Seven Stages Of Business Life Cycle
Task: Discuss the seven stages of business life cycle and approaches one should adopt in order to meet the challenges in every stage.
Each and every business has its own business life cycle. It starts with the inception of an idea about the business, how it will start that is the start-up, its implementation and growth, its maturity and its decline. Different business companies and thinkers use different terms for the stages of the business life cycle which can define its product life cycle. Some thinkers talk about the presence of four stages, namely, start-up, growth, maturity and decline. Other thinkers approve of seven stages of the business life cycle, namely, start-up, growth, maturity, saturation, decline, renewal and withdrawal. The addition and subtraction of stages does not provide a different dimension to the business life cycle. The seven stages of the business life cycle is just a detailed version. Along with the seven stages there is a concept of five stages of business life cycle as well. As the business grows old, it will have to pass through a variety of stages which will lead to development. The present paper will discuss about the seven stages of the business life cycle.
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What are the stages of a business life cycle and its challenges?
Focus of the business may change time and again as per the changing needs and challenges faced by it. In order to meet the challenges, different approaches needs to be adopted and the prospective sources of finance needs to be checked in order to cross all the stages of the business life cycle.
Source: (Hasan, Al-Hadi, Taylor and Richardson, 2016)
There are different stages of a business life cycle which has been discussed below:
Seed: When a business owner has an idea about any business, it is the first stage of the business life cycle which is the seed stage. The business owner has to talk to others about the business idea, plan on its logo, its name, developing a website, etc. The most challenging task while initiating a business is its market acceptance. The business owner has to investigate the opportunities the business can explore and whether it can create a name for itself or not. The business owner has to make investment in the form of money and time to gather information on the business acceptance in the market. After analyzing the challenges of business acceptance, focus comes into picture. At this step the business owner has to focus on matching his skills, passion and experience with the business opportunity (Venugopal and Yerramilli, 2018). He may also focus on other areas as well like the structure of the business and the ownership, locating the business advisors and planning the business. Once the focus is clear, sources of money comes into the picture. As the business is in its inception form so there will be nobody who will readily finance the business. No customer or company will rely on such business. The business owner starting the business has to rely on himself, his friends and family members for finances. He may also approach some of the suppliers, grants from the government or the customers. At this business life cycle stage, it is generally considered that completion of the business plan is a step towards successful business venture. Evaluating the cash to be invested in the business is a necessary step at this stage. The business has to carry on its business model without any external revenue.
Some questions to consider during the seed stage:
- What is your idea?
- What will be the product or service of the business line?
- Is it a new business or are you looking to develop an old business?
- Do you have the required skill and experience to successfully handle the business?
- Do you have any idea about the financial needs of the business?
- How will you finance the business?
- Do you know your strength and weakness?
- Your Target market
- Who will you target?
- Who will be your competitors? Do you know their strength and weaknesses?
- Do you think that you have no competition? If it is true, do you think the product or the service is required?
- What is unique about your product or service which will attract people to buy?
Start-up: At this stage of the business life cycle, the business has come into its legal existence based on certain terms and conditions. Once the potential of the business is clear, the business owner starts to implement the ideas. The process involves finding a location, checking the suppliers, choosing the partners, planning the business, making marketing plan, registering the business, etc. The business owner has to decide on the number of employees required or if it is a family business then, who will look into its operations. The business has manufactured its product or the services and it has been shared with the customers (Szerb and Vörös, 2019). At this stage the business owner may be in a position to evaluate whether the investment made at the first stage in terms of finance and time was sufficient or not. The business owner has to invest his energy and time to market the product. The business owner needs to evaluate the needs of the customers and verify whether the business is going in the right direction or not. The focus at this stage is to establish a relationship with the customers and establishing the business in the market along with maintaining and checking the flow of cash. On this stage of the business life cycle, the business may get finance from the owners, their family members, their friends, suppliers, its customers or government grants. At this business life cycle stage the business owner has to develop a relationship with its suppliers on how to make payments, etc. The business owner has to make strategies to deal with its competitors. Knowing about the taxes and following the rules and regulations is an important factor (Hasan, Al-Hadi, Taylor and Richardson, 2016). The business owner has to ensure that its product or services are efficiently launched in the market so that the people are aware about the business and its services, its location and who the owners are. During this phase the business owner may look into revising his budget.
