ACCOUNTING BLOG

Don’t let Your Business get Stuck in the Stalling Phase

Business Smarts
by Jay Holmes

The lifecycle of a business generally has three marked phases: the introductory phase, the growth phase, and then (after reaching the peak of growth), a phase of decline. Over the years, I have seen way too many businesses get stuck on the cusp between the introductory phase and the growth phase – a place I call “the stalling phase”.

The introductory phase introduces your business’s product or service to the marketplace. During this time, you are building awareness of your business, a client base, and resources to serve clients. The growth phase begins when your client base becomes established to the point that it is covers your expenses, pays yourself, and creates profit. Your decisions shift from being reactive to proactive. Your income usually increases faster than your expenses. The growth phase is a great place to be. But seen from the introductory phase, sometimes growth can seem insurmountably far off, and this is where I see a lot of business owners sabotage their introductory momentum and fall into the stalling phase. Some businesses never make it out.

Recently I was in a meeting with a client whose business in the health services industry is less than a year old. The business is doing well; new clients are coming in at a steady pace. I could see that there was room for growth, so I asked the business owner to gauge her capacity level—basically how much more she could (willingly) work in the day. Without hesitation, she said she was operating at about 30% capacity. But instead of wanting to fill up to 100%, she said she wanted to shift her focus towards cost reduction. She asked, “Where can I cut costs and save the most?” I responded with a look of bewilderment.

After such a promising start, she was already trying to scale down, unwittingly steering her business into the stalling phase. I pointed out to her that she could grow more than 200% before she would have to substantially increase her operating expenses (hire new employees). Her revenue could increase over 200%, but because her expenses would remain relatively fixed, most of that increase in revenue would go straight to profit. The modest profit she was earning the past couple of months could actually increase by 500% if she was able to hit her maximum capacity. That’s breaking out of the introductory phase and hitting growth mode at full speed. That type of growth is a big deal—much bigger than the 10% she might be able to save on expenses by trying to reduce costs. I was glad when my client was able to see that her business’s success would come from focusing on the few things that can have the biggest and most profitable impact. Increasing profits by 500% is a game changer; shaving 10% off of current expenses is not.

Small business owners are usually not stellar marketers or salespeople. I see too many of them use just enough of their resources (time and money) to introduce their business and get things moving, and then retract back into the office just as the business begins to grow. This is a tempting time to rest. But as a result, growth comes to a crawl. Once you have a little momentum and are finally earning enough money to pay yourself, the last thing you want to do is increase your spending and stress. But that is exactly what is needed to avoid the stall.

The end of the introductory phase is the right time to bring in some professional marketing help, scaling up first, and then, once the business is securely in the growth phase, bringing in new employees to take over the tasks that are not your strengths. This expenses should be written into your budget to create clear expectations for the future. These early investments will keep your momentum going and keep you from burning out. That way, your business can soar into its growth phase and move sustainably toward its peak.