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We figure out how business is like a living organism and why “feed” your own business with investments, even if it has already grown.
Any company during its existence goes through certain stages of business development. Both the family café, the online clothing store, and the steel pipe factory have similar processes and problems that economists compare to the existence of a living organism. These stages form the complete life cycle of a business.
Such a comparison is also possible because at each stage a business, like a living organism, needs to be “fed” with investments in order for it to live and develop.
The main thing is that a business differs from a living being: death in its scenario is not at all necessary. And it is important for an entrepreneur to understand at what stage of development his company is in order to know how to grow it further.
1. Founding stage
You start a business. This means that you have already assessed the viability of the idea, taken into account all the risks, calculated what costs await you at the start, and wrote a financial plan.
At the stage of foundation, you register an individual entrepreneur or LLC, recruit a team, and look for the first clients. At this point, the project needs funding. You can find its sources in different ways - everything will depend on the type of business and your idea of how the business should develop.
For more information on what you need to consider when opening your own business, read our article "What a beginner entrepreneur needs to know", and if you want to open an individual entrepreneur, read the article on the intricacies of registering it.
How to attract money?
You will need to collect at least part of the start-up capital yourself: save money or, for example, sell real estate. If personal savings are not enough to start, you can find funding in the following ways:
2. Zero exit stage
At this stage, you can return the money you spent on opening a business. The business has a minimum profit, and with its help it is possible to maintain turnover: there is enough money from the sale of goods to buy new lots. But funds may not be enough for improvements that will generate more profit: you cannot hire new employees or buy more goods. So the business still needs funding.
How to attract money?
3. Growth stage
The business increases its profits and the number of clients: you can distribute debts, if any, hire new employees, and increase production. Additional investments should be spent on improving service and solving problems that hinder development. Let's say your courier service doesn't need two cars, but five. Or the website of an online store should be seriously redesigned.
Also at this stage, there is a high probability of encountering cash gaps: when you have already earned money, but you do not have it in your hands yet and you cannot put it into circulation or spend it.
How to attract money?
4. Maturity stage
At this stage, the business stops growing rapidly and becomes resistant to external circumstances. Problems in the economy (for example, rising prices for raw materials) or force majeure should not become a death sentence for the company - in this case there should be a financial safety cushion that will allow it to survive the crisis and find a way out of the situation.
Although there are fewer risks, it is not worth letting everything go by itself. If you keep the situation under control, you can stay at this stage for a long time. But you can develop your business further and scale it. For example, expand the geography and sales volume or increase the number of retail outlets in your region. This will require not only effort, but also finance.
How to attract money?
Profit alone may not be enough to scale a business. You can attract additional money using the methods you are already familiar with. It is worth choosing them based on the specifics of the business. If you have a transport company or a taxi company and you need more cars, leasing will do. If you have a beauty salon and want to launch an advertising campaign to attract new clients, you can take a micro-loan from an MFO. You need a new point - think, maybe a loan will suit you.
5. Decline stage
Profits go down, costs go up, customers are lost - these are signs of a decline. It is possible that even if you have new customers, the net profit still does not increase: the money will go to pay off costs.
But the stage of decline does not necessarily herald the closure of a business. At this stage, the business can still be saved.
How to attract money?
At this stage, take your time to close the problem by simply pouring money into the existing structure. First, identify the problems: you may now be spending money inefficiently and your budgets just need to be reallocated.
Establish internal processes, try to bring something new to the business. These can be management decisions - for example, introduce a new system of employee motivation or implement a program that will optimize their work. You can also try strategic innovations: start selling a product that your competitors do not have, or develop a convenient mobile application that will help you reach new customers. Money for this can be attracted by methods you already know - for example, take a loan or a loan, find co-investors.
Five stages - optional scenario
It is not necessary that your business will go through all these five stages and that the stages will replace each other strictly in the described order. Some companies go into decline immediately after opening, others work for years, going from maturity to expansion - everything is individual and depends on the decisions you make.
