Several stages of business development are involved in a business's life cycle. Moving from one stage to another can involve a lot of hard work, good planning, developing the right relationships, and a bit of good fortune. If you're just starting out as a business, before you're featured on the cover of Forbes Magazine, you will first have to work your way through the initial three stages of business development. These are known as the seed, startup, and growth stages. When a business is properly nurtured and cultivated through these three initial stages, it will be much more likely to grow from a small seed into a lush and vibrant tree that provides habitat and litters the forest floor with mulch, giving opportunities for new life in its ecosystem.
In this article, we will discuss how to properly navigate these first three stages of business development, creating the right conditions so that your business can flourish for years to come.
- The Stages of Business Development
- Making It Through the Seed Stage
- Progressing to the Startup Stage
- Reaching the Growth Stage
- Identifying What Stage You Are In Currently
- Take the Next Steps to Advance Your Business
The Stages of Business Development
First, we must look at the different stages of business development in a business's life cycle. There are seven key stages in the business life cycle, which include the following:
The names of these stages seem relatively self-explanatory, but each subsequent stage details the various aspects involved in a new phase of business development. However, for our purposes, we will only discuss the first three stages here.
Making It Through the Seed Stage
The seed stage is the very beginning of the business life cycle. It is when your business is just an idea, and you start taking action to make that idea a reality, getting your business up and running and landing your very first clients.
The seed stage begins with coming up with an idea for a business. From this point, you will have to work on your idea to refine it further. You can ask friends, family, and others what they think about your concept or ask them to experiment with your prototype or try your initial batch of products. You will have to test your products or services in the marketplace, see how well they are received, and make any necessary adjustments. Does the marketplace accept your product? If not, what can you do to change this? Even if you have a host of related business ideas you think could all work, in the seed stage, it's better to focus on just one area of your business and develop that into something that is profitable and repeatable. By focusing on one key item or area of your business, you will be able to fully develop it and avoid being spread too thin, which can be a small business killer. It's better to reach 100% completion on one thing than 10% completion on ten things.
The seed stage is where you explore how you can harness your excitement and passion for a subject and apply your current skills, abilities, and experience to see how you can create a profitable and sustainable business. You can learn more about your industry, gain more know-how, start making connections, and see how or where your business can fit in or carve out its own niche. At this stage in the business life cycle, you can decide what type of business structure you would like to use, create a detailed business plan, and seek help from business advisors through resources like the SBDC.
Funding at the seed stage may be hard to come by. With no extensive track record of operating as a profitable business, it can be hard to get approved for traditional bank loans, and investors may be hesitant to jump on board with an unproven company. As a result, many businesses will self-fund or seek support or investment from friends, family, customers, suppliers, or connections they have in their industry. Applying for private and government grants is also a viable option at this stage. There is a higher possibility of getting approved for certain loans or microloans through places like the SBA or local credit unions as opposed to conventional banks.
If you have a good pitch and a well-detailed business plan, it is possible that a serious investor may want to invest in your business in exchange for shares and equity in the company. Seed-stage funding is typically used for things like product development, market research, and scaling the business through securing more inventory, real estate, employees, and equipment. Seed-stage companies may not have yet proven that their ideas can work or work on a larger scale, so investors may be reluctant to get involved. But some angel investors or venture capitalists may see the potential in seed-stage companies and may want to invest early on to help develop the company.
As a seed-stage business, you will need to ask yourself if getting investors and selling shares in your company is something you really want or need to do. Investors may want to be involved in your company's operations to varying degrees, and you may need to get approval from your investors before taking action on more significant company decisions. Depending on the type of investors you get and the number of shares you give up, you could relinquish some of the control you have over your own business and significant amounts of your long-term profits, essentially trading these things for access to capital. On the positive side, in addition to providing funding for your company, investors can also bring to the table years of financial and business experience, expertise in a particular industry, and valuable business contacts that can help grow your business. These are factors you will need to weigh out when seeking seed-stage funding. You could try to get approved for a traditional bank loan, but this will also require a commitment, and you will be paying interest on the money over the term of the loan. You could look to friends and family to loan you money or even invest in your company for shares, and they may be willing to sell you back these shares in the future. Or you could tough it out and bootstrap it by self-funding your business and finding a way to make it work on your own.
