The Business Life Cycle: Establishment, Growth, Maturity & Post-Maturity
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. Business are very venerable 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.
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.
It may be wise to re-evaluate the businesses mission and vision statements to match when the business is now. There is a good chance they will have changed since establishment; assuming the owner has been flexible to ensure success.
The goal at maturity is simple. To maintain profits at pre-existing levels. Your king of the hill, now you have to monitor your business to ensure you stay there. Marketing and financial management are center 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 worlds 6+ billion people have at least some idea 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. Hence why I keep a broom length between myself and the study where possible. However, I cant deny the fact that it works and it works well. Make sure no one forgets your there and your 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.
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This is an adapted situational analysis of the Rio Tinto Iron Ore group from 2012. It identifies their strategic objectives and analyses them in an attempt to ID issues and provide recommendations.