ask SCORE How the Manager's Job Changes During the Firm's Life Cycle
How the Manager's Job Changes During the Firm's Life Cycle
What You Need to do at Each Phase
Startup, Growth, Maturity, Conclusion
By Richard Walton
Assistant District Director for SCORE
Within the four phases of a business organization's life cycle, there are differing managerial requirements at each phase. For example, at start up, the job of the manager is to develop and promote a business concept that provides an array of value to the customer, consisting of a product or service that meets a clearly identified need in the market, at a price that is perceived as appropriate, while operating at a profit. This requirement gives way in the growth phase to the need for increased sales and market penetration, whereas in the next phase, maturity, the need is for managers to protect their market from competitive inroads while keeping the firm profitable through product and service improvements and other changes. The fourth and final phase of the firm's lifecycle is conclusion, which is unique to small businesses in that there typically is not public market for the company's stock, and conclusion is defined as exiting the firm either with a sale of its parts, or totality, with the objective of the owner retrieving as much gain as possible, based of course on the track record the firm has established over the years of its existence. What we need is to know what to do at each phase of the life cycle in order to maximize our firm's potential for success. And this requires a different focus at each step. This short paper will identify what needs to be done and how to do it.
PHASE 1-START UP
A TIME FOR CONCENTRATION ON INNOVATION AND COLLABORATION
The most important job at start up is to create a viable business entity based upon a sustainable innovation that provides consistent value to the customer by addressing a significant problem or opportunity. This requires research and problem solving, as well as product and/or service development, always from the standpoint of being better, cheaper, faster, lighter, or other characteristic that provides a source of value to customers that has either not been available previously or is significantly improved. In addition, this phase requires collaboration with resource suppliers who can provide assistance in setting up the organizational framework of the business, in its legal and financial aspects, but also spatial, technical, and process, and marketing requirements. It should never be assumed that one person can or should take on all of these responsibilities. During this period, management's job is to continuously press for excellence in structure and process in order to be ready for launch with a highly anticipated product, its price perceived as appropriate, and its availability assured. The two major areas for concentration are innovation and collaboration in order to ensure success at this phase.
A TIME FOR CONCENTRATION ON QUALITY AND INFORMATION
The most important job at the growth phase is to be able to kick start sustainable sales while operating profitably with continuous effort at improving both product and process quality. This requires management to focus its effort and that of the entire organization upon improvement in everything the firm does, including every process whether administrative or production based. In this way the firm will build a sustainable competitive advantage by attracting and retaining valued customers. Continuous improvement also leads to lower costs by boosting productivity and output potential, two essential ingredients in any growth pattern. And this in turn helps fuel the sales and marketing efforts of the firm. Additionally, management needs to focus upon information related to costs, and capacity. It is not enough to wait for month end financial data to determine whether the firm is operating profitably as sales increase. This is done by measuring the contribution margin of every product or service sold, and determining profitability on a daily basis through breakeven analytics, and ratio management. Ratio management plots the ratio of every cost area within the firm against a pre determined budgetary goal as a percentage of the sales dollar. Thus as the firm grows, its costs never exceed the level of sales. The two major areas for concentration at this phase of the life cycle are quality and information.
A TIME FOR CONCENTRATION ON CHANGE AND SUSTAINABILITY
The most important job at the maturity phase is to be alert for the need for change, whether proactive or reactive, and simultaneously to operate in a sustainable mode thereby ensuring continuous customer loyalty and patronage, even as conditions change, new competitors arise, and new environmental regulations and other demands emerge to potentially threaten the firm and its operations. Being alert to change proactively or to quickly adapt to new situations through reactive change is important in order for the firm to maintain its position in the marketplace as a dynamic organization in touch with the times, and ready to revise and adapt its product and/or service offerings as conditions warrant. This action will help preserve the firm's position and its sales/profit ratio by remaining in the forefront with products that meet the evolving needs of its customers. The concentration must also be on sustainable business practices. Recycling materials and resources, reducing the carbon footprint, and many other activities all designed to operate in an environmentally respectful manner which can and does build a reputation for good corporate citizenship. Which will help maintain a firm's image and reality as a dynamic provider of high quality products and services for the long haul, in other words, sustain ably. The two major areas for concentration at this phase of the life cycle are the management of change and operating with a continuous emphasis upon sustainability in all processes undertaken by the firm.
A TIME FOR VALUATION AND DEVELOPING OPTIONS
The most important job at the conclusion phase of the life cycle is to operate by means and policies that increase the valuation of the firm, and to thoroughly review the options available for an orderly and hopefully rewarding conclusion to the career of the owner manager. Valuation is aided, of course, by profitable operations, but also by trends in sales and profits, by managing with less debt, by showing respect for the environment, by forward looking human resource policies that empower employees, by retention rates, both for employees and customers, by credit standing, by customer approval ratings, and by observable growth potential. The greatest value to be gained from a sale of the firm as a going business is either a multiple of earnings or the valuation of net worth. Owner managers who are in a position to develop and pursue options for a conclusion that maximizes value should be exploring every possible means by which they can do so. These may include (and are not limited to) sale of the entire business, sale of a part of the business, a consulting contract with the new owner, seller financing for at least a portion of the purchase price, and/or the sale to a public company for stock. Options that may be less favorable could include liquidation of plant and equipment, or asset sales, such as accounts receivable and/or inventory. The advice of a trusted specialist, whether in real estate or the buying and selling of businesses would be desirable. The two major areas of concentration at this phase of the life cycle are valuation (in order to know what the potential value of the firm in total or in part could be) and the options available to the owner manager for successfully exiting the firm.
Mr. Walton teaches Financial Management, Operations Management, Corporation Finance, and Entrepreneurial Finance at Frostburg State University and is the assistant district director for SCORE, Western Maryland, and is president of ERMACORP, a Hagerstown based Management Consulting Firm. Call 301-462-9850 or him at Richard@ermacorp.com. Find him on Facebook(r) at "Small Business Life Cycle" for inquiries and an exchange of ideas on small business management, issues, resources, and experiences.