The Startup Phase of the Business Cycle & Its Useful 4 Emotional Stages
In entrepreneurship, understanding the business cycle guides leaders through to startup success. This blog aims to dissect the startup phase, specifically focusing on what it feels like as the entrepreneur moves through them. Each stage within the startup phase has unique behaviors and requires specific actions to effectively harness their potential and progress. During the startup phase, Entrepreneurs spend time and money with more going out than what is coming in – this drives the behaviors and their evolution.
Later, we explore how established middle-market companies find themselves going through the next iteration of the startup phase.
The 'Butterflies' Stage: Excitement Tinged with Uncertainty
Signature Behaviors
The ‘butterflies’ stage marks the maiden voyage of a startup. Entrepreneurs in this phase, brimming with optimism and excitement yet apprehensive about the road ahead, are fiercely focused on their vision with an occasional challenge to delegate effectively. They focus intensely, and their conduct is perceived as extremely desperate to prosper their business.
Decision Making
It is quick, often by ‘gut feel,’ acting with confidence and minimum data with a bias towards action to achieve the vision. They often underestimate the effort required. They can be intense and focus on multiple projects at a time, missing details and with blind faith that everything will work out.
Action Plan for Progress Along the Cycle
To navigate this stage, entrepreneurs should:
- Set realistic expectations while maintaining strong ambition.
- Use strategic planning to build a clear roadmap toward their vision and break down the startup phase into small steps enabling momentum.
- Begin building a competent team and assign responsibilities commensurate with their abilities. They should also create a skilled team of external advisors to keep momentum.
Example: Gourmet Foods Company
Gourmet Foods, a boutique food distributor, effectively managed this delicate phase. They conducted extensive market research, created niches in several upscale markets, and formed a goal-oriented team to determine which would gather traction first.
The 'Impatience' Stage: The Race for Momentum
Signature Behaviors
As a company moves from the ‘Butterflies’ stage into implementation. Often this stage is characterized by a great sense of impatience and feelings of momentum, as there is much to do!. Often this frantic behavior is created by an extensive to-do list. There is much to do! From getting the company set up, the bank accounts established and seeing customers or fitting out a location to attract them. Risks taken and investments made are in hope at a frantic pace and increasingly dispersed over time.
Decision Making
Decision making remains quick, but can become scattered as owners and employees alike over-promise as they underestimate the effort required. Urgency builds slowly at first as they try to get everything done. Cash and time continue to be spent to gain revenue traction.
Action Plan for Progress
To tame this impatience, leaders should:
- Be focused on the specific activities that will generate revenue in the future. Impatience often drives activities wide as the separation and impatience build.
- Have a plan and work the plan. Learn from what works, focus on these, and try everything simultaneously.
- Encourage an open communication culture emphasizing feedback from consumers and team members.
Example: Interior Furnishings Company
An office furniture retailer offers a compelling portrait of managing the impatience phase. They emphasized sustainable growth, one item sale at a time, building customer confidence that they could deliver when promised and that their products were of the required quality and arrived without damage. They integrated customer feedback into their products for continuous improvement.
The 'Anxiety' Stage: Tackling Fears and Doubts
Signature Behaviors
As impatience builds, this becomes bubbling anxiety, characterized by self-doubt and fear of failure. These feelings often stifle progress. This phase may compel entrepreneurs to be risk-averse, question their capabilities, and often leads to neglecting their health and well-being. Frequently the owner explores their decision options, business model, market, and why they have yet to have the success they dreamed about when starting the business.
The business is at the cusp of a key tipping point. The business owner will either become confident in their business, or resign to failure. Some young organizations pivot at this point and retune their business model and effectively restart their business.
Decision Making
It starts to change depending on the decision in front of them. Cashflow has become tight with the growing angst that can stall spending as enough revenue has yet to kick in.
At this stage, a business can stall as it feels appropriate not to spend any more until it starts improving. If the stall is prolonged, the company will initially plateau and decline to close.
Action Plan for Progress
To address these concerns, leaders must:
- Be self-honest. Is there demand in the form, or is the concept new and too out there for most?
- Build the business infrastructure required to support the next phase of business growth.
- Cultivate a balanced attitude, viewing setbacks as stepping stones for learning.
