Around 20% of startups fail during the first year of operations. Understanding the key stages of a business life cycle and its phase is essential to ensuring that your business avoids that fate.
Each business life cycle stage comes with unique managerial requirements.
Understanding your position in the business lifecycle might help you stay a bit ahead of the game here and defy the odds, as you anticipate the potential challenges and obstacles that are upon you or are on the way depending on what phase you are in or about to transition to.
Put, as your business grows and develops, so should your business aims, objectives, priorities, and marketing strategies – and that’s why an awareness of what stage of the business lifecycle you are currently in can be helpful.
Let’s jump right in!
Stage 1: Seed, Planning, and Development Stage
This stage, which even precedes your business’s very existence, is usually called the seed stage. You’ve got your business idea, and you are ready to take the plunge.
At this stage, the first thing you need to do is research the business idea you have, how viable it is, the finance you will need, the major competitors in the market, and how to build your brand uniqueness. You can also gather advice and opinion from as many sources as possible: friends, family, colleagues, business associates, or any industry specialists you may have access to. Ultimately, your business’s success will come down to many factors– including your own abilities, the readiness of the market you wish to enter, and, of course, the financial foundation in place (how are you going to finance your launch?).
What to focus on:
- Reach out to investors: Financial support at this stage is crucial, so try to find individuals or organizations that may be interested in your business idea enough to provide monetary assistance. This will involve a great deal of market and economic research.
- Create a business plan: It is always important to analyze and firmly establish the strengths, weaknesses, opportunities, and threats your business may encounter in the market you intend to enter.
- Consider the market and your role in it: Ask yourself if the market you intend to enter is ready to accept your business and if your concept, product, service, or idea can fill an existing need in the market. How can your idea soothe the pain points of your prospective customers and clients?
In some ways, this is the soul-searching phase. It’s where you take a step back and consider your business idea’s feasibility and ask yourself if you have what it takes to make the business a success.
Stage 2: Startup
Once you are done doing your research, got funding, and probably do a test phase, and you are satisfied that it is ready to go, it’s time to launch your business officially. It is mostly believed that this is the riskiest stage of the entire business lifecycle. In fact, it is believed that mistakes made at this stage impact the company years down the line and are the primary reason why 25% of startups do not reach their fifth year.
During the launch phase, sales are usually low but slowly (and hopefully steadily) increasing. However, as revenue is low and initial startup costs are high, businesses are prone to incur losses in this phase. It can even get to the point where you are making so many changes to your business that you start to feel a bit of confusion.
The startup stage is usually marked by:
- Adapting your business model to the changing perspectives of the market and the feedback of your first customers
- Learning how to turn a profit
- Outlining your marketing strategy and work processes
Due to so many changes and alterations, you may feel a sense of confusion at this stage. Please resist the urge to dwell on it, trust the process, and power your way through: difficulties are natural at this stage, and the path will be much clearer soon enough.
Stage 3: Growth
If you’re at this stage, your business should by now be generating a consistent source of income and regularly getting on new customers. Cash flow should start to improve as recurring revenues help cover ongoing expenses, and you should be looking forward to seeing your profits improve slowly and steadily.
The biggest challenge for you in this stage is dividing time between a whole new range of demands requiring your attention– managing increasing levels of revenue, attending to customers, dealing with the competition, accommodating an expanding workforce, etc.
It would help if you were spending a lot of time directly involved in the recruitment process, hiring smart people with complementary skill sets that will take over several big responsibilities to make the most of your company’s potential during this phase.
While you’ll still be on the front lines often enough, you must start to take up the role as the head of the company; you need to be aware of how your expanding and highly qualified team is going to be taking over a great deal of the responsibilities that were previously tightly under your control. Your job is to establish real order and cohesion as you mobilize the teams according to clearly defined and communicated goals.
What to focus on:
- Turn your focus inward: The key point here should be building a team by hiring quality people to run segmented operations. While you should be spending time on whatever helps the company grow and anticipate barriers that could decelerate this growth. Through a well-established recruitment process, create order and cohesion with clearly defined objectives and job roles.
- Strengthen your customer relationships: Both experienced senior leaders and workers at lower levels should partake in helping your clients become advocates, build your customer relationship, and be actively involved in customer re-engagement. (You can check out our article on re-engage customers with these 7 tactics. This will help you push your business to grow even further.
- Require investments: To successfully move your business into the maturity stage, the growth phase needs investment. You can either seek investors or apply for loans. In the case of the former, you will gain advisors and give up equity. With the latter, you retain equity and sign personal guarantees with banks for funding.
Stage 4: Expansion
At this stage, your business has now firmly established its presence within the industry. Here you might start to think about capitalizing by broadening your horizons with expanded offerings and entry into new geographies.
Businesses in this stage often see rapid growth in both revenue and cash flow as the blueprint has now been established, but be warned about getting too comfortable. In business, you are either moving forward or backward, and without a constant check on the one you are, and you are properly expanding, complacency can set in, and you might get caught off guard. This can also be referred to as expanding too carelessly. I will advise that you look at your resources, be realistic about the effort and cost, and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers.
Your task is to take on new challenges as you constantly expand, but measure your risk and do your best to secure the company for all eventualities.
Stage 5: Maturity/Decline
Having navigated the business life cycle’s expansion stage successfully, your company should now be seeing stable profits year-on-year. While some companies continue to grow the top line faster, others struggle to enjoy those same high growth rates.
The maturity stage is the period of the highest level of security you as a business owner may feel since starting. This security stems from professional management running a daily business, stable annual profits, and relative predictability of the overall business situation.
It could be said that entrepreneurs here are faced with two choices: push for further expansion, or exit the business. However, it’s important to note that many businesses extend their business life cycle during this phase by reinventing themselves and investing in new technologies and emerging markets. This can allow you to reposition yourself in your industry and refresh your growth in the market place.
If you decide to expand further or reinvest in your company and its sustainability, you will need to ask yourself the same questions you did at the expansion stage: Can the business sustain further growth? Are there enough opportunities out there for expansion? Is your business financially stable enough to cover an unsuccessful attempt at expansion?
Better still, accept your failure to extend your business life cycle by adapting to the changing business environment and exit the business, cash out to begin new ventures.
Many at this stage also look to move on through a sale. This could be a partial or full sale, and of course, depending on the company type (for example, public or private), the negotiation may be a whole new journey in itself.
What to focus on:
- Get advice from experts on mergers and acquisitions: This may include accountants, lawyers, investment bankers, business analysts, and other relevant parties who can see to it that the acquisition process checks all legal and financial boxes.
- Talk with sales and marketing experts about reinvesting: They can help figure out how to meet emerging changes in the market and whether your business is capable of meeting these changes. This might include modifying the current business plan or inventing a completely new business model, both time-consuming and costly.
Time to Sail your Business
It’s safe to say that your business might not experience every stage of the business lifecycle, and even if you do, it won’t be in chronological order. For example, your businesses might see astronomical growth right after startup, and you might decide to cash out and exit right away, jumping straight to the “exit” stage.
For many companies, though, there will be some resemblance to the stages defined above, and awareness may help you anticipate what is coming next and how you can best prepare yourself and your team to maximize your chance of success.
Also, Making the right decisions at each stage is another thing you will need to consider, which may require your usual mix of gut instinct and practical business sense. Better still, you are hiring a business analyst to advise you at each stage of your business.