Alternative sources of capital for seed-stage businesses include crowdfunding, corporate seed funds, business incubators, and various programs from the SBA. Online lenders are another option, as they typically have less stringent requirements than banks, but this also means their loans come with higher interest rates. Nevertheless, online lenders can be a good choice for short to medium-term loans if a company needs a quick injection of capital to promote its growth.
Progressing to the Startup Stage
The startup stage is when you've tested your idea a bit, and it's proving to work in the market. If the seed stage is a baby that goes from its cradle to crawling around on the floor, taking its first steps, and walking around the house a bit, the startup stage is a toddler that can easily walk, run, jump, climb, and can perform simple tasks. At this stage, a business has been able to demonstrate consistent profitability and is becoming more established as a business. They operate under a legally recognized business entity, have a separate business bank account, and perhaps are building some business credit through a line of credit or business credit card. At this point in the life cycle, banks and investors will start to look at the business with more credibility and as being a safer enterprise to put their money into through loans and investments. As a result, the chances of getting approved for a traditional business loan will increase, as will your opportunities to secure investors.
Easier access to capital through profits generated by the company, loans, investment money, or a line of credit will allow the company to cover its operating costs more easily, allowing the business to begin to stabilize and generate consistent cash flow. The rocky takeoff of the seed stage has turned into a smooth and powerful ascent in the startup stage as the business starts to build momentum. However, there can still be challenges and turbulence as the business grows into its new role. These challenges can be seen in how a business handles the various aspects of this new growth. Dealing with customers, finding and managing employees, completing all the new work or contracts obtained, and properly managing finances are some of the issues businesses in the startup stage may face.
The focus of this stage of development should be on stabilizing the business as much as possible in order to maintain this newfound success. This means appropriately managing and using the capital the business has access to, especially if it is limited. If it is needed, companies should seek to secure more money through loans, investors, or credit, but in a responsible manner. In addition, businesses should concentrate on building quality relationships with customers, employees, other companies they may be involved with, and their financial institutions and investors. Finally, based on valuable customer and employee feedback, companies can make course corrections and implement any necessary or beneficial adjustments to the business or its products or services at this stage before more growth is experienced.
Reaching the Growth Stage
The growth stage is when your business starts to rapidly gain momentum as the market continues to respond positively to your products or services. Your company has a well-established and growing customer base with good cash flow, and your overall revenue is also increasing. Your ascent trajectory is continuing to climb, but you can still face challenges. During the growth stage of a business's life cycle, it can also endure growing pains similar to the startup stage. Except, this time around, the adaptations you will need to make to accommodate these changes can be on a much larger scale. In order to handle the increased scope of your business, you may need to hire more employees, train more managers, increase production, and even open additional locations, facilities, or warehouses.
All of this growth may mean you need more money from investors or lenders. Depending on your type of business and how you manage it at this point will determine how you can react to these changes and what kind of financial position you will be in. Some businesses will experience a larger increase in revenue, while others may take on more debt and investors. Companies in the growth stage of business development should focus on managing the expansion they are experiencing by learning how to delegate and organize themselves on a wider scale. Adopting better accounting, management, and record-keeping systems can ease this process, in addition to outsourcing certain responsibilities to third parties who can better perform these duties. At the same time, the company's core can refocus its efforts on its primary mission and the things it does best. This can make operations more efficient and increase profitability.
Identifying What Stage You Are In Currently
Identifying what stage of your business life cycle you are in can instruct you on what areas you should focus on. These stages of business development are not necessarily a cut-and-dry model but rather a guideline or framework to follow as you continue to work on advancing your business. You could be somewhere in between one of these stages or fluctuating back and forth between two stages. Once you have identified the stage you are in, the model gives you a rough blueprint to follow and new goals and objectives to aim at. On the other hand, knowing where you are at in developing your business can inform you on what not to focus on. Sometimes when companies try to advance too quickly, they can quickly burn out and fade away.
Take the Next Steps to Advance Your Business
Whatever stage of business development you are in, it's important to identify and take action on the next steps required to advance your business, whether that means starting an LLC, opening up a business bank account, or looking for investors. Taking consistent, focused, and carefully measured steps will help you reach new milestones in your business's life cycle.
Are You Starting a Business?
If you are in the process of starting a business, InCorp can help you form your separate business entity, such as an LLC or corporation. We also provide registered agent services in all 50 states, the U.S. Virgin Islands, and Puerto Rico. Additionally, business owners can utilize our entity management system and iOS app to manage their businesses, keep up with due dates, and easily access their important business documents.