The text was prepared with the support of experts from the public organization of small and medium-sized enterprises "Support".
Any company during its existence goes through certain stages of business development. Both the family café, the online clothing store, and the steel pipe factory have similar processes and problems that economists compare to the existence of a living organism. These stages form the complete life cycle of a business.
Such a comparison is also possible because at each stage a business, like a living organism, needs to be “fed” with investments in order for it to live and develop.
The main thing is that a business differs from a living being: death in its scenario is not at all necessary. And it is important for an entrepreneur to understand at what stage of development his company is in order to know how to grow it further.
1. Founding stage
You start a business. This means that you have already assessed the viability of the idea, taken into account all the risks, calculated what costs await you at the start, and wrote a financial plan.
At the stage of foundation, you register an individual entrepreneur or LLC, recruit a team, and look for the first clients. At this point, the project needs funding. You can find its sources in different ways - everything will depend on the type of business and your idea of how the business should develop.
For more information on what you need to consider when opening your own business, read our article "What a beginner entrepreneur needs to know", and if you want to open an individual entrepreneur, read the article on the intricacies of registering it.
How to attract money?
You will need to collect at least part of the start-up capital yourself: save money or, for example, sell real estate. If personal savings are not enough to start, you can find funding in the following ways:
- Seek state support. If you have a business that is significant for the region, then you can ask for financial (and not only) assistance from the state for special business support programs. For more information on how to get government support, see the article "How to get a loan for a small business under a government guarantee".
- Raising the required amount through crowdfunding. “Collective funding” at the very beginning of the project can work if you have a creative project or an unusual product - you produce something that you want to order immediately. How to use it, read the article on types of crowdfunding.
- Find a Venture Investor. A venture capitalist can be attracted to a tech start-up at the founding stage. This is usually a tech specialist who invests his resources in fast-growing startups with the expectation of big profits. Resources are not only money, but also knowledge. An investor can propose a development strategy, look for and train specialists, find the right contacts - in order to quickly achieve results and recoup their financial investments.
When starting a business with a venture capitalist, it is worth investing at least 50% on your own, otherwise it is highly likely that your partner will influence the processes too much, hoping to get more profit. - Leasing equipment or property. If your business needs a car, large equipment or premises, you can lease it: you lease the property, but with the ability to redeem it in full. The lease fee won't hit your budget hard, and you still have equipment that is likely to pay off the fees. For a while you pay for the property on lease, but it works for you and constantly makes a profit.
2. Zero exit stage
At this stage, you can return the money you spent on opening a business. The business has a minimum profit, and with its help it is possible to maintain turnover: there is enough money from the sale of goods to buy new lots. But funds may not be enough for improvements that will generate more profit: you cannot hire new employees or buy more goods. So the business still needs funding.
How to attract money?
- Take a microloan from an MFO. The terms of microloans for business are very different from those for consumer loans - the annual rate for them is much lower (from 20%). In addition, in each region there are MFOs for entrepreneurial financing, which provide loans to businessmen at a reduced rate - from 8-9% per annum. How to get a micro-loan to develop your business, read our article.
- Organize fundraising through crowdfunding. At this stage, you can also apply for "collective funding", especially if you produce goods - a crowdfunding platform can become an additional sales market.
3. Growth stage
The business increases its profits and the number of clients: you can distribute debts, if any, hire new employees, and increase production. Additional investments should be spent on improving service and solving problems that hinder development. Let's say your courier service doesn't need two cars, but five. Or the website of an online store should be seriously redesigned.
Also at this stage, there is a high probability of encountering cash gaps: when you have already earned money, but you do not have it in your hands yet and you cannot put it into circulation or spend it.
How to attract money?
