ComplianceNovember 01, 2020

Measuring our startup success

Success means many things to many people, but when measuring your small business's success, it depends upon your business's life cycle.

Success is measured differently depending on the business's stage of maturity. The three basic stages on the road to success are infancy, survival and nominal success.

The first step to success: Infancy

A startup business, in its infancy, concentrates on how to:

  • Get customers.
  • Deliver the product/service to the customers.
  • Broaden the sales base to get more customers.
  • Get enough cash to cover the startup phase.

At this stage of its existence, the owner is spending all of his or her time in the business. In fact, the owner IS the business. Systems are minimal. The strategy is simply, "stayin' alive!"

Causes of failure. The causes of business failure in infancy are almost always found in three areas:

  • Capital runs out.
  • The market niche was misjudged and no one will buy the product/service.
  • The owner can't take it anymore, so he or she sells out or folds up.

Are you succeeding? If you're in the startup stage and you're managing to stay alive, the customers seem to like your product, and you're not burning out, you're probably succeeding.

The second step: Survival

The next stage is a state of survival, and it could take anywhere from a month to five years to reach this plateau. The keys to this phase are:

  • Income is sufficient to cover expenses, to break even, and to renew assets as necessary.
  • Income is growing so that a small profit might be realized.
  • Employees may be necessary, but systems are still minimal.
  • Cash forecasting is possible, as well as necessary.

Causes of failure. The causes for business failure at this stage will likely involve:

  • Owner burnout.
  • Inability to grow and expand due to a variety of factors, including insufficient cash flow, limited owner ability, and marketing shortcomings.

Many businesses reach the survival level and remain there indefinitely, earning just enough to get by. This is the case for most "ma and pa" stores and it is acceptable if the owners don't rely on ultimately selling their business for a gain after it has marginally supported them over the years. Most survival-type businesses are sold at a slight loss or simply closed when their owners choose (or are forced) to retire.

The third step: Nominal success

If you're past the "ma and pa" stage, the third success stage, nominal success, will require a fundamental decision.

Are you going to hire a skilled manager and let him or her run the business in its static form while you sit on the beach, are you going to start up another kind of business, or are you going to try to grow this business by utilizing the borrowing power of the firm to finance an expansion?

If you elect the former, your business will likely remain stable. But if you choose the latter, investing all the company's resources in more and better facilities, equipment, products, and managers, your firm might achieve solid growth or it might falter in its new direction. If you still closely monitor your business, you should be able to recognize that your business is no longer thriving, and you can manage your way back to stability, or at least back to survival mode.

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