Business growth can be an exciting time, with sales on the up and an increasing customer base. However, with growth comes a range of challenges. In the following article, we discuss some key stages of small business growth, and also provide some tips and tricks on how manage each stage.
The First Stage
The first stage in business growth is coming up with the big idea: can you create or design a product or service that customers want or need? If you can, you have a chance of surviving and moving on to the next stage. If not, you’ll have to call it quits when your start-up money runs out or you can no longer put the required time and energy into trying to make it work.
In this initial stage your start-up will likely make very little money. You may have to run at a loss for a while, until you get enough paying customers to break even. In order to get customers, you need to market your idea and brand as much as possible, without spending too much money.
The Second Stage
Now that you have a customer base, the second stage of the growth period is not only about selling your product or service, but it is about selling enough of them at a high enough price to break even and start generating profits.
The challenge therefore in this second stage is to make your revenue outpaces your costs. So how do you do that? There is no simple answer to this question – increasing your customer base is of course, one central requirement, but that alone will not suffice.
Additionally, you need to be paying close attention to your pricing to ensure that you’re making enough of a margin on each sale to cover your costs. This means working out the prices you charge your customers in such a way that you are making a profit.
However, balance is necessary here. Pricing your product too high means you will risk losing customers, but pricing your product for less than it is worth will leave you at a loss and inhibit growth. If you succeed in finding this balance, you will be able to move on to the next stage of business growth.
If you have mastered your pricing scheme so that your revenue exceeds your expenditure, you have successfully made it to stage three of the growth period. Your company now generates enough profits to either fund additional growth or to provide you with a generous income.
So how do you achieve this? To move beyond survival and start making sustainable profits, you’ll need to be much more systematic than in the early stages of the business. Planning for growth becomes much more important here, so you can take the time now to think carefully about the path you want to take and the steps necessary to get there.
Once you have worked out how to pass the “survival” stage and get into the profitability stage, you have reached stage four. This stage is characterised by rapid growth that enables your once small enterprise to become a large company.
Of course, with this type of rapid growth comes many challenges, and you need to be aware of these if you want to remain in stage four or exceed it. With this type of growth, business owners can become apathetic and start to pay less attention to the smaller details. Remember to pay attention to the pricing of each product in relation to your expenditure; assess sales trends and reshuffle stock types accordingly.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.