In the medical world, Abasia refers to the inability to control the muscles of your legs and thus your ability to walk.   In business, Abasia refers to the inability to move your business forward.  Specifically, the Abasia Point is the inverse relationship between total revenue from operation and net profit percentage. In other words, net profit percentage will shrink despite an increase in revenue.  Issues such as “I just can’t grow past x dollars a year”, or “my account receivables are way out of control”, or “our operational performance is inconsistent” are common indicators that the Abasia point has been met and that control is slipping away.  What should a business owner do?

Recognizing The Symptoms

Most small business owners start out in a similar fashion.  Being very good at what they do, entrepreneurs one day decide to venture off on their own, thinking that they will make things better and make more money by themselves.  The start-up is usually modest, perhaps even in their garage or home.  The business starts to pick up and sales grow.  At that point, everything is in the owners’ head or on a few sheets of paper.  At first, sales growth is great but then, at a certain point, net profits begin decreasing relative to increasing sales.  This point of diversion is called the Abasia Point. It is at this point of growth where entrepreneurs begin to lose control of their business.  This leads to constant firefighting, leaving virtually no time for planning, controlling, organizing, or executing the business plan. 

The Causes of the Abasia Point

In order to create a successful business the owner needs to wear multiple hats. The primary hat is that of the expert. This could be a mechanic, a welder, an engineer or any other professional who decides that he or she can perform the work better, faster, and smarter than others and reap the tangible and intangible benefits of being in business for himself. For entrepreneurs, this is usually a large hat because that is where their comfort level is highest.

Yet as the business grows, the business owner must begin to wear additional hats. The second hat is that of the manager.  It is the manager’s responsibility to manage the day-to-day operations and tasks of running the business which include hiring and firing the right people, organizing and scheduling the work, ordering inventory and supplies, and then actually doing and completing the work according to the contract specifications.

The third hat is that of the executive.  In this hat resides the overall strategy for developing the business, segmenting the company into productive units, overseeing the entire organization, developing subordinates who can assume responsibility for the successful completion of day-to-day operations, and writing and achieving the business plan. 

Inherent weaknesses in the second and third hat are the lack of planning and organization that results in the company growing outside the scope of effective control. Critical ratios such as gross profit margins, liquidity ratios, and selling and general administrative expenses start moving in the wrong direction. Owners frequently find themselves fighting fires rather than focusing on strategic and business development.

Development Phases of a Company

There are five phases of development of a company.  The first three are inherently different in nature than the last two. The first three are linear and start with the Concept Phase. The second stage is the Survival Phase that leads to the Transition Phase. Typically the first three phases take about six to ten years. The last two phases are circular in nature and and are the Stabilization and the Growth Phase. (Click here to see a picture of the Five Phases)