5 STAGES OF BUSINESS LIFE CYCLE & HOW TO PREPARE FOR EACH
Updated: Oct 27, 2020
In this post, we will cover a different perspective on the average business’s evolutionary progress.
Every business will inevitably go through startup, growth, maturity and decline stages of its life cycle.
Each business life cycle stage comes with unique managerial requirements. It is important to identify at which stage of a business life cycle your enterprise is, because that will define the direction of your operations and your company’s strategic planning.
In this article, we will:
Establish the difference between business life cycles and stages of business growth
Review 5 stages of every business’s life cycle
Identify and discuss the most important areas to focus on during each stage
What Is The Difference Between Business Life Cycle And Stages Of Business Growth?
The terms “business life cycles” and “stages of business growth” are sometimes used interchangeably.
However, as we’ve started to explore in the previous post, these terms represent different takes on the evolution of a business.
Small and medium-sized business entrepreneurs prefer to look at the evolution of their companies in terms of business growth. They develop their businesses as legacies and strive to keep them relevant in the long-run.
On the other hand, serial entrepreneurs look to grow their brand and likely sell it at its peak for maximum profit. They look at their business ventures from the life cycle perspective.
This article takes a deep look into the latter outlook of business evolution.
5 Stages Of Business Life Cycle
The evolution of entrepreneurial ventures spans various phases, from planting the seeds of a business idea to maturity and decline stages. These five cyclical stages in a business’s existence are:
1. Seed And Development Stage
The very beginning of your business’s lifecycle is the idea you have for your business. This stage, that even precedes the very existence of your business, is usually called the seed stage. You are about to plant your business seed and nurture it into success.
The seed stage, however, also refers to seed funding. It is during this early period that entrepreneurs look for investors that will provide capital and financial support to their startup. This includes a high level of project feasibility research by prospective investors.
At this development phase, you need to examine your idea from all angles and make an estimate of its business feasibility – that is, if it’s worth developing into an actual business.
Asking yourself whether your business idea will yield any profits and provide quick ROI is one of the core considerations of the seed funding stage.
During this process of assessing your startup’s viability, you also need to identify key target areas and develop a wider strategy that includes your brand positioning, target audience and competition research.
Once the key target areas are identified and a strategy is developed, you are ready to move on to the next stage of the business lifecycle.
What to focus on:
Reach out to investors: A financial support at this stage is crucial, so try to find individuals or organizations that may be interested in your project enough to provide monetary backup to it. This will come with a great deal of market and economic research to establish the project feasibility.
Create a business plan: It is always important to analyze and firmly establish the strengths, weaknesses, opportunities and threats your business will encounter on the market you intend to enter. The success of your business will come down to the financial foundation of your launch, as well, so try to plan that as much possible to the last detail.
Garner advice and opinion from professionals: Experiences industry specialists and entrepreneurs you may have access to, as well as business associates, friends and colleagues that are competent in this regard can provide valuable insight and opinions on the potential of your business idea. Inquire about their main takeaways from the seed funding stage and biggest obstacles they had to overcome.
Consider the market and your role in it: Ask yourself if the market is ready to accept your business and if your concept, product, service or idea can fill an existing need in the market. How can your idea soothe the pain points of your prospective customers and clients?
2. Startup Stage
At the startup stage of the business lifecycle, enterprises either
Seek funding from investors or banks, or
Initially work within their own means
Regardless of your funding, extreme flexibility, adaptability and resourcefulness are your best friends at this stage. It’s a period of testing, failing and trying again.
This is a phase at which there aren’t many work processes. You tweak and finetune your business model according to changing perspectives of the market and your first customers’ feedback. You still learn how to turn a profit and the first outlines of your governance and compliance function should begin to emerge.
One of the bigger challenges of this startup stage is retaining employees – and this is one big reason why most businesses fail at this stage. You cannot underpay yourself and your crucial employees for very long, so creating a business model that can support you all is crucial.
Due to so many changes and alterations, you may feel a sense of confusion at this stage. Resist the urge to dwell on it, trust the process and power your way through: these difficulties are natural at this stage and the path will be much clearer soon enough.
If you grow through this, you will be among the 10% of businesses that survive their startup stage.
What to focus on:
Establish a business structure: At the beginning of the startup stage, your employees are “wearing many hats” and there are few job descriptions and titles as such. Everybody does a little bit of everything, which is a prerogative for any new enterprise, but a corporate structure must exist in order for the company to keep growing beyond this phase.</span
Consistently implement new ideas: During the startup phase, you spend your time meeting people and coming up with new ways to sell your products or services. Listening to customers’ feedback and trying ideas on for size indiscriminately will provide clarity on what aspect of your product(s) or service(s) to focus on in the future.
Figure out a sustainable cash flow: This is the right time to come up with a business model that provides a consistent cash flow that will, in turn, provide consistent growth and the ability to retain old people and hire new ones.
Face and overcome various challenges: Managing cash reserves, sales expectations, establishing a customer base and a market presence are some of the biggest trials you will have to confront with decisiveness at this particular stage of the business life cycle.
