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7thWave AI Assistant

Businesses evolve.  There are loads of models of business evolution.  In this post, I shall share a model I use.  But first, let’s be clear about the nature of models.  Models do not dictate reality, they interrogate it.  Compare your business with this model (or any other).  Ask a few questions:

• Where does my business fall in this model?
• How close a match is it?
• If it is a close match, are you happy with it?
• If it’s not a close match, what is the point of departure?
• Does the model point to helpful changes?

This model comes from several sources.  I use it to identify potential future development and also missing steps in past development.  Most businesses start at step 1.  If you started at a later step, it’s worth asking whether you have missed something by not passing through the earlier steps.

Step 1: Blue Skies

This is the first idea.  Or most likely ideas.  This is where you dream.  Once you have an idea, can you market and sell it?  So, this step is mostly about experimenting with marketing and selling.  Many new businesses begin by selling to friends and relatives.  This is OK and allows you to iron out issues with your product or service.  However, it would help if you also worked out how to market and sell to people you don’t know.  Keep it small and focused.  If you can’t sell to someone over a coffee, it is much harder to automate your marketing and sales at a later stage.  You need to work out what works!

Financially, your focus should be on the number of sales.  Once sales begin to accelerate, you’re ready to move to the next step.

Step 2:  Cooking on Gas

Now your focus moves from sales to revenue.  How much money are you making on each sale?  There may be costs attached to each sale but your focus is on your overall revenue.  So long as you cover costs and make enough to live on then you could stay at this stage.  The basic question is: how great a price will the market bear?  If you can charge a price that means the number of customers to break even is within your capacity to supply the service, you have a viable business.

I know this is generally seen as terrible bad advice.  However, it is only bad advice when your focus is on maximising profit.  If your priority is on delivering a product or service and that is what you enjoy doing, why move to the next step?  This step can work well, especially for creatives and coaches.  Their interest is in delivering something they enjoy doing.  Why complicate things unnecessarily?

Step 3:  Transcending the Threshold

Assuming you know how much finance you need and that your income covers that need, there's no need to move to step 3.  You can choose to do so.  The downside is that you will have to work on your business and do less of what you enjoy.

If your capacity is not great enough to run a viable business at step 2, then step 3 is an option.  However, this is about capacity.  If you know there is a market but can’t provide enough for that market then step 3 is worth considering. 

The threshold at step 3 is usually high.  This is where you start to employ staff and so need business premises.  It may be possible to manage without premises, eg by working online, but this has downsides.  The problem is there are initial costs so you are likely to be seeking investments.  This means you will need a business plan.  In the plan, you will need to show you have sufficient market to warrant an increase in capacity.  If you are already charging maximum for your product or service then you need to show how you will manage the increased capacity.  There are other options, eg reducing price and quality may increase your market.

This is the point where you move from revenue to profit.  You need to show that fixed and variable costs can be covered while you still make a profit.  I’m sure this is why there are so many bad employers around.  It’s not that they want to be bad employers, it’s that they have not done the groundwork and so have to cut corners to break even.

Step 4:  Becoming a Guru or Angel

Whilst at Step 3, you are likely to need investment, the business owner who focuses on their business will build a business empire.  They invest in other businesses, build businesses or expand into other areas of work.  They no longer work in their business, doing the things they started to do.  Many at this stage don’t plan to be here and some aim for these giddy heights from the start.

Perhaps the best word to use to describe this stage is “entrepreneur”.  I suspect the best people are those who find they enjoy the role and value the positive outcomes of their investments.  They make money on their investments so that they can invest more.  The grasping capitalist, who accumulates wealth for reasons of power is not in my view a genuine business person.  They have lost sight of the purpose of business, which is the benefit of the community. 

Step 5:  Exiting Business

There are at least 3 ways out of your business:

1. You can die. This is an option no one chooses but it does happen.  If you have significant business assets you need to plan what happens in the event of your death.  Whilst you will want to make provision for your family, handing the business to your next of kin is not necessarily a good idea.  Get advice about your options.
2. Pack it in. Simply, close the business and sell everything.  This can be forced upon you through bankruptcy.  If the business is not viable it may be the best option.  However, viability is in the eye of the beholder!
3. Sell it. This means to sell the business as a going concern, ideally to someone who can make something of it.  At steps 3 and 4, where you’re well-established, this is worth considering early.  That is to get everything in place early so that a sale can happen in the event of death or a desire to retire. 

Yep, it’s as easy as that!  Business development is fraught, highly stressful and nothing works as it should.  If you can step back and work out which step you are at and that you have everything in place to stay where you are or to move on, you have a chance of staying in business.

This is the fifteenth in a sequence of posts about business storytelling.  The first post was Marketing: Art or Science?  The last post was Building on Business Foundations and the sixteenth post will be Decision Making Stories.

To try out one of your business-related stories and receive feedback from me plus a few other business owners, please comment below to arrange an informal conversation.  I run these sessions free of charge on the second and fourth Thursdays.  Visit my website to find out about the Telling Stories Autumn meetings.

Minerva's new business does not seem to be as popular as she hoped.  Can you work out why?