Know Your Business Life Cycle
April 21, 2022
Businesses, somewhat similar to humans, go through different life cycles. Regardless of location, industry, organizational formation, or number of owners, businesses move from one phase to the next phase in a rather predictable and sequential manner. It is important to understand the various stages in the business life cycle and be adaptable to changes that are necessitated as the business is faced with new issues and challenges. Understanding that change in business is inevitable helps to secure long-term viability.
A business life cycle model that is simple and easy to understand might categorize the various phases as:
Formation/Development - During this phase, a business develops an idea and then determines how that idea can actually be turned into a possible viable business. The business obtains capital from owners and/or investors and starts operating.
Early Growth/Infancy – In the early growth/infancy stage, much uncertainty and apprehension exist about the future of the business. It is now established, operating, and growing with short-term goals concentrating on cash flow, performance, and organizational structure.
Late Growth/Established – During this third phase, revenue normally starts to level off from the initial, accelerated stages of the business. Competition intensifies as more businesses try to compete for the same customers. The business must also develop adequate controls and procedures to safeguard profits and assets if not already in place. At this stage, the owners of the business must decide if the business is to remain stable while maintaining or enhancing profitability or trying to expand beyond where the business is currently and how that will be accomplished. Many times, not expanding beyond the capabilities of the business is a prudent decision.
Stable/Mature – This is the final stage in the business life cycle. The business is well-established and inefficiencies in the operation should be (or must be) reduced or eliminated to ensure continued existence and profitability. By this time, the business should be able to take advantage of its market position, reputation, branding, etc.
Does the Specific Stage Matter?
You might be thinking that it is nice to know about the four organizational life cycles of a business, but is it really important to know which stage my business is in? It actually does matter because a business operates differently based on its business life cycle.
Now, there is no absolute date or line of demarcation that denotes when a business evolves from one stage into another; however, the actual stage will dictate how and why certain business decisions are made.
A fairly new business just getting started (formation/development and early growth/infancy) will certainly have to make different decisions regarding marketing than an established business (stable/mature) that already has a base of loyal customers.
A business in the early stages will make different decisions regarding the number of employees and skills needed than a stable business that should have a loyal, motivated team of employees each possessing the same or different skills and talents depending on job positions and responsibilities.
Even operations will differ as well as processes and procedures as a business learns what is most efficient and what is not. Target markets and products or services offered might change as a business grows and matures. So, knowing which life stage a business is in certainly does matter.
The various life cycles of a business are a continuous process of decision-making based on operations, efficiency, profitability, sales, growth, customer needs, etc. Changes will be necessary as the business progresses from one stage to the next. Without change when change is needed will result in business stagnation, or worse, business decline. Understand the various life cycles of a business and be ready for change.