A—Development Cycle of a Business

This chart will help us to better understand the typical life cycle of the owner-managed business. Such businesses are usually owned by rugged individualists who were drafted into business in a variety of ways. Although the growth curve is different for each business, it can generally be separated into four distinct phases, with the first two involving a lot of hard work.

The first stage is best described as the Wonder Stage, because sooner or later the business owner will wonder, “How in the world did I get into this mess?” A seven-day workweek is the norm, for which the business owner gets freedom, power, and the last word on how the job is to be done. Undercapitalized and overextended, the business owner expends maximum energy just to keep creditors at bay and end up with a profit to finance future growth. The large majority of new businesses don’t survive this stage.

It is during the Blunder Stage that the last of the failures quit, while the survivors experience substantial growth, work 18-hour days, learn to trust no one, and become highly secretive. This leads to a reluctance to teach the business to others.

By the time the Thunder Stage is reached, the business owner has become a respected and substantial member of the community. The business owner enjoys his or her success! Secrecy and a total lack of review of decisions have become his or her management style. The creation of myths at this stage is commonplace. These include the notion that the business is too unique for anyone else to run; his or her experience is all that counts; business practices should stay the same; the business is the owner's to do with as he or she pleases; that HE is truly immortal. It is now that the successful business owner draws the collective attention of the community’s life underwriters and financial advisers. He or she desperately needs their services, but proves to be distrustful of advice. This dilemma could have been avoided had a relationship of trust and service been established before the thunder stage.

During the Plunder Stage the owner may tend to lose his or her appetite for risk, preferring instead just to keep what he or she has. The owner must learn to teach and share, not destroy on the way down what the owner built on the way up. Such teaching and sharing will allow for a renaissance of wonder, the opportunity for a successor's hard work and continued business growth. All too often the alternative is liquidation!