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This is a guest post from the Payability team.
Growing a business is one of the most challenging and rewarding journeys a person can embark on. Every phase of business growth comes with excitement and requires significant investment. While each one is different, all businesses share certain similarities in their life cycles, from the early stages of development to an initial public offering (IPO).
One consistent, long-term need that small businesses share is cash flow. Every stage of growth requires an injection of capital, either from business profits or outside investors –– sometimes from both.
Read on to discover the different growth stages where merchants should inject capital into their business to propel growth.
Most businesses start as an idea dreamed up at someone’s dining room table. While the initial funding will come from the owner’s pocket, the time eventually comes to secure outside funding to spark initial growth. People often acquire launch capital for small businesses from small loans or by calling in favors from family and friends.
The launch phase is when a small business grows from an interesting idea into a legitimate venture.
During this phase, small businesses conduct market analysis and product testing to develop a minimum viable product (MVP). The MVP is the product or service that provides the foundation of the entire business model. In the long term, every new product line stems from the original MVP.
A business’s MVP sets the initial trajectory for long-term growth and transformation. A proven MVP paired with a strong business plan will attract investors during the first stages of expansion. This early injection of capital allows small, private companies to expand marketing and advertising budgets to generate word-of-mouth for their products.
To grow beyond the start-up stage, entrepreneurs need more than an idea –– they need proof. To prove the merit of their business venture, most entrepreneurs choose to test their MVP in the market, gathering accurate market data to present to potential investors. Robust market performance data sets them up for the next stage of business: the growth phase.
During the growth stage, a small business evolves into a brand. This requires investment in staff, technology, equipment, inventory levels, and more. That’s where growth funding comes in. While start-up funding fuels initial product development, growth funding provides the cash flow for marketing and operations.
In this stage, a business owner (or hired representative) presents the MVP along with a detailed business plan to angel investors, venture capitalists, and other private investors to secure growth funding.
Small businesses can secure early growth funding through many avenues, but it typically comes in the form of cash flow aids, private investors, or loans.
Private investors — including angel investors and venture capitalists — are typically individuals with large amounts of cash who will invest in small businesses in exchange for a portion of the ownership. On the upside, these investors offer a swift capital injection for a growing business. On the downside, as part owners, they have the power to challenge the company founder’s decisions — or even eject the founder from the company entirely.
Entrepreneurs with solid business plans and existing cash flow can acquire small business loans from credit unions and investment banks. These loans provide an injection of capital while leaving the founder in control of the company. On the other hand, small business loans are difficult to qualify for, require lengthy credit checks, and often take a long time to deliver funds.
A capital advance is one of the swiftest and easiest ways to generate cash flow for small businesses. It’s easy to qualify for and provides quick funding for small companies. However, a capital advance typically requires a record of business success and so isn’t available for unproven companies.
The growth stage is when small businesses refine their marketing campaigns and find their voice. During this time, brands will test different types of packaging, come up with standard procedures for inventory flow, and study and react to marketing trends to maintain a business edge and capture greater total market share.
In the growth phase, a business will face heavy competition as it works to prove its value to consumers. The company may consider adding new product lines, purchasing sponsored ads, or investing in staff and technology to improve customer service. Stellar customer experiences will fuel word-of-mouth advertising to build trust and drive conversions. At the same time, strategic marketing will generate leads and keep the brand at the forefront of consumers’ minds.
Success during the growth phase of a business’s life cycle will set the stage for the next level: the maturity phase.
During the maturity phase, a business is finally able to study its cash conversion cycle (CCC) metrics and make improvements according to performance data. At this point, a company should have several months or years of data to review and respond to, along with a strong team and standard operating procedures.
A mature business should carefully analyze its CCC data to determine how long it takes (and how much it costs) to acquire new customers and move finished products. Critical analysis will reveal optimization opportunities in staffing and procedures — and expose any operational inefficiencies. Discovering and capitalizing on these opportunities is essential to attracting additional investors.
In the maturity phase, a business with healthy synchronization between marketing, sales, and operations will consistently outperform a company with asynchronous goals and inefficient communication.
