Family business life cycle

The Family Business Lifecycle

Having spent a significant part of my career working in the horticultural industry, I can’t help but notice the parallel between businesses and trees.

Trees can live 100’s of years. The oldest tree recorded is said to be more than 5,000 years old. Some trees such as a dogwood grow faster and live shorter lives than the mighty oaks. Therefore, even though the two trees may be the same age, they are in very different stages in their life.

Like trees, family businesses have the potential to live for hundreds of years, thriving generation after generation. Did you know that there are approximately 5,500 companies that are older than 100 years?

Just like a tree, every organization has a natural and predictable lifecycle.

When you know where your company is in its lifecycle, you can make predictions about the problems you’ll face and how best to deal with them.

Stage One: Infant

The first life stage a business goes through is infancy.

This is a challenging and high-risk stage for a startup business due to unproven ideas, negative cash flow and no management depth.

Many startup businesses don’t make it.

If you can get some traction with your new products or services, you will enter the next phase.

Stage Two: Youth

The second stage a business goes through in its life is youth.

This youthful stage is a dynamic time. Often there are too many opportunities and growth can be uncontrolled.

Inexperienced owners operate reactively and struggle to delegate.

You might feel like you’ve got more “plates spinning on your stick” than you can deal with.

Rapid growth might lead to impressive revenue gains, but without a firm understanding of the numbers, youthful businesses may encounter cash flow problems or lack of profitability.

Care for a business in this stage means shifting the focus to profit, not just revenue. It’s time to develop systems for working smarter, improving efficiency, and becoming more consistent.

Stage Three: Prime of Life

The prime condition of a family business is when it reaches a balance between structure and flexibility.

You have systems, processes, and standards in place to create structure. You have more employees and you’ve built a management team. You have standard operating practices in place so you can deliver consistency of product and service.

At the same time, it’s a dynamic organization. You’re still growing.

A business in its Prime embraces change and is well adapted to handle any turbulence change may cause.

Businesses that decide to remain in this Prime stage can achieve an Infinite Legacy, living generation after generation – never peaking or resting on its laurels – always focused on growing, changing, and remaining vibrant.

Stage Four: Middle-Age

You’ll notice that we don’t put Prime at the peak. That’s because the peak is the beginning of the fall.

When a family business enters its Middle-Age stage it is in a predictable steady state. The organization is very self-sufficient and can run on autopilot. It’s sustaining its performance and is likely very profitable.

It’s also taking less risk. The passion and innovation and quest to find new opportunities is waning. It’s less fun to work there.

You’ll start to hear things like “if it ain’t broke, don’t fix it.” Or “don’t rock the boat.”

It’s easy to get complacent: to let systems slide or devolve into a bureaucracy, to extract too much of the profit, to ignore warning signs, to miss opportunities, to wait too long to transition to the next generation.

If you are a leader in a Middle-Age business, you need to remain vigilant to these things occurring and would do well to take a more youthful, Prime approach.

Stage Five: Senior

In the Senior stage, the business is starting to decline – and everyone knows it. You may start to see folks blaming each other.

A family business in the Senior Stage will become almost aristocratic. More concerned about how the company looks from the outside. The family will rely on the past for future success. It becomes very financially driven as more family members require distributions. Internal problems may be downplayed or ignored.

If you believe your business is at or approaching Senior, NOW is the time to make changes – before you start speeding down the slope towards Twilight and eventual Death.

Stage Six: Twilight

Businesses decline quickly.

The Twilight stage is marked by a focus on cost reductions. You may see silos and petty jealousies.

In this stage, an organization begins to enter the zone of insolvency. Owners and managers are looking to blame others for the problems. It is a stage of recrimination for an organization.

Turn-around is difficult and in many cases impossible.

Stage Seven: Death

Once a business has no cash to sustain itself, it dies. Assets and inventory can be sold off. Leaders and employees can take their experience to other companies.

The Prosperity Zone

The Prosperity Zone centers on Prime.

When you’re in the Prosperity Zone you will see and feel the culture, the vibe, the energy. Your employees are engaged and your customers give you great reviews. You’re profitable. And you’re making a contribution bigger than just providing your products and services.

That’s not to say that everything is smooth sailing. There can be chaotic times when you’re in the Prosperity Zone – because you’re growing and adapting to external changes. But your business has just the right mix of structure and flexibility to handle the change.

At the Alliance, we work with youthful companies to get them into Prime. And we work with Middle-Aged companies to get them back to Prime. Occasionally, provided the company leaders have the right mindset and are willing to do the work, we help a Senior or even a Twilight company turn around.

Would you like to get your company into the Prosperity Zone?

The process we use for this work is what we call the Prosperity Plan.

To learn more, watch our free online training: the Prosperity Plan: 9 keys to a business that generates wealth, enables freedom, and creates a legacy