- ‘Act as if’ they are successful, persevere and keep focused. Set a deadline for the business to respond.
- Monitor stress levels, maintain work-life balance, and prioritize self-care, including expressing their feelings.
Example: Green Cleaning Solutions
Green Cleaning Solutions, a boutique cleaning service, focused on educating its target market on why they should spend a little more by using their alternative to the traditional cleaning approaches. They leveraged industry partnerships, embracing learning from how people reacted to their marketing messages. They focused their marketing activities on those companies that wanted their suppliers and service vendors to help them be green.
The 'Confidence' Stage: Capitalizing on Momentum
Signature Behaviors
During the anxious stage, there is a tipping point where the entrepreneur becomes confident and can see that the business and its model will be successful and continue to gather momentum and stability. In addition to confidence, a sense of relief that there is a future for the business.
Investments at this stage are made confidently, whereas before this stage, decisions and investments were made with hope.
Decision Making
Most of the decision-making at this stage focuses on investments, such as hiring people, extending a lease, and buying more stock. The mistake often made is to focus on the immediate term rather than review the business plan or consider what it requires beyond tomorrow.
Action Plan for Progress
In this phase, entrepreneurs ideally:
- Review their plans and what investments are required for sustainable, predictable growth.
- Prepare for a new frenetic activity phase caused by the growth investments.
- Reconnect to the vision, celebrate milestones to boost team morale, and pave the path for future success.
Example: Pet Care Services
Pet Care Services is a small pet care and grooming service with 1 location. The business was set up as Pet owners increasingly wanted their pets to look good but lacked the time or the skill to achieve the desired look. They needed their facilities to be busy 80% of the time to start making money. During the previous phase of anxiousness, they researched their customer base issue. They realized they could get more frequent appointments and stronger utilization if they invested in a pick-up and drop-off facility. They initially rented a van, and as word got around, they could see that they could easily keep the grooming facility fully engaged. They invested in more staff, and their first leased van was outfitted to allow easy and safe transportation of their customer’s treasured pets.
Conclusion
The best leaders can recognize the emotional undercurrents that such a journey brings. They learn to recognize the initial butterflies, intermittent anxiety, impatience, confidence surges, and their team’s performance and decisions during each phase.
Understanding that the progressive stages within the startup phase of the business cycle are normal and that understanding them allows them to drive the business rather than the business driving them.
The business cycle offers an invaluable analytical tool, offering insights and targeted strategies to cope with each stage, effectively helping leaders channel their emotional responses into tangible business growth. By practicing these strategies, entrepreneurs from diverse sectors, especially at key tipping points, can process and employ their moving experience to accomplish sustained business success in the long run.
Growth or Decline: Timing Your Business Cycle Strategy Makes the Difference
There are three cycles, often collapsed into a single cycle, that every business owner needs to be always aware of to make more profitable decisions. The three cycles are:
- The Economic Cycle
- The Industry Cycle
- The Business Growth Cycle
When you overlap all three cycles you now have very clear data on where exactly your business is. Having this clarity is the difference between maintaining a trajectory of continued growth and increasing profits vs. wasting a lot of time, frustration, and money applying the wrong strategy at the wrong stage.
The Economic Cycle
The economy is constantly changing and evolving, which means that it is also constantly moving through a series of different stages. The economic cycle is the movement of the economy through these stages, which can be divided into four distinct phases: expansion, peak, recession, and contraction.
We can think of the economy as a weather system, with clouds and rain and sunshine all competing for attention. This gives rise to patterns of behavior that recur over time and seem to follow similar patterns each time they happen. We receive news on a daily basis that relates to the global economy, the national economy and our local economy.
The Industry Cycle
Because industries operate within their own separate economic environments, they also experience their own cycles. These cycles often mirror the overall economic cycle, but they may also be influenced by other factors such as technology or government regulations.
The life of any industry can be described by an S-curve, which shows how revenue and profit grow over time before flattening out and declining towards the end of the cycle. An industry's cycle can be broken down into four stages: expansion, maturity, contraction, and decline similar to the economic cycle.
The Business Growth Cycle Model
In addition, the Economic and Industry Cycles each business goes through its own cycle. The model identifies six key phases of the first pass through on the Business Cycles Model that will determine the strategy, and therefore steps, the business needs to take.
