An Overview of the Small Business Life Cycle

Explore the 5 stages of the small business life cycle and discover where you stand

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:

• 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.

• 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.

• 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.

• 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.

• 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.

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.

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.