What Are The 5 Stages Of A Business Lifecycle? [A Step-by-Step Guide]
When you view a business like a human, you will see that an individual begins from conception and then develops into a fetus. The fetus mature and after nine months, a baby is born. The baby grows under the care of the parents to become an adult. The matured adult can now give birth to other individuals but at old age, may die due to a decrease in strength.
Similarly, every business begin with an entrepreneur conceiving innovative ideas in mind. He analysis his idea, draw a business plan and then turn these ideas into a business venture. The business starts growing after the investment of capital into the business, up to the point where it can generate it own capital and make profits too. At maturity, where profit margins are not that high, the business may enter a death phase if not properly management.
In the article we bring to you a complete guide on the different stages involved in a business lifecycle. So stay on track.
Business Lifecycle - Understanding The 5 different Stages
This is the progression of a business in stages over time. Every business activity can be divided in to five different stages, which are:
- Initial/Lunch stage
- Growing/ Exponential stage
- Shake out/Expansion stage
- Maturity stage
- Decline/Dead stage
It is important to know that not every business will go through every stage and also not all business will successfully overcome the challenges in each stages. This may be due to poor planning, poor management of resources, poor marketing strategies or insufficient capital. That is why it will be important for every entrepreneur to understand the activities involve in every stage in a business lifecycle.
Stage 1: Initial/Lunching Stage
The first stage of of a business lifecycle is the initial stage(phases). Every business starts by the initiation of ideas.
At this point, the entrepreneur is face with questions like: what to produce, How to produce, where to produce, when to produce and for whom to produce. After answering these questions, the next thing is to create a business plan and then established the business, after obtaining the legal documents for the country of establishment.
The business starts in operations by lunching a product or service in to the market.
This is the most difficult stage in a business lifecycle as it is solely capital dependent and without sufficient capital and a good business plan, the business may face difficulties running and eventually moving to the next level(growing stage).
- Company begins its operations as a business and usually by lunching new products and services in to the market.
- Entrepreneurs go on marketing their products and services to their target customers by advertising their comparative advantages and value preposition.
- Sales are low , but slowly increasing.
- Revenue is low and initial start-up cost is very high.
- At this point, it is prone to incur losses since it is still new and needs customers and capital.
- The profit cycle lags behind the sales cycle.
- Cash flow is negative.
Stage 2: Growing/Exponential Stage
This is the second stage/phase in a business lifecycle. Here the business has gain some grounds in the market and has also under some marketing strategies like product designs, and also understands its competitor and their strategies.
During this stage a business has an initial time of negative profit profit until it breaks and begins to show increase revenue that allows it to truly grow. It is at this point that the real test of business comes into play.
Entrepreneurs exploited all available opportunities at this stage in order to grow and strategies to success.
At this stage, how the business is manage and how it is able to compete within its market will determine whether it will successfully survive and move to the next stage or it would decline and research the last stage of its life.
- Rapid sales growth, increase in profit margins.
- Profit cycle lags behind sales cycle.
- Cash flow becomes positive representing excess cash flow.
Stage 3: Expansion/Shake-Out Stage
The third stage/phase of a business lifecycle is the shake-out or expansion stage. That is stage the business is face with so much competition and other entrepreneurs may engage in the same line of business too. The survival of the business here will depend on how flexible the entrepreneur can be in exploiting other line of business.
The business at this point gets sufficient revenue being brought in from sales. there is no doubt of its survival and it can expand it horizon. This include: taken of new staffs, expanding the office space of the business , bring in new lines of business or even investing in equipment to deal with a larger base of clients.
This stage also ensiles producing more goods if necessary.
- Sales continue to increase but at a slower rate usually due to either market saturation or the entering of a new competitor in the market.
- Profit starts decreasing due to a significant increase in costs of raw materials and production.
- Lastly cash flow increase and exceed profit.
Stage 4: Maturity Stage
The fourth stage/phase of a business lifecycle is called maturity stage. At this stage, the business the has enough capital to survive unforeseen circumstances. It has enough backing, capital, and support to ensure that it can survive if the market becomes unstable.
This may be accomplish by rearranging it management plan, getting rid of one product to replace another or adding an additional product to an existing one.
- During maturation, there is a slow decrease in sales.
- Profit margins get thinner as a result of a slow decrease in sales.
- Cash flow stays relatively stagnant.
- As firms approach maturity, major capital spending is largely behind the business and therefore cash generation is higher than the profit on the income statement.
- Businesses at this stage might reinvest themselves or invest in new technologies and search for new markets, making it to reposition themselves in their dynamic industries and hence refresh their growth in the market place.
Stage 5: Decline/Dead Stage
This is the easiest stage/phase to reach for any business where mismanagement, poor organization, insufficient capital, poor operational strategy is the order of the day. It could be seen as a stage where a starting business fails.
An existing business, or even a matured one can decline in profit , taken heavy lost and eventually either fails or seize operations to avoid further loses.
- Sales, profits, and cash flow all decline.
- The decline in sales portrays the companies inability to adapt to changes in the business environment and extend their lifecycle.
What is the first stage of the business life cycle?
The first stage of the business life cycle is the startup stage. This is the stage where the business idea is developed and the business is launched. It is a time of high risk and high uncertainty, as the business is still trying to find its footing in the market.
During the startup stage, businesses typically focus on the following:
- Developing a business plan
- Securing funding
- Building a team
- Developing and launching products or services
- Marketing and sales
This stage can last for several years, depending on the type of business and the industry in which it operates.
Here are some of the key challenges that businesses face in the startup stage:
- Generating revenue: It can take time for businesses to start generating enough revenue to cover their costs.
- Acquiring customers: Businesses need to identify and attract their target customers.
- Building a brand: Businesses need to develop a strong brand identity and reputation.
- Competing with established businesses: New businesses often face competition from established businesses in their industry.
Despite the challenges, the startup stage is an exciting time for businesses. It is a time of innovation and growth. Businesses that are able to successfully navigate this stage are well-positioned for success in the future.
Final Thought On Different Stages Involved In A Business Lifecycle
As a business owner, knowing the stages involved in a business lifecycle helps you to be prepare and also helps you to know at which stage your business is, so as to be aware of the obstacles involved so that you prepare on how to navigate through this obstacles successfully.
Prosper management, That is Staffing, controlling, coordinating, sufficient capital and good marketing strategies is essential for the success of every business.
It is important to note that not all businesses go through all stages, some might fall (decline) before reaching maturity if not properly plan while some might reach maturity and still fall.