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Decision-Making at Different Stages of the Business Lifecycle

Introduction

Every business undergoes different phases of growth and development. These stages are characterised by iterations of booms and tightening of business operations to adapt to different macro and micro environmental factors. Historians and academicians have compared the impact of environmental factors in business growth to the stages of human development, which involve birth, growth and decline (Appelo, 2019). In this model, firms are regarded as “living organisms” that undergo different cycles of growth as a human being does. This business development model demonstrates why industries and businesses have emerged, dominated the market and eventually collapsed. The same is true for products and services because the market constantly changes to accommodate different forces that affect demand and supply, which may lead to the growth of a new business idea or the decline of others (Strong, Kresojevic and Viki, 2018). To survive different stages of growth, there is a need for entrepreneurs to make sound decisions at each phase of development and optimise returns across every sector of operation.

This paper explains the decision-making processes that characterise each step of a business’s life. For purposes of this analysis, a full business cycle will be characterised by the completion of three key milestones, which include start-up, expansion and exit. Dominant issues that will be highlighted in this document include considerations for strategic thinking at each step of business growth and potential pitfalls or biases that could undermine the efficacy or accuracy of strategies formulated. Furthermore, in this review, suggestions on how to avoid the aforementioned biases and improve the quality of decisions made by entrepreneurs at each stage of the business lifecycle will be mentioned.

Start-up Stage

The start-up phase of business progress is perhaps one of the most impactful areas of an entrepreneur’s journey because decisions made during this phase of development may have serious ramifications on other levels of growth in the lifecycle of a business. Consequently, it is crucial to understand the unique characteristics of business owners that help them make appropriate decisions at every stage of progress. A need to review this aspect of decision-making stems from the findings of Amato et al. (2018), who suggest that entrepreneurs think differently from other people, in the sense that they are anarchical, promote the autonomy of specific tasks and deviate from conventional thinking patterns. Based on these characteristics, most decisions that define the start-up phase of a business lifecycle are likely to be new and innovative as entrepreneurs search and implement strategies that are appropriate for their respective business contexts (Inoue and Yamaguchi, 2017). Therefore, some of the choices made during this level of business growth may be significantly different from those adopted by other companies. Similarly, they may manifest fundamental differences with how other entrepreneurs carry out their business functions.

The rise of Uber as a successful taxi-hailing company highlights the characteristics of decision-making processes in start-up businesses because of the novel ideas underlying its market dominance. The company introduced a digital model of hailing a taxi that was significantly different from the conventional framework used by many traditional cab services around the world. Drivers relied on people hailing down a taxi or walking to one of their stands to get one. This style of attracting customers did not match up to Uber’s model, which simply required a customer to request for a taxi at their doorstep by pressing a few buttons on their smartphone and getting a chauffeur in minutes. Uber’s success suggests that innovation and new ideas characterise the start-up phase of corporate growth. They are perhaps the most impactful forces of operational design influencing performance today because the most successful ideas cause industry disruptions, thereby forcing firms to adapt to the new model or become obsolete.

Although the role of the business owner is crucial in the start-up stage of business development, there are inherent risks associated with relying on one entrepreneur’s decisions as the ultimate benchmark of reasoning. This is because of possible individual biases they may have about the business or cultural context which could affect the efficacy of their choices. This problem stems from a reductionist focus on their competencies, which may be deprived of the social context needed to make sound plans (Lehmann-Willenbrock, Hung and Keyton, 2017). In this regard, there is a need to introduce the role of group dynamics in decision-making because most of the strategies adopted in business depend on the social context for which they will be applied.

I find that there is a strong link between an entrepreneur’s passion and life experiences. Particularly, I believe that this relationship explains why many business owners work extra hours to make sure their projects succeed. The personal will to prosper helps entrepreneurs to overcome obstacles that would typically “put off” other people from pursuing their business ideas. Therefore, entrepreneurs should motivate themselves to succeed and refrain from seeking external validation. Relative to this assertion, Rawhouser, Cummings and Newbert (2019) contend that significant changes in people’s circumstances may force them to be entrepreneurial. I have witnessed this relationship in my family when one of my uncles lost his job and was forced to venture into entrepreneurship to provide for his family of four people. Therefore, without such an adverse experience, he would not have succeeded in setting up a successful automobile business in his hometown. His actions demonstrate the power of human will in decision-making.

