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Three Cycles Re-examined - A Business Growth Strategy

Three Cycles a Business Growth Strategy

 One of the most critical challenges a business faces is making the transition from "owner scale" to "enterprise scale". This transition is the core of our business growth strategy. 

Owner Scale vs Enterprise Scale

By "owner scale" I mean a business that is scaled to the capacity of the owner. Either the business 'is' the owner, such as a consultancy with one person in it doing everything, or the business operations are directly managed by the owners: there may be a few front-line employees delivering services or products but every key marketing and operational decision is made by the owner, and in most cases executed by the owner.

By "enterprise scale" I mean an organization that has a management layer making critical marketing and operational decisions independent of the owner. An enterprise-scale business has a life of its own, even if at the most basic levels. Things are happening without the owner having a hand in every decision and every action.

The distinction matters is because an owner-scaled business is limited by the capacity of the owner. The owner (and the business, since they are the same thing) will run out of capacity before the market runs out of demand. This is a system without momentum. The moment the owner stops working, the machine stops spinning. The most important factor in this limitation is time.

Read also Seeing and Getting There - Vision for Growth

The Three Cycles

As I have written elsewhere, every business owner who seeks to grow their business must divide their time between three cycles: Traction (operations), Growth (marketing), Enterprise (expansion and exits).

The extent to which an owner is spending their time in the first, second, or third cycle is one measure of where she is on the owner-to-enterprise scale. An owner spending her time entirely in the Traction Cycle (purely operational) will have no time to grow her business beyond her own capacity to deliver and what the market begrudgingly gives up. An owner spending the majority of her time in the Growth Cycle (marketing) can grow her business on a year by year basis until her own ability to grow the business is constrained by time.

Only when an owner has structured her business so that the operating and marketing functions are at least executed (if not managed) by someone else, is she able to spend enough time time focusing on the Enterprise Cycle: leadership, expansion (acquisitions, mergers, licensing, franchising), successions, and exits.

What Time Is It?

For a business owner taking those steps, people and money are critical inputs. But it is how the owner spends time that has the largest impact on success. People and money become supporting actors in enabling the owner to spend time on the Enterprise Cycle of business. To map a well-known phrase onto this: an owner working in an 'owner-scale' business focusing on the first two cycles, is working in the business. An owner actively growing the business to 'enterprise scale' by spending most of their time in the 3rd cycle is working on the business.

How do we measure value in the 3-cycles model? In my original writing on the 3 cycles the value was a framework for planning, priorities, and the effective use of time. When the goal expands from simply planning to growing the business from owner scale to enterprise scale, these 3 cycles acquire new values.

Planning Cycles are Value Cycles

Traction Cycle. The first cycle begins with value for the customer. The task is to deliver profitably on the promises you made and generate the value that your customers expect. The focus is largely operational. The challenge from an enterprise perspective is the extent to which others (employees, contractors) can manage the operational parts of the business to deliver products, services, and experiences profitably. Value measurements now include the extent to which others free the owner(s) from direct operational responsibilities (bookkeeping, shipping, service) and allow them to focus on growing the business. 

Growth Cycle. At owner scale, second cycle value is measured in volume and revenues. Success is measured in consistent growth. From an enterprise perspective value is measured by the extent to which someone other than the owner is driving growth: sales people or marketing partners (e.g. web developers or SEO specialists) who secure sales and revenue independent of the owner. The long-term 'enterprise oriented value' is not just secured sales, but time for the owner to spend on leading the business.

Enterprise Cycle. The value of the third cycle lies in the business itself as an asset. Its measure is the value of the business to a potential buyer. When fully at the enterprise level, the business has a value completely independent of the owner and her expertise or activities. At the Enterprise Cycle level, there is no difference between the owner-scale perspective and the enterprise perspective regarding the value of this work. This is because when the owner spends most of her time at this level, the operational and marketing functions are already the responsibility of others and the owner's time is dedicated to leading, growing, and shaping the business itself. 

Lifetime Value: The Choice

There are two ways of maximizing the lifetime value of your business.

One way is to work as hard as you can for as long as you can charging as much as you can, hoping that by the time you drop dead there is enough set aside to pay for your funeral. This is the wrenching life-story of far too many owner-scale businesses.

The other way also involves working very hard but with a very different motive. As the owner your main job is not to just to grow sales; your main job is to grow your business. Customer value and healthy sales growth become tools to get you there. Value here is not just measured in customer satisfaction or annual sales or even annual profit. Value here is measured in time: how much time are you spending working in your business, and how much time leading, growing and shaping the business itself?

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