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6 Stages of Business Ownership
City National Bank recently completed a research initiative focused on the challenges faced by entrepreneurs. The process involved interviewing business owners from across the nation and identifying the common problems they face during various stages of entrepreneurship.
While the report focuses on women business owners, it uncovered useful insights that apply to all entrepreneurs. You can read about these findings below.
Download the complete report or read more articles based on it here.
More than 10 million Americans launched new businesses in 2021 and 2022, according to data from the U.S. Census Bureau. The wave of entrepreneurship continues, and the most successful entrepreneurs view business ownership not as trying on the latest trend but as a long-term endeavor.
If you own a business or plan to launch one, it's a good idea to be prepared for the many changes you can expect throughout your company's lifetime.
Based on City National's research, entrepreneurs from all walks of life guide their enterprises through six common stages: inception; planning; startup; profitability and expansion; scaling and culture; and business exit.
Keep reading to learn more about each stage and what to expect as you work toward reaching and sustaining entrepreneurial success.
Every business starts with an idea. It might be a new product, an improved service, or the would-be entrepreneur's particular passion project. The inception stage is when the entrepreneur starts converting their ideas into reality. That involves figuring out the resources, support and partners they will need to succeed.
While many business owners are experts when it comes to their product or service, they may not have expertise in all the other aspects of running a business.
This means that entrepreneurs should start considering where they will get help for tasks such as:
- Business planning
- Staff management
- Creating new products and services.
At this stage, business owners should focus on building a strong professional network and identifying partners such as bankers, accountants and attorneys. It's also wise to seek out a mentor who is farther along in the entrepreneurial process — doing so can help avoid pitfalls and inspire confidence that you're taking the right first steps toward opening your company for business.
After fleshing out the business idea and lining up resources and partners, the next stage of launching a business is planning. In this phase, the business owner lays the foundation for making their business idea a reality.
Early parts of business planning include:
- Writing a business plan.
- Lining up clients.
- Networking with suppliers.
- Assessing financial needs.
Crucially, business owners that City National spoke to said that doing these things as early as possible contributed to the success of their company.
Yet many of these tasks are easier said than done — especially for first-time entrepreneurs. This is especially true when it comes to securing the funds required to start a business.
Some business owners use their own financial resources to bootstrap their businesses, while others seek outside funding in the form of loans or investments.
After careful planning, an entrepreneur is ready to launch the business. For most businesses, the startup phase is a lean period, when most or all profits must be reinvested into the business to fuel growth. It can be helpful at this stage to have a partner who can offer advice on cash management strategies, as well as a reliable mentor and a peer network.
Business owners might also need to be open to learning new skills to sustain their business during the startup phase.
New skills a business owner may need to learn include:
- Payroll systems.
- Lead generation.
- Career planning.
- Making the most out of referrals.
The startup phase can be both financially and emotionally difficult, as business owners often work long hours and frequently encounter new challenges. A support system of key employees, suppliers and fellow business owners can be invaluable. Despite the obstacles, a well-planned business founded on solid ideas and principles can survive the startup phase and head into the growth phases.
Profitability & Expansion
When a business reaches the expansion stage, it has steady profits, loyal customers and well-established operations, but the owner sees potential for more. However, “more" can mean a variety of things to different business owners — and the right type of growth will depend on the entrepreneur's priorities and purpose for the business.
Business owners commonly look at growth in terms of one of these four common themes:
- Profitability, or seeking to maximize income from operations before expanding with new locations or hiring.
- Organizational growth, or adding employees, customers and/or locations.
- Internal growth, or being focused on helping employees learn, grow and take on more work.
- Personal growth, or being focused on the learning, growth and rewards provided by owning the business.
In this phase, a business owner must determine the type of growth they want to see in their business and start taking the concrete steps that will allow them to get there.
Scaling & Culture
When a business reaches maturity, it is stable and profitable. It serves a large and loyal customer base that understands and values its products and services and employs a team of experienced colleagues who work well together.
A business that has reached maturity may not be growing as fast as it has in the past, but it has reached a point where it satisfies the owner's goals for size, profitability, market share and reputation. At this stage, the owner must focus on maintaining the business at this larger scale, while building and reinforcing company culture.
Even a mature business can continue to evolve. It's important for the business owner to continue to be able to respond to new opportunities and risks that are constantly changing in the marketplace.
It can also be a time to add employees, locations, business lines or products and services as needed. As the business continues to grow or maintain stability, it can be smart to review processes and make sure they still meet the needs of the business.
For many successful business owners, the business becomes an essential part of their identity. Thinking about retiring, selling the business or passing the torch to the next generation can be stressful.
However, planning for an eventual exit is a vital part of the business journey and it should start long before the exit is planned. When business owners prioritize planning an exit strategy as carefully as they prioritized planning for the launch of their business, they can ensure that they'll have the resources they need for the next stages of their lives as well as enable their companies to continue successfully even after they no longer play an active role.
Business owners have various options for exit strategies, including selling the business, passing it down to a family member, or implementing an employee ownership plan. Rather than waiting until the time has come to move on, it's best to start planning the exit at least a few years in advance.
Download the full report, From Inception to Succession: The Six Stages of Women's Business Ownership, here.
The Stages of Business Growth
The Stages of Business Growth: The Inception8 min read
The Stages of Business Growth: Planning8 min read
The Stages of Business Growth: Startup8 min read
The Stages of Business Growth: Profitability & Expansion8 min read
The Stages of Business Growth: Scaling & Culture8 min read
The Stages of Business Growth: The Exit Strategy8 min read
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.
City National, its managed affiliates and subsidiaries, as a matter of policy, do not give tax, accounting, regulatory, or legal advice, and any information provided should not be construed as such. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. Any strategies discussed in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies or information presented taking into account your own particular circumstances.