Although most small businesses fail in their first year of operation, the probability of their success increases if the owners remain committed to their goals, regardless of the failures they encounter along the way. This is why some researchers suggest that most businesspersons who have failed in past ventures tend to be successful after starting new enterprises (Shakeel, Yaokuang and Gohar, 2020; Corbett et al., 2018). Jones, Macpherson and Jayawarna (2014) explain the sociological factors that influence entrepreneurial decisions based on an analysis of a broad category of resources a business needs during the start-up phase. Although the environment dictates the kind of resources required, most businesses need economic, social, cultural, and symbolic capital, as primary factors of production (Shakeel, Yaokuang and Gohar, 2020; Corbett et al., 2018). Based on the presence of different categories of investment that will arise from the deployment of these resources, entrepreneurship emerges as a set of social practices that deflect attention away from the individual to the group setting because resources are often dispensed through teams (Kou and Stewart, 2018). Therefore, decisions that have to be made in such circumstances have to take into account individual and group dynamics in resource management. All decisions should be geared towards fulfilling this goal.

Overall, there is a need for entrepreneurs to show strong decision-making skills during the initial phases of the business lifecycle because diversity in opinions could cause disagreements and eventual business failure. This problem may be compounded by the lack of a proper conflict management system among investors and business owners in the initial phases of growth. To overcome this challenge, business owners should develop a dispute resolution mechanism in their articles of association or renegotiate their contractual terms to accommodate conflict-resolution mechanisms that serve their needs. When developing such agreements, the needs of all stakeholders should be met especially when there is strong leadership (van Mensvoort et al., 2020; Snaebjornsson et al., 2015; Horlings, Roep and Wellbrock, 2018). The efficacy of decisions made during this phase of growth should pave the way for the expansion step of business development.

Expansion Stage

Business expansion occurs when a firm has already registered the traction in selected markets and wants to expand its operations in other regions. It may also involve the expansion of a company’s internal operational capabilities to increase the number of products sold or quality of services offered. Therefore, business and market expansion are the primary motivators of all decisions made during this stage of progress. Therefore, most decisions that are formulated during this stage of development are designed to fulfil these two objectives – to increase the number of products sold and the quality of services offered.

As for my personal experience, I have a private business in online retail, which is at the expansion stage of business development. As a business owner who harbours ambitions of increasing my product outreach to new markets, I find that most of the decisions I make at this stage of business progress are aimed at expanding my market share. Particularly, I have encountered several instances where I have had to balance the need to increase market share and enjoy short-term business gains. Moreover, five out of seven decisions I make are in favour of expanding my business. Therefore, I find that at the expansion stage of business development, an entrepreneur is most likely to make decisions that support this goals, regardless of other short-term gains that may be expected from maintaining the status quo.

Although entrepreneurs are guided by the need to fulfil their business expansion objectives at the expense of other considerations during the second stage of the business lifecycle, several psychological factors may negatively affect the quality of their decisions. For example, an entrepreneur may have an inflated ego because of the success of the first stage of business development, which may cause them to make risky decisions during expansion, thereby eroding most of the gains made thus far. Researchers have attributed this phenomenon to the “illusion of control” concept, which gives entrepreneurs a false sense of belief that their plans are perfect (Zellweger et al., 2019; Vidal et al., 2017). Entrepreneurs who suffer from this problem may be regarded as overly optimistic even though objective conditions may suggest otherwise. The opposite is also true whereby some business owners underestimate their abilities and are fixated on evaluating possible worst outcomes even though the data suggests that the market may not be hostile. Nevertheless, entrepreneurs who have an inflated ego may be reluctant to accept mistakes because of their heightened fear of failure. Other problems linked to this issue include an overinflated view of one’s capabilities, a strong desire to be proven right and the need to only focus on feedback that reinforces the view of the business owner.

At a group level, one of the problems that may affect decision-making during the expansion phase is the propensity to frame questions wrongly and without considering the environmental or socio-cultural forces that affect them. This concern is highlighted by the prospect theory, which dictates that problems faced by employees are mostly a result of a poor assessment of workplace factors that impact performance (Diakanastasi, Karagiannaki and Pramatari, 2018). Therefore, the basic assumption of this theory is that negative decisions made by group members are likely to be products of negative framing of the variables to be reviewed. This problem is closely linked with entrapment issues, which usually affects businesses that fail to change their strategies because of the fear that doing so would be too costly for them. Therefore, they stick to their original plans, regardless of changes in the business environment that may necessitate a shift in thinking. In this scenario, the status quo emerges as an investment by itself and it may trap group members or employees in an economically sub-optimal condition because of the need to stick to an original course of action, regardless of changing market information (Amankwah-Amoah, Boso and Antwi-Agyei, 2018). Based on the need to be flexible and adjust to changing variables in the market, there is the necessity for business owners to escape entrapping business decisions at individual and group levels. By employing this strategy, they would improve group dynamics and firm productivity, which will lead to the last stage of the business cycle, which is the exit phase.