Some of the important things to consider at this stage are:
- Evaluating the reasons for doing the business
- Deciding the structure of the business
- Obtaining the required licenses
- Conducting a market research
- Researching about the financing options
- Obtaining necessary insurance
- Creating a business plan
- Strategizing the growth opportunities
- Finding a professional account and a lawyer
- Opening of a bank account
Growth: At this stage the business owner may realize that business revenues and its customers are growing. The growth has opened to new opportunities and added different issues. It can be evaluated that the profits are increasing along with increased competition. The present business life cycle stage, the business has to face issues related to finance and investment of more money. Managing the business in an effective manner is required. The business owner has to learn the art of training and delegating in order to pass this stage. At this stage the focus of the business owner is to run the business efficiently in order to increase the sales and the customers (Laitinen and Laitinen, 2018). Better management team needs to be employed along with hiring of new employees. At this stage the business owner may seek finance from banks, use the money from the profits made from the business, partnerships, government grants and lease. The business owner has to maintain a good relationship with all the people involved with the business whether internal or external. At this stage of the business life cycle the business is able to earn profits and not look for meeting the finances invested. The business is able to create a market share. The business owner needs to be innovative in order to attract greater sales and profits. The customers are able to evaluate the product or the service being delivered by the company. They will both use and recommend the business to others or they will stop using the services. This will help in building relationship and trust. At this stage the business owner is able to build a relationship with the customers as well as its suppliers (Hornberger, Konig, Zerr and Baltes, 2017). The business owner has to increase the production of the products or the services in order to meet the growing needs of the customers. The owner will be in a place to apply his knowledge, skill and experience which handling the business. Hiring of some experienced professionals will be required in order to save time and money involved in the training process. The owner has to ensure that the finances are well managed.
Some of the important things to consider at this stage are:
- Refining the market
- Creating a brand
- Tracking the records
- Identifying the partners of the business
- Making arrangements to expand the customer base
- Matching the needs of the employees
- Increasing the operational finance
- Forecasting the sales
- Automating the payroll process
- Reviewing the insurance requirement
- Revisiting the business plan
- Hiring experienced employees
Some questions to consider during the growth stage:
- Enhancing the market awareness
- What are the growth opportunities in the present market?
- How will you promote the business product?
- What is your marketing budget?
- What is the marketing plan?
- The operational plan
- Will you be able to meet the current and future sales?
- Are you looking for additional machines?
- Are you looking to increase the working capital?
- Are you looking to increase efficiency and effectiveness of the business process focusing on less waste and increasing the quality?
- Are you looking for a bigger space to meet the growing needs?
- The team
- Are you working with the right team?
- Are you looking to hire professionals?
- Are the duties defined and each of the position is filled with experienced people?
- Financial plan
- What is the capital required to expand the business?
- How to raise the capital?
- Is there a business plan which can be reviewed by investors or the lenders?
- Have you anticipated the sales, profits and flow of cash basis the expanded plan?
- Growing plan
- Did you revisit your plan to address the growth opportunities?
Established: The new business has gained maturity and has thrived to become a big company. It has created a stable place and loyal customers in the market. The growth in the sales is manageable and the business is following the routine process. At this stage the business owner cannot take a rest rather he needs to focus on achieving something bigger and assess his plan. The market is competitive and any issues arising due to changing competition, changing taste of the customers, etc. can be resolved basis the experience gained (Hasan, Al-Hadi, Taylor and Richardson, 2016). The business owner needs look into improving its product or services and enhance productivity. To be able to compete in the business, the business owner will look into inclusion of best business practices with automation and look for outsourcing of the business to enhance productivity. Finances will be managed from the profits made, taking loans from the banks and looking for investors and government grants. The business owner may look for opening a new branch in the same area or another depending on his needs. The business has to evaluate the changing needs and improvement areas in order to cater to the demands of its customers. New products and services may be introduced on lines of the old ones.
