The Business Life Cycle: From Establishment to Post-Maturity
The Four Phases of the Business Life Cycle
The life cycle of a business consists of four phases. Each phase has its own special features and challenges. All successful businesses will go through these phases more than once.
The phases are as follows:
This is the birth of the business, where profit is negative. The owner has invested both time and money preparing for what is to come. Businesses are very vulnerable at this time. Both external and internal environmental factors can have a great effect on the future of the business.
The aim is to get the business onto a stable foundation of profitable sales and a consistent cash flow. Detailed planning during this stage can greatly increase the chances of success.
In this phase, the business is continually gaining regular customers. Sales should be increasing every week and cash flow is almost always positive. In the case of a small business, there are likely to be between 10 and 15 employees working on a consistent roster.
With growth comes complexity, responsibility and a need for long-term planning. Advertisement is important during both establishment and growth, as is the need to make investments in relevant equipment or employees to ensure a good reputation. Owners must be careful not to expand faster than their business can adapt to the changes.
Maturity begins when sales come to a plateau. The business is thriving with a good customer base and regular cash flow. Its now that a more formal, detailed approach towards planning should take place. During growth, it is more important to make quick decisions with a good chance of success. Now that the rate of change has slowed, more detailed, long-term plans can be made.
It may be wise to re-evaluate the business's mission and vision statements to match where the business is now. There is a good chance they will have changed since establishment; assuming the owner has been flexible enough to ensure success.
The Goal of a Mature Business
The goal at maturity is simple: to maintain profits at pre-existing levels. You're king of the hill, and now you have to monitor your business to ensure you stay there. Marketing and financial management are central to this. A good example is McDonald's. I don’t even have to state that it's a fast food restaurant chain, because you know what it is. The majority of the world's 6+ billion people have at least some idea of what it is. The same goes for Coca-Cola.
What these two companies have in common is a consistency in both their marketing and their advertisement. Despite their popularity, they still flood the market to ensure they stay number one in their domain and in the minds of their consumers. Personally, I don’t morally like this marketing strategy, or the tricks of marketing at all. This is why I keep a broom's length between myself and the study where possible. However, I can't deny the fact that it works, and it works well. Make sure no one forgets you're there and you're what they want.
Finances need to be monitored for one reason above all others. The numbers show you trends—downward trends, upward trends, fluctuating trends. Where are your profits heading? This is your pre-warning to where you are headed in post-maturity, allowing you to find out why, when and how to change it.
The final stage consists of three possible outcomes.
- Renewal: New areas of growth cause increased sales and profits.
- Steady State: A continuing state of maturity.
- Decline: Profits begin to fall as a result of poor management, often a direct result of a drop in sales or excess expenses.
Often a direct result of new markets being tapped to create new areas of growth, expanding the reach of products and services the business provides.
To maintain a steady state, focus should be on what existing customers are currently demanding. This requires market research for accurate results. A steady state stops expenditure on research and development required for renewal. Be warned: A steady state cannot be maintained forever and will fall into decline if not forced into renewal.
Decline is difficult to reverse for the following reasons:
- Financial institutions are reluctant to lend money to high-risk businesses.
- Suppliers will restrict credit facilities and may insist on cash payments.
- Products may have become obsolete.
- Well-qualified employees may begin to leave to seek out better opportunities; without a strong workforce, the rate of decline increases.
The trick is to spot possible decline and prevent it before it manifests itself.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.