These phases are:
- Startup / Redesign
- Incremental Growth
- Accelerated Growth
- Future Growth
- Plateau
- Decline
Startup
The first time the business enters the Startup phase, it is just getting off the ground. The company's owners are typically working long hours and they are learning about their business and their customers. This is an exciting time for the owner(s), who may be dreaming about how big their business will become and what it will mean to them financially.
The feelings associated during this phase range from excited to anxious and the resulting behaviors often include frantic and desperation driving the need to try lots of things to get through this stage.
Read more about Startup the first time around
Read more about Middle Market companies entering a new Startup phase
Incremental Growth
Incremental growth is the stage when a business gradually grows and there are typically steady improvements in sales. This phase is entered as the business proves it is viable.
At this phase a business grows from existing customers by serving them better and encouraging them to spend more money as well as adding new customers. The business will make systematic small changes that improve the customer experience and encourage repeat purchases.
The feelings associated during this phase include confidence, relaxed, to that of winning the lottery. The behaviors this creates range from frantically spending and taking increasingly larger and bolder risks. There is a significant tipping point as this phase comes to an end and mistakes are often made as the feeling of winning the lottery can make the owners and leadership team feel bullet proof.
Read more about the Incremental Growth phase
Accelerated Growth
This phase can be challenging for businesses. What happens here sets the stage for where they end up – growth or decline. Many businesses are not well prepared for this phase and often attempt to manage it by applying the wrong strategies.
Here the business' growth cycle is a period of rapid growth and is capital intensive.
The company is hiring new employees at a rapid pace, the culture becomes stressed and communication suffers. The management starts to look for ways to reduce costs without sacrificing quality or performance, yet they are often unable to keep up with demand or maintain quality standards. Staff starts to leave; management spends all day playing whack a mole and in closed door meetings trying to fix the issues.
The transition to the next phase can be brutal and a business often stalls as it is transitioning into the next era such as becoming a true Middle Market sized company. What it does now determines its ongoing trajectory.
The feelings associated during this phase include tired, frustrated, stressed and disillusioned. The resulting behaviors can turn the culture toxic, develop a blame culture, and key employees often leave.
Businesses in this phase are at a critical tipping point and what it does now determines if it lands successfully into Future Growth or if it plateaus and declines.
Read more about the Accelerated Growth phase
From here the business will enter one of three possible trajectories:
Future Growth
The business has successfully traversed the Accelerated Growth phase and has made the right investments and implemented the right strategies to continue growing.
The business has evolved its management and leadership approach and is run very differently to prior phases. It has adequate operating capital, makes strategic investments, has a good culture, and profits.
This is often the best place to sell, but can feel counter intuitive.
The feelings associated with this phase are typically pride and curiosity about the next phase of the business growth and the next business cycle. The business is managed in a disciplined manner and professional behavior.
Read more about the Future Growth phase
Plateau
The business hasn’t implemented the right strategies yet and is in The Plateau phase. The company has reached its peak and is no longer growing. There is still time. If a business does not change, it will ultimately decline and die.
The Plateau phase can be caused by several factors. One of these is that the business has reached its saturation point, meaning that there are no more customers to acquire or sell to. Another reason can be that the company has become complacent with its current products and services and is not making any major changes or improvements to them.
The feelings associated with this phase typically start with contentment because the business is stable but will soon lead to anxiousness and feeling trapped. The behaviors develop into an unwillingness to change and resignation that this is it.
Decline
Decline is the point at which a business can no longer sustain its current level of growth. It's also the stage in which an organization begins to lose market share and needs to make decisions about its future.
The decline phase can be triggered by a number of factors such as decreasing demand for products or services, declining profits, inability to innovate, or lack of competitive advantage.
At this phase the business is on a downward trajectory. This is often when a business owner considers selling and handing the problem of revitalizing the growth to someone else.
The feelings associated with this phase include fear, lack of motivation, insecurity and exhaustion. Behaviors can become irrational and desperate.
Conclusion
The life of a business owner is rarely a dull one. They are often in the position to make decisions that have far-reaching impacts on both their business and their family's life. They need to be aware of external factors and cycles that will influence their business and have the knowledge to manage it through the various cycles that you will no doubt go through.