Expansion: At this business life cycle stage, the business owner looks into new opportunities and markets along with new distribution channels. It depends upon the choice of the business owner whether he wants to achieve a larger market share or not. He needs to decide whether he is looking for new revenue and profits areas or not. One of the challenges is to plan and research about the new market opportunities. Opportunities which can increase the experience and capability of the business can be looked into. Stepping into a business having no knowledge about it may be disastrous (Carnes, Chirico, Hitt, Huh and Pisano, 2017). Expanding the business opportunities may be a tricky situation and the business owner has to select the location of the new business venture after a detailed analysis. The business owner should focus on adding new products and services to the present market or think of expanding the present business in new markets in order to attract different customers. The finance can be funded through joint venturing, loan from banks, acquiring license, approaching new investors and taking financial help from the partners. The marketing plan needs to be changed and the customers are to be served with improved products and services as per their needs.
Decline: When the economies change, or there is a change in the behavior of the society and the market, it can hamper the sales and profits of the company. It may be one of the reasons for the decline of small companies. When the business is in a declining stage, it may face challenges in the form of lower sales, low profits and negative cash flow. Supporting the negative cash flow is one of the biggest problems faced by the business (Huang, 2016). The business owner may consider closing down the business at this stage. The business owner may focus on new opportunities to continue with the business or look for new business ventures. He has to cut costs and find ways to assist cash flow. The finances at this stage would be managed by suppliers, owners and the customers.
Exit: At this stage the business may either reap the benefits or may close down the business due to the losses incurred. If the business owner is looking to sell the company then he should look for getting the required value due to the prolonged efforts he has put into the business. The conditions were different when the business was in a growing stage but at this stage the situation is different and the business does not hold back the same value. If the owner wants to close the business then the real challenge is how he can meet the financial and psychological losses incurred in the business. At this business life cycle stage the owner has to look into getting a proper value of the company at the time of sale (Huang, 2016). The owner should highlight the important aspects of the business to the buyer so that he can get a realistic value of the company. Legal agreements need to be established for the buying and selling of the company. At this stage of the business life cycle, the owner may look for a partner who can value the business or he can take advice from his accountants on the best option and strategy to sell the business or close the business.
It is not necessary that the stages discussed above will occur in the same order. There may be businesses which may wind as and when it gets started and others may wind the business as and when they reach the established stage of the business life cycle. The success and failure of any business depends upon the challenges faced and how was it tackled by the company. The focus of the business owners should not be limited to the present scenario rather they should look for future prospects. When a business owner is able to realize the stage at which his business rests, he will be in a position to foresee the challenges and take the correct business decisions. Business life cycle theory is an important element to be considered while initiating a business plan.
Carnes, C.M., Chirico, F., Hitt, M.A., Huh, D.W and Pisano, V. (2017) Resource Orchestration for Innovation: Structuring and Bundling Resources in Growth- and Maturity-Stage Firms. Long Range Planning, 50(4), pp. 472-486.
Hasan, M.M., Al-Hadi, A., Taylor, G and Richardson, G. (2016) Does a Firm’s Life Cycle Explain Its Propensity to Engage in Corporate Tax Avoidance? European Accounting Review, 26(3), pp. 469-501.
Hornberger, L., Konig, M., Zerr, K and Baltes, G. (2017) Growth factors of early-stage technology ventures a life cycle model for business strategy. 2017 International Conference on Engineering, Technology and Innovation (ICE/ITMC). Funchal, Portugal
Huang, T. (2016) Peeping at the decline stage. Computers in Industry, 82, pp. 224-232.
Laitinen, E.L and Laitinen, T. (2018) Financial reporting: profitability ratios in the different stages of life cycle. Archives of Business Research, 6(11).
Szerb, L and Vörös, Z. (2019) The changing form of overconfidence and its effect on growth expectations at the early stages of startups. Small Bus Econ. https://doi.org/10.1007/s11187-019-00297-9
Venugopal, B and Yerramilli, V. (2018) Seed-stage success and growth of business. 29th Australasian Finance and Banking Conference 2016; 29th Annual Conference on Financial Economics & Accounting 2018. Available at SSRN: https://ssrn.com/abstract=2789117 or http://dx.doi.org/10.2139/ssrn.2789117