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Growth is the lifeblood of every business. However, many franchisors never take the time to set concrete goals.
Even if they do, the business growth goals they create for their company are wildly unrealistic, forecasting an off-the-charts exponential upward trajectory for the next thousand years.
Not setting realistic goals in business can doom it to failure. In this article, we’ll go over the following three things:
- The stages of business growth
- How to set your business growth goals
- Managing the growth gap
The Five Stages of Business Growth
All businesses experience similar problems at similar stages in their development. These problems correspond to growth stages.
By understanding these stages, franchisors can better respond to upcoming challenges. For example, whether to continue to bootstrap or seek out startup capital.
It can also help to anticipate what your business requires at each stage. One of these things is the need to expend a lot of time on your business during its formative years. Another is the necessity of delegation when your company gets bigger.
Here are the five stages of growth:
1. Existence
In the existence stage, a company's primary challenge is establishing a sufficient customer base. This ensures it generates enough cash to survive.
At this stage, the organization has a simple structure, and systems and formal planning are virtually nonexistent.
Unfortunately, lots of early-stage companies never drum up enough customers to make it through the early years. If this happens, the owner will have no choice but to shutter the business when the startup capital runs out.
2. Survival
Companies that reach the survival stage have demonstrated that they’re viable. They’ve attracted a robust customer base and are now satisfying it with the excellence of their products or services.
At this stage, a business’s major problem is to generate enough cash flow to go beyond the breakeven point. That way, it can earn a monetary return for all its hard work.
3. Success
In the success stage, owners must choose either to:
- Grow by risking the accumulated equity of the business
- Rest on their laurels so they can savor the benefits of success
To decide, owners should consider whether they're happy with the success they've attained or whether the rewards of growing their company would be more satisfying. If they choose the latter option, they must then evaluate their ability to meet the challenges of continued growth.
At the success stage, an enterprise has grown sufficiently large to require managers to take over duties previously performed by the owner. Although cash is plentiful now, the owner must ensure that there are enough cash reserves to weather the inevitable hard times.
Many companies remain in this stage of their evolution indefinitely—for example, franchise owners with limited territories.
4. Take-off
In the take-off stage, owners who decided they want to grow their business need to figure out how to finance and manage that growth.
At this stage, they need to ask themselves:
- Do I have the right kind of people to manage a growing company?
- Do I have enough cash and the willingness to risk it all to pursue rapid growth?
- Do I have the systems in place to handle the needs of a bigger enterprise?
- Am I willing and able to delegate authority to others when my company gets bigger?
This is a pivotal moment in the life of a company. If businesses can survive the challenges of this stage, they can go on to experience unprecedented success as a large company. If they cannot, they’re likely to die.
Often, founders who have nurtured their business all the way to the success stage experience catastrophic collapse during the take-off stage. That’s because they attempt to grow their business too quickly and deplete their cash reserves.
5. Resource Maturity
The enterprise has now arrived.
It has enough financial resources and managerial talent to remain viable for the foreseeable future. What a company needs to do at this stage is to consolidate the financial gains it’s made.
Now that it’s an established company, it must maintain professional standards by using tools such as budgets, strategic planning, and standard cost systems.
Different Skill Sets at Different Stages
By knowing what development stage it’s in, a company can prepare itself for the challenges it’s about to face.
New business growth strategies are needed at every stage. For example, starting a business is a stage one activity. This involves having a marketable idea, high energy, and large sums of cash on hand.
These factors are less critical at stage five when excellent information systems, budget controls, and people management skills take precedence.
How to Set Your Business Growth Strategies and Goals
Choosing the right goals in business is one of the best ways to ensure you get where you want to go. If you don’t have goals in mind, your efforts to build your business will be scattershot at best.
When it comes to achieving your business objectives, planning is one of the most crucial business growth strategies. Without a plan, you won’t know what you need to do to attain your goals. Planning helps you to stay focused and keep the big picture in mind.
Your goals don’t have to be perfect. However, they must be something you can use to direct your marketing efforts. To choose the right goals, decide what success looks like for you.
For example, are you trying to increase revenue, or do you want to boost your customer base? The best goals are aligned with what you’re trying to achieve. While revenue is the most frequently used business goal, it’s not always the right one for every business.
For some franchisors, that might be impressing potential investors with their customer base size. For others, it might be bigger profit margins.
Most companies set growth objectives around one of the following variables:
- Revenue (sales, net profit, total recurring revenue, average contract value)
- Subscriptions (monthly recurring revenue, annual recurring revenue)
- Units (total units sold, customer base, new contracts, follower count)
The type of goal you select will have a massive impact on how you approach business growth. For example, franchisors looking to increase the number of franchisees will cut their franchise fee by $10,000 and waive the first $20,000 in royalties.
While this would increase the number of operators doing business with you, it won’t bring in more revenue. Everything has an opportunity cost. This means focusing on one aspect of your company might mean that other areas won’t perform as robustly as you’d like.
That’s why picking the right goal at the right time is so incredibly important. Your growth goal needs to match where your business is at and what its future needs might be.
Once you decide what part of your business you want to focus on, decide what level of growth you want to aspire to. Read on for some guidelines you can use to help choose the right growth goals for your enterprise.
Choose Achievable Goals
These days, “hypergrowth” is a term much bandied about in business circles.
It means maintaining a 40%+ average annual growth rate for more than one year. However, it’s not realistic to choose this goal because no company can sustain year-after-year hypergrowth.
Unrealistic revenue projections based on how much growth you’d like to experience can lead to disastrous results.
Doubling your enterprise's size is usually a reasonable goal up to your second or third year in business. After that, it becomes much more challenging, often requiring an infusion of venture capital cash or some other breakthrough.
For companies less than seven years old, setting an objective of 50-75% annual growth is within the realm of possibility. Once your company reaches its seventh birthday, you should adjust your growth goals to between 10 and 25% per year.
Once you know what growth looks like for you, break the goals into smaller objectives to make them more attainable.
Managing the Growth Gap
To effectively grow your company, you'll have to do an excellent job managing the growth gap. This is the difference between your growth goals and what your business can presently deliver.
To avoid getting broadsided by a growth gap that could have been foreseen, evaluate your growth gap potential. Do this by looking at your business's growth trends and comparing them to where you want them to be.
Usually, there will be a gap.
Astonishingly, not many companies are good at doing this. That's because often, this isn't part of anybody's job description.
The worst reason for this stunning lack of vision is some enterprises are rewarded for gaming their projections instead of being pragmatic.
Filling that gap might mean having to either fundamentally change your business model or innovating like crazy. One way to do that is by reinventing your company. The rule used to be you’d reinvent yourself every seven to 10 years.
Now, it’s every two to three years.
Set the Bar Now
If you’re a franchisor looking to sell franchises of your business, Franchise123 can help.
Sign up as a franchisor, and claim your business page to get started.
You’ll be able to set up your page to offer the information all of your potential franchisees need to get started. We can help you connect directly with prospective business owners who are already interested in your concept and are ready to move forward with realizing their dreams of business ownership and your goal of expansion.
