If you’re in business, at what stage in its life cycle is your company? When might your business become obsolete, be outrun by its competition or run out of money?
Maybe pivoting or reinventing your business to stay viable is the right call. How will you know? Companies don’t come with expiration dates.
I encourage you to assess where your business stands.
Ichak Adizes, founder of the Adizes Institute consultancy and a leading expert in transformational management, created a simple, 10-stage, corporate life-cycle model. This model shows how a business proceeds from one stage through the next, from beginning to end. It provides a fundamental basis for understanding organizational change and principles such as reinvention, domination and acquisition.
According to Adizes, “Organizations are born and grow, and, unless management knows what to do, they age and die.” He goes on to explain that there will always be change and the faster the rate of change, as manifested in problems, the faster that disintegration will occur. Leadership’s challenge is to change continuously and reintegrate into the organization any new problems so the new problems can be solved.
Preventing change is corporate suicide, and inaction does not prevent system failure. To remain healthy, proactively change what needs to be changed. Change causes conflict that must be converted from destructive to constructive results.
Adizes’ “Managing Corporate Lifecycles,” an update and expansion on his earlier book, “Corporate Lifecycles -How and Why Corporations Grow and Die and What to Do About It?” is regarded as a classic in management theory.
According to Adizes, the corporate life cycle has 10 stages:
1. Courtship is the first stage of an organization’s development. It is the unborn dream of the founder’s vision. The founder must believe that the idea will succeed and be committed to doing whatever it takes to make it so. Courtship can turn into an “affair” in which the founder’s commitment dissipates at the first sign of difficulty.
2. Infancy occurs after the launch when business activity begins. Founders do most of the work themselves and there is little delegation. An administrative function is scarce and the focus is on producing results (sales). Cash flow is negative. Market validation of the product or service is critical. Effective leadership style must be a benevolent dictatorship.
3. Go-go is the energetic early growth stage and is often chaotic, with rapid sales growth and strong cash flow. Confidence turns to arrogance and, when taken to extremes, can lead to trouble. There is a tendency to diversify and make bad decisions at this point. Workloads become overwhelming and accounting controls usually lag.
The Founders Trap occurs when the company is unable to escape its dependency on the founder. This happens when the founder is unwilling or unable to delegate and decentralize control or when it is difficult to replace the founder’s unique skills. Strategy and flexibility are keys to success. Continuous restructuring is needed.
4. Adolescence is the stage where you are still developing but you are more established. This is a difficult time with much internal conflict. Authority should be decentralized and leadership must move from entrepreneur to professional management. When the company creates the infrastructure it requires for growth and is no longer dependent on the founder, it enters the next phase.
5. Prime is when your company is at its best: efficient, competitive and profitable. The organization achieves a balance between control and flexibility. The company is focused and goals are achieved. Change is embraced. Sales and profits are healthy and people enjoy working for the company. Prime is a temporary condition and the goal is to stay there as long as possible. The attitude that everything is fine, why change, and thus become complacent is the first step toward decline.
6. The Fall phase is when companies have begun to lose their vitality and are aging. Companies in this phase tend to be ccash-rich More time is spent in the office than in the marketplace. Marketing, sales and production take a back seat to finance, accounting, human resources and legal matters. The entrepreneurial spirit is dwindling.
7. Aristocracy is the stage in which your company is cash-rich and has reduced growth expectations. The focus is on the past rather than on the future. The business climate is stale. Executives have become suspicious of change. More is invested in controls than research and development. This is typically the time when the company may acquire others or become a takeover target.
8. The Recrimination stage focuses on who caused the problems rather than what to do to fix them. Backstabbing and interpersonal problems take center stage and turf wars sap the energy needed to focus on customer needs. Price increases have stopped working as a substitute for providing real new value.
9. The Bureaucracy phase has many systems and rules and operates on ritual. Very little is accomplished. Leaders feel they have little control. One department rejects what another one requests. Customers are frustrated and lost. At this stage, an exit or divestiture may be appropriate.
10. Death occurs when no one remains committed to sustaining the organization. Death results in closure, bankruptcy or selling off assets or the customer base.
At adizes.com (lifecycle.adizes.com), in 10 minutes you can learn where your company is in its life cycle and decide what you can do to improve its longevity, although the Adizes Institute says the model may not apply to all business types.
Dennis Zink is a volunteer, certified mentor and chapter chairman of Manasota SCORE and chairman of the Realize Bradenton board. He is the creator and host of Been There, Done That! with Dennis Zink, a nationally syndicated business podcast series. He facilitates a CEO roundtable for the Manatee Chamber of Commerce, created a MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at firstname.lastname@example.org.