A business’s success is also often governed the success of the industry in which the entrepreneur has decided that the business will settle. The economic trend affects industries in a dissimilar manner; some are worse hit than others and as the entrepreneur chooses a business opportunity, this is one thing he may be wise enough not to ignore.
As the entrepreneur plans for the future of the business, he needs to bear in mind that certain things may be beyond his control while others he may be in a position to control. To delve more into the life cycle of a business, we will begin looking at the growth curve of an industry.
Industries are born, just like people. They grow, mature and eventually die. The power of growth of an industry is very important to an entrepreneur since it has a lot of impact on the success of the business. Some of the factors that may lead to the collapse of an industry may well be beyond the control of the entrepreneur. For instance, the entrepreneur has no control over the country’s currency and so if its value falls, this may have negative impact on the tourism sector.
A firm in this industry may have tough times ahead.
Research shows that most firms do well in industries that are just starting. Many factors can be attributed to this;
Ease of entry
Because the number of entrepreneurs willing to invest in the less known industry is small, those that do, stand to settle in with relative ease if the market response is positive. Barriers that exist in established industries are fewer in an emerging industry and the firm is thus able to set its own bench marks as it tries to do what few have tried to do before.
Given the fact that there are few entrants in the industry, the entrepreneur has fewer headaches thinking more of the growth of his venture than what his would be competitors are doing.
High level of innovation
Because he wants to create a name for the business, the entrepreneur with a clear vision for his business is in a good position to try and invest more on research and development as he is convinced that what he is doing will yield good returns. He is well poised to come up with even better ways of carrying on the venture.
The phases in the growth of a firm
If not well managed, the growth of a business can have serious repercussions. An entrepreneur needs to assess his environment against the growth of his business and ensure that the growth of the firm is also taking into account external factors, which may well be beyond his control.
Every entrepreneur wants to see his business grow. That is the short term and long term vision for every firm. The growth rate will also give an impression of how the firm’s product or service is meeting customers’ demands. A product’s life cycle from inception to eventual decline can tell how a firm will fair both in the short term and the long term. The growth of a firm is likely to take the following stages in its life;
Pre – Start Phase
This is the preliminary stage for the business. Here, the entrepreneur does a lot of ground work to assess the viability of the venture he is about to get in to. He will carry out due diligence to ensure he has taken all important factors into account before setting off the business. He will incur expenses to execute some of these important activities. He may for instance require the services of a legal representative to acquire land. He may also hire the services of a surveyor if he wants to build his own premise. If he will hire personnel to assist in running the business, he should ensure that he has sufficient funds to pay them for at least 6 months. He may need to get a loan to do this.
Start – up Stage
At this stage, the entrepreneur has already set the business up. The business is operational despite the set backs that befall all businesses that start up at the initial stages. The entrepreneur realizes that he may need to make adjustments in order to survive. He may see the need to insure the property in case he hadn’t, he may also realize that he does not need an extra staff hence he may cut down on that, sales may be slow in picking up, so he may decide to come up with new marketing strategies, he may see the need to have proper records for tax purposes e.t.c
Early Growth Phase
During this phase, the business will experience rapid growth as customer needs become the main focus for the entrepreneur. It is at this stage that he will realize there is need to gain a competitive edge in order to make more sales. The entrepreneur at this stage may think seriously about automating his operations, hiring professionals like accountants, perhaps even expanding the business. The signs that these requirements are necessary will be felt the growing need to meet the increasing and dynamic needs of the customers.
Later growth phase
This is the phase that determines whether the business has managed to meet its long term objectives and a period to assess how successful the short term objectives have been met. At this stage, the entrepreneur is more concerned about corporate governance issues and how this impacts on customer needs. He will also be concerned with the management of the business in various departments such as finance, sales and marketing e.t.c. The entrepreneur will have his sights on a higher level of competition with other firms that belong to a higher circle, hence he see the need of turning the business into a public limited company in order to compete as such levels
This model can be applied to the growth or otherwise of a firm. The entrepreneur thus needs to ensure that the business opportunity he has before him has a road map charted in advance and based on due diligence. This does not mean that every firm will follow the above model.
The entrepreneur needs to be aware of the possible outcomes. What he needs to do to ensure that the growth of the business is well managed a clearly defined strategy is what we shall be looking at in the next section;
We have already mentioned that the entrepreneur will need to assess the economy in which he intends to settle his business before embarking on anything serious. This entails doing a research into the economic variables that are likely to play a major role in the future of the firm.
Over and above this, he will need to lay out a strategy for development of the firm.
A strategy follows the research and ground work and is based on the idea that has been determined to be the driver of the business venture. In developing a strategy, the entrepreneur will need to do the following;
Assess the likely demand for the product
This entails doing a survey in a particular targeted section of the market where very important variables can be collected. The entrepreneur will need to see whether there have been other products and services that have been or are still there in the industry
Identify a specific customer need that has been ignored
Even where similar products or services have existed in the industry, the entrepreneur may identify a specific need that has not been fully met. Here, the entrepreneur will assess whether meeting this need, his firm will pull away customers from other firms.
Consider the added value to the customer
The entrepreneur will also need to assess whether the customer will experience an added value using the new product. This will come out as a result of a survey.
Assess the company image enhancement as a result of the new product
The entrepreneur will also be looking at the interest of the firm. Will the introduction of a new product likely to boost the image of the business and to what extent?
With this in mind the entrepreneur will come up with a clear chart of where he wants his business to be in future and how it will get there. The business strategy can be looked at in the following ways;
Here, the entrepreneur is asking himself, ‘How can I take up a bigger share of the market?’ He will have to think of ways through which he can establish his presence and exert himself through his product or service. He may have the objective of controlling a certain percentage of the market. This in itself is a strategy and the entrepreneur will need to devise ways of achieving this.
Some of the means he could use to attain this objective are;
- Investing on advertisement
- Encouraging customers to buy his products through customer incentives for instance special deal if a sale reaches a certain value, discounts e.t.
- Offering better customer care
All these may pay off if the results are tangible. This will be realized through increased revenues and a larger client base.
This strategy will be a result of a well thought out plan to introduce a product or a service to a wide region all at once and capture the entire market in one single attempt. The success or failure of this move will depend on how much due diligence the entrepreneur will have done. If the initial survey tells him that customers from diverse backgrounds and from different walks of life will respond positively to the new product or service then he has a good chance of succeeding.
Product/ Service diversification
This strategy will mitigate against the risk of losing market share when the product reaches the final stage of its life cycle. As we saw earlier, the lifecycle of a business will necessarily follow that of the product if there is no backup plan. Through product diversification, the entrepreneur will ensure that even though the product is squeezed out of the market as a result of fierce competition, others will still come up to replace it in terms of market share.
The entrepreneur should be careful not to diversify into unrelated products or services. He should choose a product or a service that can be used instead of the mainstream product or service. At the end of it all, he should not do away with the original product all together.