- Connect a factor to the payment scheme
If you are engaged in trade, right now you have more customers, which means you need to buy and sell more. Many companies sell goods and services with deferred payment: they received or sold the goods today, and the money for it will be transferred only after a month or two. To avoid a cash gap, you can connect a factor in the relationship between the buyer and the seller. A special company or bank pays the seller for the goods at the time of delivery, and the buyer has a delay: he pays for the goods later and to the factor. - Leasing equipment or property
And at this stage additional equipment, transport or real estate is not necessary to buy - you can lease the necessary equipment and buy it back later, when the equipment will allow you to earn more. - Take out a loan A
growing business that has been in existence for a couple of years is more likely to get a loan or loan. You can get preferential terms or secure guarantee support for a loan in banks and MFOs that work under government support programs. Read more about this in the articles "How to get a loan for a small business under the state guarantee" and "How to get a soft loan for a small business". - Sell a share of the business
So you will receive not only money for further development, but also a business partner. To avoid possible conflicts and not become a victim of an unscrupulous colleague, carefully approach your choice: be sure to legally fix the sale of the business, draw up an agreement that will clearly spell out what rights the partners have and what role they have in the project. - Attracting co-investors
Your business is already successful, which means there are more chances that investors will be interested in it. You can search for them among colleagues and acquaintances, on crowdfunding sites and industry forums.
4. Maturity stage
At this stage, the business stops growing rapidly and becomes resistant to external circumstances. Problems in the economy (for example, rising prices for raw materials) or force majeure should not become a death sentence for the company - in this case there should be a financial safety cushion that will allow it to survive the crisis and find a way out of the situation.
Although there are fewer risks, it is not worth letting everything go by itself. If you keep the situation under control, you can stay at this stage for a long time. But you can develop your business further and scale it. For example, expand the geography and sales volume or increase the number of retail outlets in your region. This will require not only effort, but also finance.
How to attract money?
Profit alone may not be enough to scale a business. You can attract additional money using the methods you are already familiar with. It is worth choosing them based on the specifics of the business. If you have a transport company or a taxi company and you need more cars, leasing will do. If you have a beauty salon and want to launch an advertising campaign to attract new clients, you can take a micro-loan from an MFO. You need a new point - think, maybe a loan will suit you.
- Get a loan using crowdinvesting. Crowdinvesting is a way to get loans on special Internet sites. At this stage of the business, the company's financial statements will most likely not raise doubts among potential investors, and it will be possible to get a loan quite quickly. Read more about it in the "Crowdinvesting" tab in the article "Crowdfunding: How to raise money through collective financing".
- Get a loan. For a mature company, a loan is a completely safe way to attract money, if, of course, you are well aware of what it will go to. That being said, the maturity of the company does not at all deprive you of the opportunity to receive benefits.
- Issue Securities. Maturity legal entities may issue stocks and bonds to raise additional money.
A share is a kind of "sale" of micro-shares of a company: a shareholder gives you money, and in return receives a percentage of the possible profit. In addition, the votes of shareholders will need to be taken into account when making decisions on the development of the company.
A bond is a promissory note under which you, figuratively speaking, borrow money from a buyer and agree to return more after a while.
5. Decline stage
Profits go down, costs go up, customers are lost - these are signs of a decline. It is possible that even if you have new customers, the net profit still does not increase: the money will go to pay off costs.
But the stage of decline does not necessarily herald the closure of a business. At this stage, the business can still be saved.
How to attract money?
At this stage, take your time to close the problem by simply pouring money into the existing structure. First, identify the problems: you may now be spending money inefficiently and your budgets just need to be reallocated.
Establish internal processes, try to bring something new to the business. These can be management decisions - for example, introduce a new system of employee motivation or implement a program that will optimize their work. You can also try strategic innovations: start selling a product that your competitors do not have, or develop a convenient mobile application that will help you reach new customers. Money for this can be attracted by methods you already know - for example, take a loan or a loan, find co-investors.
Five stages - optional scenario
It is not necessary that your business will go through all these five stages and that the stages will replace each other strictly in the described order. Some companies go into decline immediately after opening, others work for years, going from maturity to expansion - everything is individual and depends on the decisions you make.
The text was prepared with the support of experts from the public organization of small and medium-sized enterprises "Support".