- First things first, what is the law of diminishing returns?
- The standard s-curve of business maturity
- The traditional four phases of business growth based the s-curve
- The first phase of business growth is starting.
- The second phase of business growth, growth, is about refining, building on what works, and creating something replicable.
- The next phase of business growth is management,
- The principal activities in the management phase of business growth are:
- This is why the last of the phases of business growth is renew.
- Where are you in building your business?
- Other Resources you might find interesting.
Building a business is a journey with distinct phases of business growth or (phases of company growth). You can also think of it as a story; there is a beginning, a middle, and an end. And once you’ve reached the end, you get to start all over again.
We break the journey into four distinct phases of business growth: start, grow, manage, and renew.
Each phase of company growth requires its way of thinking, and each way of thinking eventually suffers diminishing returns – each phase has its strength and weakness.
The most significant risk is not managing the transition from phase to phase. People get stuck. And when they get stuck, the business takes over; they work more, get less, and, well, it isn’t fun.
The reason you can’t just keep doing the same thing over and over and expect different results is not just insanity; it is also diminishing returns. There are distinct business life cycle changes that define small business growth.
Think of it this way: say you start a business and are good at delivering your product. You are solving a problem for someone, great! You have a business.
You can keep grinding away, delivering products, and solving problems without a focus on moving through the phases of business growth; without a business growth strategy, you end up in the MSP ownership spin cycle. At some point, you might want a day off. You might catch a cold. Family issues come up. But if you are the only one running your business, the only way you can operate or grow is by doing more work.
Diminishing returns will not allow you to get more done for less work unless you operate differently.
So you must shift your way of thinking from start to grow. But diminishing returns limits growth too, so you will have to scale and adjust in the third phase of company growth: manage.
These first 3 stages of business growth define the business itself. Still, management rest on its laurels in the management stage – even this faces diminishing returns, forcing you into reinvention. It is a fact of life that once you get to the management stage of your business, you will have to start at the beginning again: renewing, reinventing, and expanding.
That is why we developed our 4 stages of business growth: start, grow, manage, and renew.
First things first, what is the law of diminishing returns?
The law of diminishing returns is crucial, and it is everywhere.
Here is the upshot: as you keep doing something, the benefits per amount of effort decline. So you put in the same effort but get less and less out of it.
An analogy that comes to mind is baking, it is imperfect but visual, so here we go. Imagine you are baking cookies, and the value of baked cookies is the delicious batch of cookies you can eat.
Now, you prepare the dough and put the cookies in the oven. At first, the heat in the oven works miracles. The cookies flatten or rise, the ingredients fuse in a heat-induced chemical reaction, and your cookies go from raw to baked.
The first few minutes are magic, but the same heat starts having less of an effect after a while. Rather than transforming from raw to baked, the cookies go from soft to crunchy, a subtle change that isn’t as magical. You may prefer a little more crunchy or a little less crunchy, but this baking stage isn’t as critical as the first for creating a batch of delicious cookies. The value of baking has diminished.
If you keep the cookies in the oven, they will burn. The magical process that transforms them from raw to baked damages your cookies. It is quickly sucking the value out of them to the point where they will be unbeatable and have even less value than the raw ingredients you started with.
(Hmmm, I was wrong, this was a pretty good analogy!)
The standard s-curve of business maturity
I want to take a second to relate our growth phases thinking back to more traditional, business school, s-curve thinking. This is often refered to as the business life cycle, or business life cycle stages.
If you search for growth phases long enough (say 30 seconds or so), you will run into the s-curve. Here is a great example. Crossing the Chasm, an influential book from a few years back, popularized much of this s-curve thinking.
The law of diminishing returns is behind this S-curve. You get an idea, expose it to the world, and it begins to take off at first. After a while, the returns peak and begin to decline. Or, to avoid decline, you reinvent and start the process again through renewal.
The traditional four phases of business growth based the s-curve
This is great for a mature company developing a subsidiary or a product. It makes perfect sense.
But there is a problem for MSP owners and those growing small businesses: different business growth phases require different mindsets. The mindsets follow the same curve, so you end up with three distinct growth phases.
Small business growth is not the same as mature business growth.
We start with the idea of starting a business, the mindset that allows you to start a business is not the same one that allows you to grow a business, so it faces its own s-curve. The next phase of business growth is the growth phase, and if you approach this with a startup mentality, it will wear you out and end up overbaking your startup. So you have to shift to a growth mentality. Likewise, a growth mindset only gets you so far, so then you move to manage.
Interestingly this also works the other way around. You can’t go straight to manage; you must go through each phase of company growth.
As a trained manager, I tried to run my first startup: Engage Marketing, as a finished business. But since I hadn’t gone through the steps to start, grow, and manage the company, it didn’t work.
The Start Grow Manage four phases of business growth
Which is derived from the law of diminishing returns and traditional s-curve that you read about in business school:
The first phase of business growth is starting.
In the startup phase of business growth, you begin to put the pieces together and define what you are creating. You identify and exploit an opportunity in the market.
This phase involves a lot of design, and the mindset shift is away from being an employee and toward owning a business and being self-reliant.
The principal activities in the startup phase of business growth are:
- Define your transformation and commit.
- Initial legal framework (yep, you have to do it).
