Businesses have a lifecycles. They can be summarized as follows.
- Humble beginnings to survival. This is the period from the conceptualization of the business to actually receiving sales. You can pay your employees and your vendors. You have revenue coming in, and the makings of a sustainable business.
- Survival to operational maturity. This is the "post startup" phase when your business is experiencing growth and managing operations effectively and efficiently to service your customers. You begin to install formal processes and care about profits.
- Operational maturity to scalable business. This is the period when the founding team is planning an exit — i.e., selling the business — or is investing in it further to sustain long term growth.
The Management Side of Ecommerce
This article continues my series on the business aspects of running an ecommerce firm. To date, the series includes the following installments.
- Who Needs an Ecommerce Strategy, Anyway?
- What's the Value Proposition of Your Ecommerce Company?
- Choosing Sales Channels to Reach Target Consumers
- 7 Key Ecommerce-Infrastructure Decisions
- Building the Right Ecommerce Team for Success
- Is Your Ecommerce Model Profitable and Sustainable?
- Achieving Your Ecommerce Business Goals
- How to Evaluate Ecommerce Risks
In this article, I'll review the concept of business life cycles, and how understanding them can help your company prosper.
Understanding Business Lifecycles
There are many detailed and sophisticated models for the business lifecycle concept. Certainly ecommerce businesses experience lifecycles. For this article, I'll discuss a very simplified conceptual model for business lifecycles. It was developed by Dave Roberts of Vision to Action Management Consulting, in Colorado. He created this to introduce the notion that businesses have life cycles that are similar to living things.
The strategies and tactics that you employ at different stages of the business lifecycle need to adapt, like humans do as we live our lives. It’s important that you refresh your business model to adapt to the business lifecycle.
Why Does This Matter?
Let’s use an example and focus on risk challenges at different points in the lifecycle. If you are a startup ecommerce business, you should probably not spend a lot of time on your fulfillment processes to make sure they are highly efficient. Instead, you should probably invest your time and money in understanding your target market and in selecting products that consumers will likely buy. When you are in survival mode, your highest point of risk is getting the product mix and target market to match. If you fail at that, you will have minimal revenue and your business will likely fail when you run out of seed capital.
As you become operationally mature, you will want to focus more on your operational efficiencies. You will now have employees, vendors, and infrastructure challenges. Your revenue stream should be more predictable and you will have a web presence and customers to help minimize your risk of revenue loss. But, if you do not install efficient processes and focus on cost containment, your business could be at risk from poorly managed cash flow, bad customer services, or inventory or supply chain problems. During this phase, it's time to focus on your business operations — to reduce your risk and increase your profits.
As your business moves into the scalable business phase, you'll have achieved operational efficiencies and have an organization in place. Those risks will now be under control. Now, you can focus on scaling the business. Your new goals will include staying relevant in your market and continuing your growth. Risk will include raising and investing capital in new products, acquisitions, or vertical and horizontal integrations.
The point is, your core challenges, and how you respond to them, will be different as your company grows. Here is a table that depicts a few of the challenges, along with how your planning and strategies will change based on where you are in the lifecycle.
|Core Challenges||Stage of Business Lifecycle|
|From Humble Beginnings to Survival||From Survival to Operational Maturity||From Operational Maturity to Scalable Business|
|Managing Cash Flow||
The Impact on Business Founders and Owners
My wife and I just sold our 10-year-old ecommerce business. We had built the business to the scalable business point in its lifecycle. It was profitable, self sustaining, had a high level of efficiency, business processes, and a strong infrastructure to build on.
The business needed to grow aggressively to stay relevant. That meant raising new capital to support growth, recruiting a new management team, and adding more employees to scale the business.
Why was this? Most entrepreneurs are not really good at managing companies in that stage of their lifecycle. My wife and I recognized that we were not the ones to grow the company to the next level. We wanted to go back to the "startup and humble beginnings" stage. So, rather than investing our own money or diluting our ownership to bring in new capital, we decided to sell.
Since ecommerce businesses have been in existence for about 15 years, there are likely merchants in this phase of the lifecycle. If that applies to you, make sure you take the time to evaluate both a growth and an exit strategy. Be honest about what you want out of life. In many ways, the scalable business stage is like a startup in terms of the work involved.
Be aware of where you are in the business lifecycle. Recognize that your challenges and your reaction to those challenges will likely be different based on your particular lifecycle phase.