The enterprise development life cycle represents the four stages of life span: emerging, growth, maturity, and declining. The life cycle applies to both upwardly mobile and lifestyle enterprises. It is harder to navigate an enterprise through the growth and maturity stages than it is to start one, and it is difficult to change a mature enterprise once it is established. It is also difficult to avoid the declining stage unless strong enterpriship (entrepreneurial, leadership, and management) competencies are in place.
Every enterprise migrates through up to four development stages: emerging, growth, maturity, and declining. The stages are broad with chasms in between, and the passage is not necessarily linear. The stages apply to both upwardly mobile and lifestyle enterprises. Most emerging enterprises start as small “de novo” ventures. However, some emerging enterprises are incubated by larger enterprises, and benefit from their resources and capabilities. By the maturity stage, some ventures will have grown into medium or large enterprises ranging from single entities with one product and/or service line, to diversified offerings, to conglomerates with multiple entities and business units in many different industries. Diversified enterprises leverage resources across lines and units, whereas conglomerates are profit intimate.
Definitions of small, medium, and large enterprises vary according to context, and are usually based upon the number of employees, size of revenue, or capitalization. Most enterprises fit the “small” definitions. Many small enterprises do not have employees because they are owner-operated sole proprietorships, partnerships, or limited liability companies. However, the officers of owner-operated corporations are employees if they are paid salaries. Hence enterprises are also classified as employer and nonemployer firms.
Enterprise failure rates are high – many migrate straight from either the emerging or growth stages to the declining with little to no opportunity for recovery. In tough economic times, even mature enterprises struggle, especially when paradigm shifts affect assumptions, concepts, practices, and values. Causes for failure include both lack of capital and enterpriship (entrepreneurial, leadership, and management) competencies. Focusing on short-term operations activities while ignoring long-term marketing initiatives is a common complaint.
An emerging enterprise needs an entrepreneurial mindset to transform innovation into value. The founding entrepreneurs or owners may be experiencing a major career change in order to establish the enterprise so as to realize an ambition to offer a product and/or service or own a business, or because they want to do something different in life.
The agenda of an emerging enterprise addresses causing change through new innovative products and/or services, or by developing new markets for either a new or existing value proposition. An emerging enterprise should seek to earn revenue as soon as opportunities allow.
Emerging enterprises earn little to no profit. Under generally accepted accounting principles, they are described as “development stage enterprises” – emphasizing planning and policy development and research and development activities, including raising capital. The organizational costs to establish the holding entity and to raise the initial capital are separate from the other start-up costs and expenses, and can be amortized over time.
Bureaucrats struggle in emerging enterprises because of the lack of structure. They are an ideal place for product developers.
A growth enterprise has made the transition to devoting significant efforts to sales and production activities with results. A growth enterprise needs entrepreneurial, leadership, and managerial mindsets. It must maintain the entrepreneurial mindset of an emerging enterprise. It requires a leadership mindset to communicate the enterprise strategy – the aspiration and industry position and posture. It requires a managerial mindset to establish process and order, otherwise chaos will result. The aspirational statements include values, mission, vision, and value proposition. It must stress both mission and vision because it is important that all constituencies understand its purpose and direction.
The agenda of a growth enterprise must address seeking more revenue generating opportunities, and it will be under pressure to generate profit. It should address increasing share in growing markets with specific product and/or service lines, and also increasing the rate at which revenue is earned through multiple offerings. To do so requires building a relationship mindset – broadening existing customer activities with additional products and/or services, while deepening them through the increased use of current offerings.
A growth enterprise must emphasize the deployment and execution of competitive strategy for both markets and products and/or services. Markets can be broad or narrow. Products and/or services can compete on the basis of differentiated functions and features that command premium prices, or on utility at discount from market norms. Convenience and quality of product and/or service delivery can also be differentiators. However, a growth enterprise must strive to establish a mindset for reducing both production costs and operating expenses in its infrastructure.
It’s hard to address market, product, and infrastructure development, enhancement, and maintenance at the same time. However, if an enterprise develops a culture for cost and expense containment early, it is more likely to become sustainable and be able to offer profitable products and/or services in attractive markets over the long haul.
A growth enterprise must also pay attention to obtaining feedback from the marketplace to adapt the capabilities of new products and/or services as customer wants and needs dictate. The adaption of new products and/or services includes tuning and standardizing capabilities from which enhancements may be made in the future. It must also pay attention to tuning and standardizing the capabilities of the people and processes that deliver the products and/or services.
Growth enterprises are ideal places for market developers.
A mature enterprise has reached the point where growth rates for revenue are slowing. This situation arises because it has saturated the share potential in traditional markets that are no longer growing, and rates for earning revenue through multiple offerings may be decreasing. Consequently, it has to develop new markets and new products and/or services, and change the mix of existing offerings to stimulate profit. Many mature enterprises have chosen to enter foreign markets in order to increase growth.