A mature business acquires growth funding from two primary sources: profit reinvestment and public investors. While some businesses, such as Publix, grow to multi-billion-dollar corporations without ever “going public,” the largest companies in the world — for example, Apple, Microsoft, and Amazon — are often publicly owned. Becoming a publicly traded company is a complicated process that we won’t explore here, but it is an option for large, thriving businesses.
For most mature small businesses though, profit reinvestment will drive future growth. This means the owner will have to decide between saving profits, paying profits out as wages, or investing profits in expansion.
After a small business makes a name for itself, inventory management and demand forecasting are critical to avoid inventory stockouts (as many companies learned the hard way throughout the COVID-19 pandemic).
Careful supply chain analysis based on market research and past performance can result in market share gains during busy seasons like the holidays. A business that approaches each quarter with a strategic growth plan that integrates cash flow, supply chain, and marketing will reap significant success.
For example, in 2021, holiday shopping started earlier than ever due to a combination of pent-up pandemic demand and global supply chain issues. Many businesses secured their holiday stock levels in advance and launched their holiday campaigns as early as September. Businesses that acted quickly in 2021 saw increased total sales throughout the fall and winter, despite the first historical year-over-year decrease in Black Friday/Cyber Monday sales.
For a mature business, reducing costs is a primary way to maintain growth. One of the best examples of a mature business achieving this comes from the grandfather of American industry, John D. Rockefeller.
Rockefeller regularly audited his costs for opportunities to reduce his operating expenses. In one famous story, Rockefeller noted his production line sealed each kerosene can with forty drops of solder.
Wondering if he could do it with less, he experimented and found that, while 38 drops occasionally resulted in a compromised seal, 39 had the same success rate as 40 drops. The new sealing procedure, implemented at scale, saved Rockefeller a fortune in materials and labor.
Product innovation (and adding new product lines) is another principal way to grow a mature business. Some businesses may opt for in-house research and development, while others may acquire competitors or adjacent businesses.
A great example of a highly diversified, mature company is Coca-Cola. Coke started with a single product, then slowly expanded into additional soft drink offerings. Eventually, the brand branched out into other types of beverages:
Coca-Cola has driven business growth and drawn investors for over 130 years by constantly experimenting and innovating.
The maturity phase is all about optimization. After several years of operation, a mature business will examine itself for weaknesses and risks. Companies that commit to ruthless optimization will continue to attract investors, even over a century after their initial public offering.
Businesses that don’t continue to grow during the maturity phase will enter the final stage of business growth: decline.
Descent is the final stage of the business life cycle. When a business enters decline, it must pivot or close. A company will present many subtle signs of stagnation before entering decline, for which business owners should always remain vigilant.
Declining revenue is never a good sign for a business, but it doesn’t always signal the end. For example, major black swan events like wars or pandemics can cause enormous losses over one or several quarters. However, if net income continues to drop for a year or more, it’s time to investigate your revenue streams.
Perhaps a competitor has begun to threaten your dominance, like upstart rental company Netflix did to Blockbuster, the former reigning champ of movie night. Maybe technology and shifting consumer sentiments have transformed the market; for example, the rise of eCommerce led to the demise of many major retailers who resisted the change.
At this point, an owner needs to decide either to exit the business — through sale or dissolution — or evolve. Depending on the company’s size, this decision can affect anywhere from dozens to thousands of employees.
Business owners who are ready to let go should implement a careful exit strategy to ensure they stay on the right side of federal business laws.
Renewing a declining business is similar to starting from scratch. The owner must draft a new business plan, attract investors, and make hard decisions about their trajectory. As part of the renewal campaign, the business may pivot its goals entirely, replace staff, or even make deals with competitors, much like Apple did with Microsoft before it became the biggest company in the world.
While it isn’t easy to revitalize a dying business, it’s possible for a company to convert even major failure into success.
If you’re ready to enter the next stage of business growth, Payability is here to help. Payability provides versatile funding solutions for eCommerce sellers.
Its Instant Access provides daily marketplace payouts for eCommerce businesses, while Instant Advance provides instant funding of up to $250k for small business growth. Don’t let slow money hold your business back; accelerate your success with eCommerce funding tailored to your needs.
Payability’s solutions are swift, easy, and flexible and offer benefits for all kinds of eCommerce businesses:
Payability is ready to help you grow your business. Get started today!