During the startup stage of the business life cycle, you should establish the first outline of your company’s structure
3. Growth Stage
At the growth stage of the business life cycle, your enterprise begins to solidify its place in the market. Your business strategy begins to settle down and your clients are able to explain your business model to other prospects.
Ongoing expenses are no longer an issue – recurring revenues help cover them as cash flow improves, improving your profits.
As turnover decreases, your source of income becomes consistent and stabilizes – and so does the acquisition of new customers. Relationships with existing clients and customers should mature past several-years-mark.
At this stage, the most significant challenge is taking on a new set of demands and turning your attention to them. These demands include but are not limited to:
Attending to new customers
Expanding workforce
Managing revenue
Outperforming the competition.
This is why hiring people with relevant skills and creating a more intricate team structure is your biggest objective during this phase.
This is the path towards making most of your business potential: as you grow into the role of your company’s head, a competent team of highly-qualified individuals should take over a number of big responsibilities.
What to focus on:
Turn your focus inwards: The key point here should be building a team by hiring quality people to run segmented operations. As a manager of your business, you should spend time on whatever helps the company grow and anticipate barriers that could decelerate this growth. Through a well-established recruitment process, create order and cohesion with clearly defined objectives.
Strengthen your customer relationships: Your high-profile employees should take a more proactive stance towards client relationships as well as internal processes. Both experienced senior leaders and workers at lower levels should partake in helping your clients become advocates, thus pushing your enterprise to grow even further.
Require investments: To deliver your business into the maturity stage, the growth phase needs investment. Outside investment capital is what you will likely have to require through either investors or debt. In the case of former, you will gain advisors and give up equity. With the latter, you retain equity and sign personal guarantees with banks for funding.
As your business grows, competent recruits should take over some responsibilities in the growth stage
4. Maturity Stage
To qualify for this stage, a business should grow about 5% annually and employees should have about 8-year tenure with the company – although this largely depends on the type of business.
At its mature stage of the business life cycle, your enterprise may also grow into a wider subsidiary and evolve branches for different products and services.
This is the period of the biggest level of security you as a business manager may feel since starting out. This security stems from professional management running a daily business, stable annual profits and relative predictability of the overall business situation.
Your business is consistent and dependable, can defend its market position and expand into new verticals through the sheer power of brand recognition. This, alongside a strong cash position, makes your business attractive for acquisitors and mergers.
This may face you, as a decision-maker, with two choices: to reinvest in your company and its sustainability, or exit and cash out to begin new ventures.
What to focus on:
Expanding the business: Before deciding on this step, ask yourself can the business sustain more growth? What are market opportunities, if any, for another expansion? Can you cover the possible failure financially? Are you, as a leader, fit to navigate challenges that new expansion brings?
Finding an exit strategy: This step will require a great deal of internal and external company position analysis. You and the entire management must communicate the right information at the right time – to the right people. You can perform this exit through a partial or full sale of the business. How the sale process will turn out will depend on the type of business you have.
The dilemma in the maturity stage of the business life cycle is whether to expand or find an exit strategy.
5. The Final Stage Of Business Life Cycle: Renewal/Decline
After a period of stability and success, a business may start to decline in revenue and profits, and in terms of the internal structure and external brand reputation.
A sure sign of any company’s decline is when leaders and owners no longer show an inclination towards investing in people or technology, but instead look at what they can take from the business as they plan their withdrawal.
At this, the fifth and final stage of the business lifecycle, a business leader such as yourself should either start to innovate and reinvest or cash out. However, renewal efforts should really begin before the decline phase sets in – good business leaders should be able to anticipate the change in business and market beforehand.
The challenge here is in taking an honest look and identifying the spectrum on which your business falls – of investing and expanding or selling and exiting.
Another challenge is taking timely action. Most business owners don’t recognize where their business is or never make a decision on the next step. That’s why, when they finally decide to sell, their business loses a lot of its value and worth to buyers.
What to focus on:
Assemble a team of people who know a lot on mergers and acquisitions: This should include accountants, lawyers, investment bankers and other relevant parties who can see to it that the merger process checks all legal and financial boxes.
Talk with sales and marketing on reinvesting: They can help figure out how to meet emerging changes in the market and whether there is capacity within the company to meet these changes. This might include modifying current offerings or inventing a completely new business model which is both time-consuming and costly.
In the final business life cycle stage, you make a decision between selling the business and renewing it.
Main Takeaways On The 5 Stages Of Business Life Cycle
Understanding the business life cycle and your position in it makes it that much easier to assume pending roadblocks and, with careful planning, stay one step ahead of these challenges.
Business aims, strategies and objectives are not set in stone – they change as your business and surrounding market change. Being aware of what stage of a business life cycle you’re at helps with anticipating what’s coming around the bend.
The key takeaways across all stages of the business life cycle would be:
Consider your business’s place on the market
Establish your company’s business structure
Listen to feedback and adjust your business model
Find a sustainable cash flow
Turn focus inwards towards recruiting quality people and delegating key duties
Expand the business or find an exit strategy
Reinvest to innovate or sell to maximize profits
The mixture of business acumen, instinct and the ability to interpret the signs of change in your environment will all impact the precision of your decision-making when hopping from stage to stage.
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