The Small Business Life Cycle: An Overview

What stage of business are you in? And, more importantly, what stage of business are your customers and clients in (if you work with businesses or entrepreneurs)?

I’ve been working on this model for a while now in the forge and out in the field with my clients and friends, but it’s time to share it with you. If you’ve read Martha Beck’s Finding Your Own North Star, you’ll see many parallels. I had been incubating the model for a while and her framework crystallized it into something more concrete.

There are five distinct stages in the small business life cycle. I’ll start with a picture and then move to a brief discussion:

The Small Business Life Cycle

  1. Stage 0 – the Aspirational stage. People in this stage want to start a business and like the idea of it, but they haven’t committed to becoming entrepreneurs.
  2. Stage 1 – the Entry stage. People in this stage have decided to start a business and are actively building their market and offers. They might not have many or any customers, but they’re no longer sitting on the fence about being an entrepreneur.
  3. Stage 2 – the Growth stage. Entrepreneurs in this stage have a business plan and are growing their revenue streams with new clients and customers. These entrepreneurs aren’t booked solid or running at full capacity yet, but there’s no longer a question that they have a viable business model.
  4. Stage 3 – the Crucible stage. Entrepreneurs in this stage are at the delightfully frustrating point at which they’re booked solid and working at full steam, but the demand for their goods and services outstrips their ability to meet it. Something has to give, but entrepreneurs often don’t want to let go of the business activities that have gotten them to this stage.
  5. Stage 4 – the Cruise stage. Entrepreneurs in this stage have figured out what it was that kept them bottlenecked and constricted at Stage 3, have fixed it, and are now running full steam ahead. They have the team and support they need in order to focus on their core competencies, or if they don’t, they have a specific plan in place to get those resources.

So how do the ideal world and the real world differ? In Stages 0, 1, and 2, entrepreneurs are working in a world of their own imagining – the constraints of reality either have to be discounted or aren’t real and pressing problems. For instance, many Stage 1 and early Stage 2 businesses do fine without complex accounting systems because they’re simple enough that it’s not a real problem. However, in Stage 3, percentages, margins, and partner distributions make big differences to the daily operations of the business and to the people who own and run them. At the tail end of Stage 4, new possibilities and uncharted territories that seem new, fun, cool, or interesting mask the reality under them, so many an entrepreneur is lured back into Stage 1.

The stark differences between the ideal world and the real world are the chief reason these stages constitute a cycle rather than a straight linear progression. At Stage 4, entrepreneurs tend to do one of three things:

  • Implement a new business model or brand dynamic. For instance, entrepreneurs might write books and become public speakers, in which case they have to start all over again because the business path for public speakers is dramatically different from the entrepreneurs’ old path. Or they might franchise their business model or ideas, leading to increased revenue but also to unique challenges.
  • Lose a critical resource in their current business. Perhaps a competitor unexpectedly out-competes them, resulting in the loss of revenue due to lost market share, or their Chief Operations Officer dies or leaves the company. This might not bump entrepreneurs down to Stage 0 or 1, but it definitely might hamper their ability to deliver solutions to their customers or clients. (Think of what happened to Yahoo when Google hit the scene.)
  • Sell the current business only to start another. Some entrepreneurs are serial entrepreneurs by choice, building sellable businesses by design. Others are serial entrepreneurs by accident – they sell their business for whatever reason, only to find themselves unexpectedly bored, excited, or ready to do it again.

Another reason these stages constitute a life cycle is that in the entrepreneurial world, we’ll often do things that change our position and start the cycle anew. For example, we might be in Stage 3 and have a lucky break. We’ll present a new offer or start a new business that gets us back in the Growth stage, but we still haven’t fundamentally fixed whatever had us stuck in Stage 3. Generally, it’s harder to move up and stay up than it is to move back down the cycle and stay there.

Where This Model Gets Tricky

If you’re a serial entrepreneur who is running multiple businesses simultaneously, you may have a hard time placing yourself in a stage because your businesses are at different levels of growth. In this case, it’s best to default to your own capacity when deciding what you need in order to enable more simultaneous business growth. That said, your individual businesses may have different needs than you do. For instance, a new business venture may need its brand to be established, but that brand is distinct from your personal brand as an entrepreneur. The farther apart the two are, the more you’ll have to separate what the business needs for growth versus what you need for growth.

Or you maybe someone who has difficulty separating your holistic personal life cycle from your entrepreneurial life cycle. You see this when entrepreneurs develop a lot of experience, confidence, and skills as employees and then become entrepreneurs. While you can map employee experience over to entrepreneurial experience, it can be tricky. Many experienced former employees spend a lot of time beating themselves up for having to learn so many of the entrepreneurial lessons they thought they would know already.

(If this is you, it’s okay that you are where you are. You couldn’t have seen the reality that you’re living now, so the sooner you embrace the learning opportunity and challenges, the easier it’ll be to build some momentum and to start flourishing.)

That’s All for Today, but There’s More Coming…

I’ll be fleshing this model out in the future, but I wanted to put the overview on the board so you can start thinking about it. I’ll leave you with some additional food for thought in the form of a picture:

Have fun chewing on that!

Have you seen our 5-part series on the Small Business Life Cycle? Read the first post here.

I expanded on this post in my best-selling book, The Small Business Life Cycle. In it, I discuss at more length the steps that need to be taken at each stage. To learn more about how to transition and thrive in your small business or microbusiness, check out the book by clicking here.

