The Big Picture. As an entrepreneur, it is easy to lose sight of it, especially in the early stages, when you are long on emergencies and short on resources. However, by becoming familiar with business cycles, you will be able to make better-informed decisions, diagnose and handle business troubles with greater certainty, and be better oriented to The Big Picture.
The World's Business Cycle
The sun rises every 24 hours. The Earth complete and orbit around the sun every 365 days. Those are cycles.
The business cycle is not like that. It is arbitrary--based on economic activity (and if you have paid attention to the economy in the last nine years or so, you know there's nothing cyclical about that).
When the economy expands, there is more production, more earnings, more new construction, and more people employed. When it contracts, you see those same economic indicators recede (hence, " recession").
By knowing where we are in a business cycle, you have more information with which to make sound business decisions.
"There is no regularity in the timing of business cycles," said Christina D. Romer, Professor of Economics at the University of California, Berkeley. "There is no reason why cycles have to occur at all."
The business cycle has been studied since 1920 by the private non-profit National Bureau of Economic Research (NBER).
Using the Business Cycle to Your Benefit
By being aware of this cycle, you get a grip on what's occurring in the business environment.
The two most important features of the period are the peak (top of expansion) and the trough (bottom of a recession). The NBER announces a new cycle when economic indicators begin to trend upward from a trough or downward from a peak.
By knowing where we are in a business cycle, you have more information with which to make sound business decisions. For instance, would you hire help if you were reasonably sure that a recession was going to continue? If you were to sell your business, would you do it during a recession, when its valuation may be lower?
By studying the business cycle (longer article on the subject here), you can have more confidence in your decisions.
The Cycle of Your Business
Aside from the business cycle, your business can potentially go through a cycle of its own.
Each stage of this cycle is defined by the character of your activity and the degree of growth. Growth will look like this:
• Initial growth
• Rapid growth
• Sustained growth
It may be easier to understand your activity, which will look like this:
In the beginning, you act like an Employee. Though you are the owner, you wear all the hats (for better or worse) and do all the work--nights and weekends if you're still at a job or 10-to-16 hours days if you have got a funding source.
If you keep your focus on activities that bring revenue into your fledgling company, you will eventually have the resources to bring on some help to handle the activities that don't directly contribute to income, such as customer service, bookkeeping, and design. (hiring a "virtual assistant" is a great economic way to handle all of these things in the beginning.)
At this point, you become a manager to some degree, though you are still doing work--you are just doing less of the slow stuff and more of the revenue-generating stuff. To make this transition as smooth as possible, document in writing (or video) how you do each task so that you can quickly delegate it with minimal lost time for training.
The manager phase can go on for a while, as you take on more help and offload more tasks. You are always looking to spend more time on the activities that bring in the most revenue and handing off those that bring in less or no revenue.
Eventually, you reach the point where you can replace even yourself. You then act as the President of the business -- doing no actual production work but guiding the company as an entity, planning for future expansion, promoting the business' vision and culture and creating the most efficient machine your business can be. This is the stage of rapid development.
Continue at this juncture, and your company will plateau into routine, stable expansion.
Somewhere during this juncture, you may realize that you do not need to start a business from scratch and suffer up through the cycles. You can invest in other peoples' startups, act as a consultant to them, and be an Owner without ever having to be an employee, manager or president.
Some businesses never get past the employee stage, usually because of failure or refusal to delegate tasks to others. Some never get past the manager stage, usually for the same reason, or because the person running the business does not realize that they can get past that stage. They do not see The Big Picture.
By knowing the cycle that your business and you can go through, you can look at where you are right now and figure out how to get to the next phase. By understanding the business cycle, you can make better-informed decisions about your business at any stage. That is why they matter.
Joseph Soares is a teacher, author & blogger. He served as an advisor to the Prime Minister of Canada (2008-2010), as well as to the Minister of Transport, Infrastructure and Communities (2006-2008). He blogs at www.josephsoares.com.
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