Question

Critically discuss the different stages of an SME together with five various key types of funding. In your discussion include which type of funding is most appropriate for each particular life-cycle stage of an SME.  

Answer 1

In some ways, this is the soul-searching phase. It’s where you take a step back and consider the feasibility of your business idea, and also ask yourself if you have what it takes to make it a success.

Stage 2: Startup

Once you have thoroughly canvassed and tested your business idea and are satisfied that it is ready to go, it’s time to make it official and launch your startup. Many believe this is the riskiest stage of the entire lifecycle. In fact, it is believed that mistakes made at this stage impact the company years down the line, and are the primary reason why 25% of startups do not reach their fifth birthday.

Adaptability is key here, and much of your time in this stage will be spent tweaking your products or services based on the initial feedback of your first customers. It can even get to the point where you are making so many changes to your offering that you start to feel a bit of confusion. That’s just noise, and the main advice here is to power through the blurriness, because extreme iterations upfront will naturally seem confusing. Rest assured the clarity will once again come.

Stage 3: Growth And Establishment

If you’re at this stage, your business should now be generating a consistent source of income and regularly taking on new customers. Cash flow should start to improve as recurring revenues help to cover ongoing expenses, and you should be looking forward to seeing your profits improve slowly and steadily.

The biggest challenge for entrepreneurs in this stage is dividing time between a whole new range of demands requiring your attention– managing increasing levels of revenue, attending to customers, dealing with the competition, accommodating an expanding workforce, etc.

Hiring smart people with complementary skillsets is necessary to make the most of your company’s potential during this phase, and so any good founder will be spending a lot of time directly involved in the recruitment process.

It is essential that you start to come into your role as head of the company in this stage. While you’ll still be on the front lines often enough, you need to be aware of how your expanding and highly qualified team is going to be taking over a great deal of the responsibilities that were previously tightly under your control. It is your job now to start establishing real order and cohesion as you mobilize the teams according to clearly defined and communicated goals.

Stage 4: Expansion

At this stage you might feel there is almost a routine-like feel to running your business. Staff is in place to handle the areas that you no longer have the time to manage (nor should you be managing), and your business has now firmly established its presence within the industry. Here you might start to think about capitalizing on this certain level of stability by broadening your horizons with expanded offerings and entry into new geographies.

Businesses in this stage often see rapid growth in both revenue and cash flow as the blueprint has now been established, but be warned about getting too comfortable. In business, if you are not moving forward you are moving backwards, and without a constant, almost nervous itch or desire to expand, complacency can set in, and you might get caught off guard.

There are, of course, two sides to this coin, with the other involving a risk of expanding too carelessly. While there is no crystal ball and it is very hard to get an idea of what will be the results of your undertakings, you can give yourself the best possible chance of continued success through careful planning. Look at your resources, be realistic about the effort and cost and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers.

Remember, while having a successful business model behind you is undoubtedly an advantage, it is not a guarantee that it will work elsewhere within other markets, or that new offerings will result in the same success. The business graveyard is littered with organizations that took on too much and failed. Your task is indeed to take on new challenges as you look to constantly expand, but measure your risk and do your best to secure the company for all eventualities.

Stage 5: Maturity And Possible Exit

Having navigated the expansion stage of the business lifecycle successfully, your company should now be seeing stable profits year-on-year. While some companies continue to grow the top line at a decent pace, others struggle to enjoy those same high growth rates.

It could be said that entrepreneurs here are faced with two choices: push for further expansion, or exit the business. If you decide to expand further, you will need to ask yourself the same questions you did at the expansion stage: Can the business sustain further growth? Are there enough opportunities out there for expansion? Is your business financially stable enough to cover an unsuccessful attempt at expansion?