- Identify your vision, mission, and value – cohesion.
- Begin clarifying who your customer is. I say begin because you may need to refine it later, so don’t get hung up on making this perfect.
- Identify the problem you solve for them.
- Create your signature program.
- Implement infrastructure, website, email, file storage/sharing, and project management.
- Decide how you will begin to attract customers.
- Start your digital marketing strategy.
Starting is less about ensuring that everything is perfect. Instead, you want to create something that works and start the journey. You can’t know whether anybody will want to buy what you have to offer until you make the offer and get feedback.
There is an element here of conquering your thinking and making the first transition from employed to self-employed.
In my experience, there are two problems that the startup phase of business growth presents.
Problem one: people don’t do it. They don’t design the business. They create work and effort but don’t put the design effort into creating a business.
Problem two is that business growth stops here.
This is the case for 90% of the businesses I have worked with.
They start up, they define their program, and that is it.
People can get stuck here, earn enough to live, or almost live, and then keep grinding away, hoping for more growth, more clients, and more time.
But is that why you created a business? Did you join the ranks of MSP owners to grind away and hope for the best? Are you satisfied spinning around the MSP ownership spin cycle rather than creating a business that supports an extraordinary life (and allows you to achieve your goals?)
If you want a business that does power an extraordinary life, you will need to move on to the next phase of business growth: growing.
In truth, you must evolve even if you don’t want to grow; growth is less about how big your business becomes and more about how you want to live. You may want to stay small, but if you want your business to operate as a business and not a burden, you must go through the phases.
The second phase of business growth, growth, is about refining, building on what works, and creating something replicable.
Moving to the growth phase of business growth is probably the most significant transition in the MSP ownership journey because it is here where you start seeing the business as a business and not just a thing you do.
The principal activities in the startup phase of business growth are:
- Focus on mindset shift – from self-employed to MSP owner – this is key.
- Define the roles and responsibilities in your business (even if you fill them all right now).
- Start delegating.
- Further, refine your ideal customer.
- Develop marketing funnels and processes, and deepen your marketing by building on what works
- Begin developing standard ways of working and repeatable processes. Specifically, define products (even if you sell a service).
- Formalize finance management and accounting.
- Reduce and hone your value proposition.
Growth requires refinement, clarity, and focusing on the business as a business. This is why accounting becomes essential. Initially, you may experiment with different things and buy various services to see how they work. Now you start evaluating whether what you are doing works and making decisions based on the numbers, not just your gut.
This is where you hire people and start working as a team. At first, the MSP owner wears all the hats in the organization. But in the growth phase, you have to start delegating.
Growth can be exciting and adrenaline-fueled. Many MSP owners enjoy growth. This is the strength of growth – but also the weakness. Often the team burns out before management practices are in place.
And creating the management structures and processes requires a very different way of thinking than growth.
The next phase of business growth is management,
Now you hire people or contractors more formally, and more of your work goes to managing the machine rather than doing the work. Your focus in the management phase is on creating and enhancing the systems that allow the business to run automatically.
Leadership no longer focuses on execution but is looking forward, planning the next move, and optimizing systems.
This is the final mindset shift as you move from treating your business as a company you work into an investment that produces a return.
The principal activities in the management phase of business growth are:
- Manage the last MSP ownership mind shift to an investor.
- Hone job descriptions.
- Define processes and procedures.
- Create regular rhythms of meets and assessments.
- Improve the tools that you have.
- Focus on influencing others to take action rather than taking action yourself.
- Make forward-looking decisions based on numbers and analyses.
- Formalize these analyses: what do you need to be looking at? Define what is driving your business.
At the management stage, you are running a business. You leave the doing entirely behind and focus on making the business work.
This is a great place to be. But it is also vulnerable. The advantage of a business in formation is that it can be flexible and challenge the status quo. Once you reach the management stage, you build inflexibility into the system. Change will continue to happen around you, so you risk having the world change while you manage yourself into oblivion.
Another way to think about this is that you may want to start another business or introduce a new product now that you have transitioned to an investor mindset. You know you have all the tools, so why not do it?
This is why the last of the phases of business growth is renew.
In renewal, you look for new ways to solve a problem and offer new products. The businesses that last the longest are those that can reinvent themselves. The business owners who do best reinvent and go into new areas.
When starting or growing your business, the trick is almost always to focus and narrow the scope. That is the hardest thing to do. Now, in renewal, you can expand and grow – you can develop that next great product.
The principal activities in the renewal phase of business growth are:
- Create new products.
- Imagine the future.
- Break mental models and design something new.
These are the steps, and they are easy to lay out linearly on paper. The reality is that life is not linear, and if life is not linear, growing a business is like wandering through the woods without a compass. You will take a different route than anyone else; you will have false starts. You will find yourself delegating when you are just starting or revising your mission when you are managing.
That is life, and that is okay.
Where are you in building your business?
Now the question is: where are you in your business-building process?
Are you ready to start achieving your goals and living an extraordinary life?
Here’s how to get started. Download the business plan template, and it will take you through the process of fleshing out where you are on the journey and guide you through creating the next step.
AND you can even book a free session with us to review it.
Other Resources you might find interesting.
We have our four phases of business growth, and the Harvard Business Review has 5 stages of business growth. I like our model, but this is an interesting read!