Understanding the Life-Cycle of a Business

There are few constants in business, but one is always present; change. Every business goes through various common stages of corporate existence during its evolutionary process. This movement, called the Business Life-Cycle, includes the startup and initial growth stage, the expansion or rapid growth stage as it moves into new markets, the mature operational stage, and the eventual decline as consumer interest in their product wanes. What occurs within the company during this decline will either result in a rebirth of the company and a resumption of its growth, or the eventual death of the enterprise.

In order to optimize the future success of their efforts, it’s important for business owners to understand which stage of this life-cycle their business is facing, so that the appropriate strategies can be employed. The ability to adapt to changing life cycles will affect whether their business is a glowing success or a dismal failure. With the life-cycle always in motion, understanding each stage will help you foresee upcoming challenges and guide you towards making wise business decisions.

The Stages of Business Life

1. Start-Up Stage

This critical stage encompasses the concept of a new business through its legal existence, having a product or service in production, and finally acquiring customers.

There are many important considerations during stage of a business, such as clearly defining the product or service you intend to offer, matching your skills to the business opportunity, deciding on the structure of business ownership, finding professional advisors to help create a clear business plan, and acquiring sufficient cash reserves to support the company as sales volume grows to self sufficiency.

Once products or services are in production and you have secured your first customer, it’s important to focus on establishing a customer base and market presence, along with tracking and conserving cash flow. Owners must acquire adaquate customers, successfully deliver products, and provide acceptable services in order to become a viable business. Can you expand from that one key customer or pilot production process to a much broader sales base?

At this stage, the owners tend to handle everything and directly supervise their subordinates. Systems and formal planning are minimal to nonexistent. The company’s strategy is to simply to stay alive. The owner IS the business; they perform all of the important tasks, and become the major source of energy and direction. It is important that they determine the specific needs of their clients, provide profitable service, and perform a periodic reality check to make sure their business is on the right track. They also need to make sure they have sufficient funds available to cover the considerable cash demands of this start-up phase.

2. Growth Stage

As new companies emerge from the initial startup stage, their customer base and sales begin to expand. And as more opportunities arise, other issues such as competition, more time and cash demands begin to surface.

Effective management is imperative at this point, and a new business plan may be required. You must learn how to train and delegate tasks in order to conquer this stage of development. It’s time to transition from being the technician to becoming the tactician, and focus solely on running the company. To handle the influx of business, you need to fine-tune the accounting and management systems, manage both increased sales and new customers, and hire new employees.

3. Maturity Stage

Success can lull business owners into a dangerous trap if they do not remain vigilant. Once a business has matured into a profitable company with a place in the market and loyal customers, business life becomes routine. Sales remain steady and manageable. The temptation to put the business on autopilot is great when everything seems to be going well. But the rest of the marketplace is relentless and competitive. Customer tastes can change quickly, and new technology can wipe out competitive advantages in an instant.

It is important to focus on company improvements and reaching greater productivity. To compete in an established market, you will require better business practices along with automation and possible outsourcing in order to improve productivity.

4. Decline Stage

Changes in the economy, society, or market conditions can unexpectedly decrease sales and profits, putting a business into a sharp decline. This may bring a quick demise to many small companies, although it may happen slowly and silently.

Businesses in the decline stage of the life cycle will be challenged with dropping sales, profits, and negative cash flow. The biggest concern becomes how long the business can support a negative cash flow. This is when owners must search for new opportunities and business ventures. Cutting costs and finding ways to sustain cash flow are vital for this declining stage.

Business owners must make a critical decision at this point: Is it time to move into the final life cycle stage, Death (aka Exit), or transition into a new stage called rebirth.

5. Rebirth Stage

Sometimes referred to as a ‘turnaround situation’, this life cycle is characterized by the reversal of a company’s declining fortunes through a reinvigorated period of growth into new markets.. New related products and/or services may be necessary at this time. The same planning and research of a seed or start-up company may be required in order to gain a larger market share and help find new revenue and profit channels. Focus should be on new businesses that complement your existing experience and capabilities, as moving into unrelated businesses can be disastrous.

6. Death Stage

If a business owner isn’t willing to focus on turning his company around when they are experiencing a steady decline in revenues (as described in the Rebirth Stage), he must assess whether to either shut down or consider selling his business.

After years of hard work building a company, what is its real value in the current market place? Selling a business invariably requires a realistic valuation of the company in order to determine its worth. This may be an opportunity to cash out on all of their effort and hard work. But should they decide to close their doors, coming to terms with the financial and psychological loss can be challenging.  Exiting a business successfully requires advance planning, and it is wise to have an exit strategy in place for review during each stage of the business life cycle.

It is critical for business owners to fully understand each state of the business cycle, in order to employ the strategies necessary to advance their business to the next level and achieve ultimate success.