Business owners need to be aware of the different stages in a company’s life cycle, regardless of which stage they are currently in. Knowing the key stages of the business life cycle and which one your company is now going through can help you better plan for the future. So what exactly are these stages? How can you tell which one you’re in?
Generally speaking, there are four stages in a business’s life cycle: startup, growth, maturity, and decline/renewal. However, the duration of these stages varies, and there are different indicators and factors to consider. In this article, you will learn about the various stages of the business life cycle and the most common milestones of each stage.
What is the Business Life Cycle?
The business life cycle refers to the stages a business goes through over time: startup, growth, maturity, and decline/renewal. These four stages represent the financial evolution of a successful business. Each stage has a different duration and features unique milestones and indicators.
You may sometimes see the business life cycle represented by more than four stages, as some of the more complex stages are split into two. For example, the initial or startup stage is frequently divided into the development and launch stages. As you will see in the next section, the business life cycle is similar to the product life cycle but applies at the company level.
What are the Stages of the Business Life Cycle?
All businesses start with an idea that is nurtured and developed into a business plan and, eventually, a working business. This cycle has four main stages: startup, growth, maturity, and decline/renewal. However, the first stage is very challenging, and many businesses don’t make it past it.
This failure to reach later stages is sometimes due to unpredictable circumstances, but it is often the result of unclear or unachievable goals. To avoid surprises, business owners should know what to expect at each stage of the business life cycle. This allows you to set realistic objectives, especially for the initial stages. Below, you have descriptions of each stage and what you should expect in terms of financial indicators.
Stage 1: Startup
The first stage is extremely challenging. As a business owner, the startup stage is usually characterized by featuring no money and no sleep. In other words, you will be putting a lot of time and effort into getting your business off the ground, knowing that profits are still a long way away and you need to get some funding. It’s important to remind yourself that this is normal in the first stage and not a reason to throw in the towel.
To improve your chances of success, make sure you dedicate enough time to researching your idea. Your market research should cover supply and demand to help you design a viable and attractive business plan and proposal. Your objectives should be specific, measurable, and achievable. Vague and over-ambitious goals will likely lead to disappointment and are unlikely to attract investors.
Once you have secured funding, it’s time to create and launch your business. Depending on your industry and business model, this can take a while and incur many one-off expenses, including the launch. By this point, you’ve spent quite a bit of money without making any, so this part is exciting and scary in equal measure.
After the launch, your primary focus becomes making sales and growing your customer base. Depending on the industry, breaking even can take a long time, so profits are still in the future. Marketing expenses are likely to be a significant proportion of your spending.
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Stage 2: Growth
The growth stage begins once the goals and milestones of the first stage have been accomplished. Not all companies have managed to break even by this stage, while others may already be making a profit. This very much depends on the industry you are in and the type of products and services you offer. Regardless, your main objective at this stage is to grow your sales and customer base. This doesn’t mean that growth is only an objective during this stage, but at this point, it’s your priority.
In other words, your sales and your customer base are growing. If you hadn’t already, you’ll reach the break-even point and start seeing some profits. In many cases, it is at this point that the business owner can start drawing a salary. If your product or service is doing well, it’s an excellent time to seek more funding to expand your offer or your operations. If you offer multiple products or services, it’s also a great time to evaluate their performance and decide on their profitability.
Stage 3: Maturity
This is the most stable stage, as you have some brand recognition and an established customer base. This doesn’t mean that growth stops, but it does slow down. You’re doing well in terms of both sales and profits, and your senior employees have some tenure, so they can handle day-to-day operations. As a business owner, you have more time to focus on improving performance and planning for the future.
In fact, the future should be one of your main concerns. In large part, this planning for the future is what will determine whether the next stage is decline or renewal. If you wait until there are clear signs of decline, it may be extremely difficult to reverse it. On the other hand, you may be more interested in selling the business than renewing it, which will also require planning.
Stage 4: Decline/Renewal
As mentioned above, a company can renew itself through different strategies. However, it’s almost always down to changing your product or service offer and can involve some rebranding and remarketing of your business. This is sometimes possible when the company is already in decline, but the more you delay, the harder it will be.
Some business owners prefer to sell the company rather than reinvest in renewal. In that case, you will need to evaluate your company’s worth and prepare the required financial statements and documentation. Finding buyers and negotiating the terms of the sale can be an extended process. If you take too long to decide whether to sell or reinvent your business, you may not get to decide at all. Sales and profits may dwindle to the point where you can’t find any buyers.
However, by knowing and understanding these stages ahead of time, your odds of success have already increased a little. If you do your research and plan carefully but flexibly, you can improve your chances by a lot more.
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Example of a Business Life Cycle
You can find examples of the business life cycle stages in any industry. Of course, the evolution is easier to understand in hindsight and even more so as an objective third party. In other words, make sure you do some research to find examples of companies similar to yours since it could provide valuable insights.
When it comes to huge companies like Blockbuster Video, you have a lot of information available. In fact, you have detailed reports published by financial institutions. You can see how the company progressed through each stage. Founded in 1985, the company had a short startup period before it saw significant growth, then massive growth. At its peak, Blockbuster had over 9000 stores around the world. However, around this same time, Netflix and similar companies came into the picture, forcing Blockbuster into a decline. Despite many attempts to renew, the company could not recover and filed for bankruptcy protection in 2010.
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As you have seen, there are four main stages in a business life cycle. However, since they are different in terms of duration, complexity, and milestones, some of these stages are sometimes broken down further for a total of more than five stages. For instance, the startup stage requires specific steps in terms of developing the idea, acquiring funding, and launching the business.
Regardless of how many stages you feel more comfortable working with, you will need different types of software to help you pull this off. Fortunately, you have great tools available to help you execute and manage your business. Accurately recording and analyzing your financial data is extremely important, and tools like Google Sheets or Microsoft Excel are of great help.
As your business grows, managing your data can become time-consuming and repetitive. Using a tool like Layer, you can effortlessly synchronize your data across multiple formats and locations. Additionally, you can automate repetitive tasks and schedule updates, saving valuable time. You can easily manage access to your data, assign tasks and monitor progress, and automatically share reports with your team and other interested parties.