the difference between those successful businesses, what they’ve done differently, and what we can all learn from their experiences.
The Five Stages to Success
Based on my observations, interviews with hundreds of business owners and independent research, there are broadly five stages in the evolution of a business:
At the early stages, the owner works hard, earns relatively little and the value of the business is low. Once the business reaches “Arrival” things start to get easier as the owner now has more choices. They can choose to work less, take more earnings, and have a business that is a valuable and saleable asset.
At this stage, they can also choose to enjoy the fruits of their hard work and simply remain at the Arrival stage, or push forwards into Growth.
Arrival, then, is the stage every business should aim to achieve as quickly as possible.
Let’s look at each stage in more detail
As the name suggests, this is the first stage of any business.
This is the “proof of concept” stage where the business must prove it has a viable idea, that there is a market for its product or service and it can profitably fulfill that need.
This is an intense time, the owner is working very long hours, involved in almost everything in the business and the business is tiny, perhaps just the owner or the owner plus one or two others.
The key focus is to win sales and deliver a consistent, quality, customer experience, aiming for 100% “referenceability”.
The business cannot remain at Start-Up for very long. Either it can generate enough profit to survive or it cannot. The time this takes will depend on its overheads and access to funds. With lower overheads, or if the business has investors to support it, it can remain at Start-Up for longer. Most businesses do not have those luxuries, so Start-Up tends to be short and can end abruptly when the cash runs out.
The truth is that the seeds of most Start-Up failures are sown before the business starts. Failure to truly understand the marketplace and competitors, and failure to thoroughly research potential customers is the root cause of many downfalls. Sadly, these issues could easily be avoided if the entrepreneurs took a deep breath before starting and did some thorough research and planning.
Once it reaches Survival, our enterprise has shown it can generate sufficient profit to be viable in the medium term. It can cover its costs and pay its staff and owner a living. There is a market for what it does and it can fulfill that market and make a profit.
However, this is still a high-risk stage, often dependent on a small number of clients, vulnerable to market forces beyond its control, and lacking the resources to weather many storms.
The owner is still working long hours, involved in most areas of the business and can be earning relatively little.
Businesses can remain at Survival for years or even decades. In fact, the majority of small businesses get stuck here. Despite hard work and long hours, the business struggles to make enough profit to fund investment. And, if we’re honest, the owner is probably a bit lost, unsure how to move things forward.
Most business owners at this stage are technical people. Their skills and experience lie in the fulfillment of what the business does. They don’t have the wider business skills and experience, particularly in sales and marketing, to know what they should do to break free.
They may hear talk of working ‘on’ the business rather than ‘in’ it but what does that mean. When they arrive at work, what should they actually do instead of what they usually do?
The Focus must be to continue growing sales and to grow the internal team. As the journey through this stage progresses, the owner must aim to make themselves increasingly redundant from the business. A level of discipline is required. The owner must sacrifice higher earnings while they continue to invest in the business.
Arrival is the stage every business should try and achieve. Here, the business has reached a size where it’s less dependent on the owner. In fact, it could be completely independent if that’s what the owner wanted. The owner can also draw a healthy living from the business which is now a valuable, saleable asset.
The business has some basic operating procedures in place and has started to fill some key roles with highly experienced staff. There will be some functional managers in place although they won’t necessarily be experienced, professional managers.
The business is slowly growing market share, has good cash reserves, and is secure and viable.
The owner now has choices that weren’t previously available. They could simply continue to run the business and stick at the Arrival stage, earning good money and choosing their work hours.
They could sell the business as an ongoing asset to external investors or indeed to the staff themselves.
Or they could decide to step things up and move into the Growth stage.
Either way, the Focus is on building more structure within the organisation. The processes will run the business and the people will run the processes. The company should invest in the management team and people development. The higher the calibre of the team, the stronger the business will be.
At the Arrival stage, the business has become a profitable, growing business. It now may look at the marketplace and realise that its market share is still quite small. It sees an opportunity to push the growth pedal harder and to start grabbing market share. Or it may be in a market that is itself growing quickly, such as renewable energy, and decide to scale up to capitalise on the opportunity.
Whatever the reason, Growth is the stage when the business has decided it will focus. It will invest in broadening its outreach geographically and look at adding additional products and services to complement its current offerings.
This is a higher risk strategy than sticking at Arrival. Cash needs careful management. If the ambitious sales targets aren’t met then cash can drain rapidly requiring drastic action to contain costs. The business can easily slip backwards to Arrival unless these bumps are carefully managed.
At this stage, the business starts to change very noticeably for the staff. There is now a need for professional, high calibre managers and staff in key roles. The business must start hiring the people it’ll need in 24 months time, people who have the skills and experience gained from successfully working in a larger business.
At the same time, the generalists that were so vital in the early days, that would happily turn their hand to anything, now lack the depth of knowledge in any one area to be competent. They are now uncomfortable with the structure and most will leave if they haven’t already, looking to find that fun, small company elsewhere. Sometimes a small number will stay onboard, those who manage to grow with the company and upskill in a chosen area of specialisation.
The company has now moved from a very flexible, informal structure to a far more formal and rigid one, as it must if it is to remain organised and competitive.
At this stage also, the owner is less likely to be leading the company. A professional CEO/MD is now needed to structure the business and position it for growth. Most entrepreneurs lack these skills and indeed probably don’t have the interest. Their heart lies in creating something fresh, not managing it once it’s established.
The challenge now is to professionalise all the key areas of the company. Often, the weakest area will be sales and marketing. The founders probably have the technical understanding to drive the growth of the technical areas but without sales and marketing experience are unlikely to successfully lead the sales areas.
After the Growth stage comes Maturity. At this stage the business is an established player, if not the market leader then in at least in the top three.
One of the biggest challenges now is to remain entrepreneurial. The business now has the structure and processes to operate at its current size. However, this very structure can kill innovation and slow down reactions and development. Whereas at the initial stages it could react quickly to a competitive threat, and it was close enough to the customer and marketplace to see it coming, now it’s remote. It has a customer base to worry about and maintain. Those making decisions about its product and services can be a long way from the sharp end.
At this stage, then, the competitive threat is a big issue. Not only from start-ups, but from other mature competitors. The company can be slow to see issues arising, slow to react and it can take time before any issues impact the company.
The company can also become very introverted, more concerned with its own internal issues and problems, and take its eye off the marketplace ball. If the company has chosen to go public then there will be investors to worry about and all the issues of presentation that go with it.
Every business should have a clear goal of getting to the Arrival stage of evolution. At this point the business is resilient, has options and the owner is in an enviable position to enjoy a great lifestyle.
The journey through the stages is fraught with issues and problems, however. What works at one stage will not work at the next. It’s easy to get stuck simply because the business keeps doing the same things and therefore gets the same results.
External guidance and support is essential. It can prevent the business from making mistakes and from learning by trial and error. It ensures continued focus on those key areas necessary to move forwards, despite the day-to-day issues and pressures. And any investment is returned many times over in growth and business value.
About Gareth Johnson
Gareth has had a very successful career in marketing and sales in technology and engineering companies.
Gareth was part of the team taking Eyretel to the top spot in the Sunday Times Fastrack 100.
In his last corporate role, Gareth headed UK Sales for access control company Paxton where he tripled sales from £8M to £28M.
Gareth is now a partner with Chrysalis Partners helping technology and engineering SMEs increase sales, profitability and provide structure for sustained growth