Exit Stage

The last stage of the business lifecycle involves market exit. In this stage, an entrepreneur’s main motivation is to exit the business with the best terms possible. On the other end of the negotiating table is an investor who may be interested in buying the firm, as a strategic investment or an addition to their existing business portfolio. Therefore, their considerations have to be accounted during the decision-making process. Broadly, the interests of the two parties are focused on maintaining the profitability of the business after the exit of the original owner. In this regard, an investor may be interested in looking at the company’s books of accounts and use the findings to base their decisions on whether to acquire the organisation or not. Relative to these insights, researchers propose that most decisions made during this last stage are based on monitoring the vulnerability and agility of a business to market elements post-sale (Kitching, Hart and Wilson, 2015; Phonthanukitithaworn, Ketkaew and Naruetharadhol, 2019). Ideally, a business’s cash flow should determine the decisions to be made at this stage of the lifecycle.

One of the main limitations in decision-making at the end of the business lifecycle is escalation, whereby an entrepreneur overestimates the worth of a commerce to investors or presents terms and conditions that are unrealistic for the buyer to meet. This challenge arises from optimistic planning and an entrepreneur’s failure to understand the connection between a business’ worth and its future cash flow projections. Broadly, researchers point out that this problem mostly affects companies owned by individuals, as opposed to groups, because one entrepreneur may become too attached to a business and make decisions that are clouded by sentimental values as opposed to objective reasoning (Strike, Michel and Kammerlander, 2018; Chell, 2000). Some of these challenges manifest from the psychological biases affecting entrepreneurs, such as the need to appear rational, even when they are not, and the impact of poor framing effects on their cognitive processes. These influences may cause them to lose the proper sociocultural context needed to make the right business decisions (Passera, Smedlund and Liinasuo, 2016). Therefore, there could be a mismatch between the decisions made at this stage of development and prevailing market dynamics.

To overcome the biases in decision-making impacting entrepreneurs during the last phase, it is important to introduce a third party to act on behalf of the owners because an agency relationship would be more effective in reviewing factors that have to be considered in the decision-making process. This suggestion stems from the agency theory, which presupposes that a contracted partner should act in the principal’s best interest when making decisions relating to the latter’s business activities (Pepper, 2018; Delbufalo, 2018). Therefore, there is an implied trust between the two parties, which should guarantee entrepreneurs that all decisions made at the exit stage are in their best interest (Rossi and Krey, 2019). Based on this relationship, most of the final decisions will be products of objective reasoning.

Conclusion

The discussions highlighted in this paper show the types of difficult decisions entrepreneurs have to make at every stage of the business development plan and how they can overcome them to promote the stakeholders’ interests. By undertaking this review, I have thought about my entrepreneurship journey and the requirements of a successful business owner. Particularly, after analysing the multiple factors owners have to consider at each stage of business development, I recalled the great businessmen I admire, such as Elon Musk, Jeff Bezos and Richard Branson who have changed the world because of their innovations.

The aforementioned personalities have unique entrepreneurship skills, including attention to details, adventure, proactivity and the willingness to pursue a predetermined set of actions, regardless of the adversities they encounter. I believe that these attributes are important characteristics of an entrepreneur and over time, I have adopted them, as they are instrumental in the decision-making process. These skills help successful businessmen to shift their decision-making frameworks from one based on the typologies and traits of employees to another that is reliant on cognitive skills and abilities that allow a person to spot opportunities in the market that can be exploited for accelerated business growth. I believe that this ability is the true mark of a successful entrepreneur because it is not enough to have a business degree or possess specific qualifications without a proper understanding of the skills needed to spot market opportunities and make decisions that accurately optimise them for increased profitability.

The above statement establishes a link between entrepreneurial thinking and self-efficacy because the higher the sensitivity to the latter concept, the easier it is for entrepreneurs to detect market opportunities. In this regard, there should be a greater focus on people’s competencies, as opposed to personality, when making important business decisions because they will create a platform for assessing decisions based on actionable behaviours that can be observed and measured. However, based on the diversity of characteristics that define entrepreneurship, the findings of this study should be adopted with caution because one set of indicators cannot define all businessmen.

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