OBJECTIVES• Identify the life cycle stages of a new business• Comment on the invention stage of a small business• Discuss the importance of the start up stage of a small business• Describe the growth stage of a small business• Distinguish between the maturity and harvest stages of a small business
Life Cycle Stages of a Business Click Mouse Reveal Next Phase Stage1 INVENTION Stage 2 START - UP Stage 3 GROWTH Stage 4 BREAKTHROUGH Stage 5 MATURITY Stage 6 HARVEST
INVENTION • Creation or identification of opportunity • Safeguarding of intellectual property • Product liability • Market research
INVENTION - PROTECTION OF IP Safeguarding of inventions, designs, know-how, skills and names According to the Patent Office, intellectual property rights (IPR) allow people to:- “own their creativity and innovation in the same way they can own physical property”
INVENTION - PROTECTION OF IP 4 main types of IP that business owners should consider protecting in the early stages of business:- • Trademarks – product or service as a brand that allows it to be differentiated • Patents – for new and improved products and process that can be applied • Copyright – for material such as music, films etc • Designs – that specify appearance such as shape, texture etc.
INVENTION - PROTECTION OF IP Play Intellectual Property Rights in SA
INVENTION – MARKET RESEARCH OR PILOT STUDY FOCUS GROUP – made up of a small representative target market group selected from a wider population brought together for a limited amount of time PILOT STUDY – or experiment is a precursor to a full-scale launch, which is particularly useful to ensure if all operational parameters are in sync
INVENTION - PRODUCT LIABILITY • Blame the designer or manufacturer for malfunction, loss, injury to a person or damage to property • Insurance products exist, e.g.. Product liability insurance cover for damage or injury caused to another person or business
START - UP • For many this is the only stage that a small business may experience! It is by far the most difficult to survive • Without a sound business plan it is impossible to get a business off the ground and running
START – UP - CRM Customer Relationship Management Research shows that it costs 5 x as much to get a purchase from a new customer than from an existing one! Establishing a customer base is expensive – THEREFORE once you have gained a customer do not lose them. Strategy to attract and retain customers is called CRM Should capture 2 important elements, contact data and performance data Microsoft Outlook, Business Contact Manager, Dynamics CRM
GROWTH STAGE• Initial stage of planned losses until breakeven and then increasing revenue• How business managed and how able to compete in its market place will determine survival• Must be able to respond to changes in external environment• Internal environment will also be challenging, e.g. cashflow, leadership etc.
GROWTH STAGE – GENERIC GROWTHSTRATEGIES• Lifestyle or part time firms – provide sufficient profit to supplement salary but is not usually sufficient to live on• Traditional small business – smallest full time businesses with one operating site. Provide sufficient income for owner and family• High performing small business – grow at rates of 10 – 15% per year, adding employees and locations. High levels of professionalism in order to maximise turnover & profitability• High growth ventures – achieve growth rates of 25% or more. Aim to become big businesses with external funding
BREAKTHROUGH STAGE• All about expansion• Business reaches point where there is sufficient revenue to justify its existance• Fixed and variable costs are covered• Cash & good credit record can be used to raise finance• Business hierarchy developed, delegate authority• Acute cash problems can develop during periods of rapid growth and also operational efficiencies. Very careful management required
MATURITY STAGE• Business stable enough to survive most unforeseen circumstances• Can pull through most market dips• Owner very experienced and knowledgeable• More extensive systems in place• Owner may be looking for exit strategy
HARVEST STAGE• Can get declining profits• Take heavy losses and eventually fail or cease to operate• Ideal goal for business owner is to harvest the effort they have put in over the years• All exit strategies are legally, financially and operationally complex• Must employ professionals to assist
HARVEST STAGE – WAYS TO • Selling the firm • Sales to strategic buyers • Sales to financial buyers • Sales to employees • Releasing the firms cashflows to its owners • Offering stock to the public – rare and very difficult • Issuing a private placement of stock – capital raised from private investors
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