Comments

  1. says

    So glad you’ve memorialized this in post form. It was so helpful hearing you talk about this. Helpful to know where I was myself with my own business, but also helpful to understand where the majority of people who were showing up to work with me fall as well.

    And I’m definitely chewing on the last chart. I’m thinking at the wider open end is where you want to be, as long as you are really clear about exactly who your right people are. Otherwise, I may fall prey to doing the corporate thing… casting the net wide & far. Not a paradigm that translates well in entrepreneurialhood.

  2. says

    This is an interesting model. I consider myself at stage 1, and I still have to find a way to reach the next level. With me it’s the question of making the transition from cool blog to an actual business.
    Very good model, I seriously have to chew on that.

    Rock on like a rocket, Charlie

    • says

      Thanks for the feedback, Mars, and I hope to be sharing more about how (in general, of course) to move from each stage. The particular one you’re talking about is challenging, though, in that the Free/Paid line can be a hard one to cross at first.

  3. Elaine Huckabay says

    Great points, Charlie!
    I completely agree with your assessment that as time and experience build, market size decreases. I read somewhere earlier today (gosh, I wish I could remember – I believe in giving credit!) that if you have competition, you don’t know yourself or your business! How true! Shun the scarcity mentality, give customers a unique and rewarding experience, and find a niche to serve extremely well. I make it sound soooo easy ;-)

    Question – how much experience/education/time do you think transfers over from being an employee to being an entreperneur? Sometimes I think it traditional employment can almost be thought of as an “internship” to running your own business; other times I think once the traditional employment wheel starts spinning, it’s incredibly difficult to get out. Your thoughts?

    • says

      Question – how much experience/education/time do you think transfers over from being an employee to being an entreperneur? Sometimes I think it traditional employment can almost be thought of as an “internship” to running your own business; other times I think once the traditional employment wheel starts spinning, it’s incredibly difficult to get out. Your thoughts?

      I’ll say the unsatisfying answer first: it depends. Within an employed structure, you’re often given a game to play, and if you figure out that game, you can do quite well. Entrepreneurship is a lot different in that you’re having to define that game and play it at the same time – that’s largely what happens in Stage 0 and 1.

      Some professions make this transition easier than others, too. Have you read the E-Factor? The more of those traits the job fosters, the easier the transfer is.

  4. says

    This is a really cool, business savvy post Charlie… mile more informative than standard blogosphere “7 reasons why…” stuff. So thanks for sharing.

    That last diagram – is it implying that as entrepreneurs become more experienced and more successful they define their niche tighter?

    Kind of a “Do more business with less people” approach?

    • says

      Thanks for the wonderful feedback, Peter! I’m excited to be sharing so much of this stuff that I’ve been either sitting on or field testing for a while.

      And, while there are corollaries of the diagram that you’ve hit on, there’s actually another important point. Think of it in distributional terms – the Stages are just milemarkers for reference.

  5. says

    Hey Charlie, love love love the graphs. And the addition of level 0 is kinda interesting.

    That would be pre-dreaming and scheming (your Stage 1) along Martha Beck’s model, and it explains the people who make noises about wanting to start a business, but never even get to writing it on the back of the napkin…they’re just talkin’, and it’s nice to have a space for them among all the rest.

    And thanks for the bit on skilled employees transforming into newbie entrepreneurs…I had just finished journaling on how I feel like I’m starting over, and well hell…I am! :D

  6. says

    Charlie,

    Very interesting post and ideas. I found it valuable to consider that adding or changing the dynamic of a business model could be counterproductive and bring someone back to an early less established stage. I haven’t thought of it this way. It makes me realize that we can’t be distracted from the primary focus and vision.

    About the last graph, does it relate to the “long tail” where less people buy more. We have a smaller but much more loyal market? Just a guess… :)

  7. says

    Since I’m on the verge of Stage 1, I’m interested in hearing more about your thoughts on this. Your comment about “employee experience” rings especially true to me.

  8. Milan Gyanwali says

    Charlie,
    First time, I have seen this model and liked it. It is a real world. I have seen such businesses and entrepreneurs around me.

    Milan

  9. says

    I am in the stage 1, past the contemplating stage of 0 and in the stage of attracting and sustaining profitable client relationships.

    I agree that the knowledge of an employee is often quite different from that of an entrepreneur. In my view, an employee is just sitting on one or two roles, they are more of a specialist. But an entrepreneur, sits on many roles, they are more of a generalist. So this whole new experience of thinking in ‘whole’ instead of in ‘parts’ often makes entrepreneurship a larger context for most start-up employees. In most cases, this is why they often fail at first until they have learnt from several entrepreneurial mistakes, that being an entrepreneur is about managing several things at the same time without losing focus of the main thing.

    Thanks for this nice piece. It is good knowing blogs like this still exist. Having to read only about blogs, social media, SEO, Adsense, and stuffs about blogging alone. It’s good having to learn about the very rudiments of business and entrepreneurship. Which in my opinion, is the basis of any successful business pursuit.

  10. says

    Fantastic blog! Do you have any hints forr aspiring writers?
    I’m planning to start my own site soon but I’m a lttle lost on everything.
    Would you recommend starting with a free platform like WordPress or go for a
    paid option? There are so many choices out there that I’m completely overwhelmed ..

    Any suggestions? Thanks a lot!

  11. says

    Hi! I understand this is sort of off-topic however I had to ask.
    Does building a well-established website like yours take a large amount of work?
    I’m completely new to running a blog but I do write in my journal daily.
    I’d like to start a blog so I can share my experience and views online.
    Please let me know if you have any ideas or tips for new aspiring bloggers.
    Thankyou!

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