The holy-grail of for-profit business is maintaining sustainable Return on Investment. Stakeholders, including owners; investors; managers; employees, benefit when the road to success is clearly understood, and the collective focus of all. Simple enough, though it’s important to recognize the different phases businesses must navigate on the way to success, and that change at any phase adds additional complexity and risk. The following graphic illustrates the phases most organizations go through, and potential consequences of not paying attention to what’s going on around them. For purposes of this chart, value can mean: cash flow today; current period earnings; backlog orders; market share; sustainable ROI, distinguished only by when actual cash is delivered.
Typical Phases of Maturing Businesses
– New business starts with an idea, followed by a fleshed-out concept in pursuit of an unmet need.
– Further due-diligence; financial viability modeling; a written business plan for getting there; funding commitments, are the final steps prior to start-up.
– The first major milestone after start-up is achieving break-even, demonstrating financial viability.
– The next phases include: growth through sales and marketing; optimization of production/service delivery/internal support processes, pushing efficiency and marginal profitability to the greatest extent possible.
– At maturity, maintaining production and service delivery levels; relationships; reputation; motivated workforce, are all part of maximizing the design of an organization’s business model. It’s at this level that future viability comes into play, with innovation as the principal driving force.
– Developing new strategies; product and services; markets; integration of best available technology/tools/processes; organization design models, are all examples of innovation designed for staying in front of the pack.
– Without INNOVATION, predictable results occur. New competitors enter the market making a once high value add product or service into a commodity; operating profits are driven down; reduced cash flow leads to survival mode; cannibalization of the original business design results in a business which no longer fits its chosen market.
– At some point the downward spiral forces difficult decisions about the future: FIX THE BUSINESS? – SELL THE BUSINESS – CLOSE THE BUSINESS? – START A NEW BUSINESS?
Understanding life-cycle components of successful business has always been key in achieving broad goals and objectives. It’s the perpetual speed of today’s changing conditions that force sustainable businesses to maintain a laser focus on where markets are headed, what competitors are doing, and what can be done to stay ahead of the curve. INNOVATION and CHANGE MANAGEMENT must NOT be something done only when the outlook is stormy, but rather become integral parts of Standard Operating Procedures.
by: Ron Albright