This is the second in our series of articles on managing a mature business.
In this week’s article, we are (hopefully) going to recognise that your business has reached the mature stage in its life cycle, and look to renew the cycle before it drips into the next stage, which is the stage of decline!
But first, let’s refresh our memories to talk about the four stages of the business life cycle: –
Stage 1 is the Startup or Development phase – sales are low but slowly increase, or you start with a bang and sales grow rapidly; despite this, losses are incurred because of the proportionately high cost of marketing and startup; cash flow is likely to be negative and hence funding is required to sustain the growth.
Stage 2 is the Growth phase – sales grow steadily as the market responds to your introduction, and potentially more and more products are introduced and taken up; sales grow beyond the break-even point and profit starts to grow, sometimes more rapidly than sales growth because efficiencies have been found; cash flow improves and becomes positive and is capable of funding further growth or the repayment of debt.
Stage 3 is Maturity – sales start to slow in growth and even stagnate; less and less new customers are found; more and more competition is seen; the products become less and less profitable and competition affects prices; cash flow is still positive because capital spending is mainly over, and debt is being paid off.
Stage 4 is the Decline stage – If you don’t recognise the maturity stage and put it off, the business slides into decline; sales, profit and cash flow all decline accordingly as the market is saturated; further investment is difficult because of reduced return on investment and the difficulty of obtaining funding; owners then decide to adapt to the declining environment (i.e. do nothing and keep declining), or exit altogether.
However, small business owners who recognise that their businesses are in maturity can successfully innovate and find new products or processes or even new uses for their products in order to kick-start a new Development phase. The key is to be in the mindset of honestly recognising the symptoms and deciding to do something about it before you slide into Decline.
If you are in that mindset of looking to reinvigorate your business and see it as a challenge rather than an inevitability, you should immediately:
- Review your business – completing a SWOT Analysis to understand your strengths, weaknesses, opportunities and threats;
- Review your target market or your present understanding of your target market which may have changed from that original understanding;
- Review your products – their strengths, weaknesses, opportunities and threats (as above) as well as what they mean to your new understanding of your target market;
- Create a plan with SMART objectives to introduce a “new” business model to meet the changed circumstances.
There are two major strategies to your plan.
The first is to extend the life of your business by extending the life of your products. The second is to innovate and create a different business model with the same, or new products.
In both cases, you are seeking to find new ways to deliver what the customer needs today, not what the customer needed when you started your business.
Taking the first strategy, of extending the life of your product, there are four main avenues to do this.
- You can maintain the use and serviceability of your product better than anyone else and hope that your competitors withdraw from the market leaving you the last person standing. As the last supplier of a still wanted product and serving it in an outstanding way attracting more customers in a saturated market because of that distinction, you could find new demand as others leave the scene.
- Find another use for your product. This is not necessarily applicable for every business, but many products will have an alternative use as customers informally use it for something else and inadvertently create a niche use. For example, as digital photography took over everyday photography, film photography found niche uses in art photography, supported by photographers looking for authenticity and depth of colour. As such, film manufacturers started to make a better grade of and more expensive films for this niche. The market is smaller, but for those still producing photography films, it is lucrative and profitable.
- Decide on an extended, but limited time to carry on the business – reduce costs and coast until it all dries up, then either replace the product entirely or exit the business. In this strategy, previous cash flow should have been used to pay off debt so that all income is now returning a profit and positive cash flow allowing you to close and exit if you want.
- Find a successor product that meets today’s market needs. This is an old-time example, but it still works: Nintendo started as an arcade company making large arcade games supplied to arcades, hotel lobbies and clubs. As that market declined they entered the world of pocket games – the same technology and ideas but meeting a different market. As that market declined we now know them for gaming systems like Wii and Gameboy.
An alternative strategy is to innovate your way out of Decline.
Such is “innovation” that there is no quick formula to find your new business model that will extend the life of your business by “kicking” it into a new Development Cycle.
However, you can explore your options by considering a series of questions, and then exploring where the answers take you. Sometimes, you may find a road totally out to the left-field that you had not thought of – go down it as far as you can. Consider these questions:
- What are your competitors not doing? What needs of customers are not being met because all the suppliers are thinking the same way and missing the opportunity? Be the first to recognise this gap and find a solution. Sometimes, it’s not about your product, it’s about knowing your customers so well that you see the need in their lives for something else that you can supply while keeping the same customer relationships you fought so hard to build while selling your product. Imagine how much easier it would be to introduce a new product to existing customers?
- What do you do that’s better than others? This is not necessarily about the way you provide your product – it may be a side-process that you excel at. For example, do you offer digital delivery of your product as an option? Perhaps you can make that your new business model and only provide (new) products that are available by download? Think of your use of technology or the way your team meet certain demands or your manufacturing processes – can these be used to create a new product?
- What hidden capabilities are you not currently using in your main offering? Does your product, or the processes you use, have hidden capabilities that are not “sold”? Can your product be used in another industry, for something it is not normally used for but to which it can be adapted? For example, someone offering construction Project Management services might find that their project management procedure is translatable into software for organising staged professional services by lawyers and accountants. Or, in another example, Uber Drivers with downtime can be used to provide Uber Eats deliveries.
- What talent do you have in your team that you’re not using? Can that talent be used in new ways or to create new products? Can the unused talent be used to extend the life of the existing product? For example, members of a legal team may have experience in a legal discipline that is not currently being offered in the firm’s existing offering of legal services – as the need for Contract Law diminishes, the firm may transition into Family Law. Sometimes, this can mean broadening into a related industry, like talented interior designers being repurposed into being designers for commercial projects. Or it can pursue expertise in your team – public accountants offering their team members as contract CFO’s.
- What new product can you bring in that will meet new target markets? This might be a totally new product in which you have a related experience in your existing market or a related product in a totally new market. As electric vehicles enter the market, internal combustion trained mechanics can still provide services if they retrain, and continue to serve existing customers as they change vehicles; or those same mechanics can work on industrial and farm vehicles – for a few more years – before the electric versions come on to the market, and service a whole new category of customers.
“Innovation” is not the exclusive prerogative of rocket scientists, it is a process to generate new ideas.
You need to first change your mindset that “this is what we do” to one where “anything is possible, we just haven’t thought of it yet.”
Recognise the mature stage of your business and make up your mind that you will not be left behind as it declines.
Then, decide on a strategy to pursue to kickstart the new Development phase of your business and start to analyse the issues and question your paradigms. Pursue new ideas to see if they are feasible – in fact, the process at this stage is no different from when you were evaluating your new business idea when you started.
In the next article of this series, we will look at marketing techniques to continue your growth.
Until then, make sure you stay up to date by going to Teik Oh Dot Com and reviewing the past articles in this series starting with this one on managing cash flow in a mature business. Then, if you haven’t already, make sure you get the articles about managing your mature stage business sent directly to your inbox.
While you’re at Teik Oh Dot Com, check out our free resources to help you manage and grow your business.
See you there, and have a great Christmas and New Year’s break!