A mature enterprise can become quite complex even with a single product and/or service line, but more so with diversified offerings, or as a conglomerate. A diversified or conglomerate enterprise may have product lines, business lines, and business units all four stages of development, even though the enterprise itself is in the maturity stage. To be sustainable, it always needs lines and units in the emerging and growth stages. Therefore, a mature enterprise needs strong intrapreneurial, leadership, and managerial mindsets.
Diversified and conglomerate enterprises commonly acquire and divest product lines, business lines, and business units; strong enterpriship competencies are required to do so.
A mature enterprise must address both new business development and continuous improvement opportunities on an ongoing basis with an intrapreneurial mindset to take advantage of change, or otherwise risk entering the declining stage. However, mature enterprises are often difficult to change due to resistance from within.
A mature enterprise requires a leadership mindset to refine and communicate the enterprise strategy. A mature enterprise should stress vision over mission. Mission is usually well established in mature enterprises, and changes only if there is a dramatic shift in purpose or industry positioning and posture. However, vision changes over time as points of arrival are reached.
A mature enterprise requires a disciplined managerial mindset for performance improvement activities.
The agenda for the enterprise strategy should address opportunities to invest capital in product and/or service lines, business lines, or business units, to maintain status quo, to harvest by taking cash out when further investment is unwarranted, or to divest underperforming lines and units. This agenda is translated into the deployment and execution of competitive, constituency-based, and performance improvement strategies to enhance or maintain profits.
For lines and units in the emerging and growth stages, a mature enterprise should continue to emphasize planning and policy development and research and development activities. It needs an intrapreneurial mindset equivalent to the entrepreneurial in an emerging enterprise, but within the constraints of an established environment that may be unwilling to change.
For lines and units in the maturity and declining stages, a mature enterprise should emphasize profit through cost and expense reduction with a managerial mindset. It should emphasize repositioning in markets, restructuring product and/or service lines, business lines, and business units, and reengineering processes. Restructuring initiatives may reveal further opportunities to acquire or divest lines and units beyond those identified in the enterprise strategy.
Entrepreneurs struggle in mature enterprises unless they can focus on innovative activities. Mature enterprises are great places for organization builders.
A declining enterprise may or may not be in a loss situation at any point in time, but may face one if remedial action is not taken.
The agenda for a declining enterprise is either survival or orderly exit through merger, acquisition, or wind-up.
A declining enterprise needs both leadership and managerial mindsets to diagnose its existing situation so as to determine if either the trend can be broken, or whether an exit is necessary in an orderly fashion. To break the trend, either a turnaround or workout strategy is necessary to restore the enterprise to at least the maturity stage. In some cases, it may be possible to migrate the enterprise to the growth stage, although this is very difficult to achieve in practice. However, with new management perspectives, fresh insight may reveal opportunities that were previously missed or ignored.
In a turnaround situation, a declining enterprise should emphasize initiatives to exit unattractive markets, to shed unprofitable products and/or services and non-income producing assets, and to improve the performance of existing activities. There may also be opportunities to offer new products and/or services in existing markets, and both existing and new products and/or services in new markets previously not explored. A turnaround may require a recapitalization, in which case the existing shareholder investors are diluted.
In a workout situation, a declining enterprise should attempt to renegotiate payment terms with creditors to buy time, either with or without a bankruptcy filing.
If either a turnaround or workout are not feasible, then an exit is necessary through a merger or acquisition, or a wind-up, with or without a bankruptcy filing depending on circumstances. Bankruptcy estates provide excellent opportunities for investors to buy assets.
The implementation of a wind-up is the ultimate harvest strategy – liquidating assets at the best price possible under the circumstances.
In a Chapter 11 reorganization filing under the United States Bankruptcy Code, a declining enterprise has protection from creditors, may have opportunities for debtor-in-possession financing that otherwise may not be available, and can continue operating. In a Chapter 7 liquidation filing under the Code, a declining enterprise ceases operating, and a trustee is appointed to sell the assets to pay the creditors.
The declining stage can be avoided. However, the managements of many enterprises are often in denial and bankruptcy may be hard to avoid. Preventive action includes emphasizing both competitive and performance improvement strategies in the growth and maturity stages. It also includes ensuring that there is an adequate feedback loop from performance measurement to planning and policy development activities to make adjustments in strategy.
In the event of a merger or acquisition of the entire enterprise, the preceding investors, management team, and holding entity may or may not be separated from the surviving activities depending upon whether the structure of the transaction is asset-based or equity-based.
Declining enterprises are best for the unemotional.
All opportunities for the current investors to exit at any stage of development, either through merger or acquisition, should be examined carefully. An enterprise can always be started again in some form, even within the constraints of non-compete and non-disclosure agreements, but attractive offers to exit may not repeat, especially if the declining stage is imminent.
Navigating the enterprise development life cycle is an enterpriship competency.
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