Every company has a life cycle. They are born, grow, get old, and die. The stages of this journey are called the Business Life Cycle Stages. If you have a shop, a factory, or a startup, you should know these stages. They tell you where you stand today and where you could be tomorrow.
A common misconception is that a business is just an exchange of goods and/or services for money. While that is true, for the business to be successful, there are many other elements to consider. One of them is the age of the business. You cannot run an old business and a new startup the same way. This article aims to explain the five business life cycle stages straightforwardly. We will focus on sales, profit, and cash inflow and give you insights specific to Pakistan.
Now let’s examine each stage closely.
Phase One: The Launch Stage
Early stages of a business are both exciting and scary. When a business opens its doors for the first time, and for the first time receives customers, and makes sales, it will always be a memorable moment. It happens all around the world. Not every business will survive the early stages. However, especially the one we are discussing today.
What Happens in This Stage?
Dollar sales. Who even knows you yet? You have your business set up and spend all the ordered promotions and a ton on marketing. You have a negative cash flow. You spend money now to make money later.
What US Businesses Need to Add to Their Plans?
Without cash, you have nothing in the launch stage. This stage is where most new businesses fail, and it is because they don’t have enough cash. You have yours because you saved, crowdfunded, or have friends and family backing you. Decor and brand spending is the most common overspend of new business owners. Most banks don’t touch new businesses because they are unproven.
Bottom Line:
Keep your spending to a minimum. Do everything to make your first customers happy.
Phase Two: The Growth Stage
Once you pass the launch phase, the next step is the growth stage. You should be excited when you arrive at this stage. This is when the sales start coming in quickly, and the awareness around your brand begins to grow.
What Happens in This Stage?
The revenue stream begins to flow consistently after you surpass the break-even point and begin to make a profit. At this stage, positive cash flow is established, and you have more cash coming in compared to your expenses.
Tracking performance at this stage becomes easier when you understand what is the business analytics and how data supports smarter decisions.
Insights for American Businesses
With growth comes obstacles. You could find yourself dealing with larger volumes of orders or service problems. Competition is fierce here in the United States, and while IP (Intellectual Property) laws protect you, you’ll still have to be on your toes with competing companies.
More now than before, banks and investors have an open hand to offer you funding. Use this opportunity to buy more equipment, open more branches, or increase your employee count.
Actionable Advice:
Use your profits to grow and expand, recruit staff you can rely on, and invest in systems to deal with the growth. Improve the customer experience to build loyalty.
Phase Three: The Shake-out Stage
There is an overall slowdown in the pace of business activity during the shakeout stage. Although there is still business expansion, it is at a much lower rate than before. Let’s look at one of the transformational business life cycle stages.
What occurs during this stage?
The sales numbers indeed continue to grow. However, the incremental rate of that growth is falling. If this is occurring, the market may be close to saturation, and/or new market entrants may be present. Your sales may even be at a peak position. Profit is also likely to begin declining since there is increased market competition and/or increased costs for the necessary measures to hold on to customers (i.e., advertising or price reductions).
What American Businesses Should Understand
At this phase, it is primarily the less proficient competitors that are being weeded out. In the United States, there is aggressive price competition and promotional activity along with “over competition.” Companies are likely to be unable to differentiate themselves. It is primarily the more clever or versatile companies that maintain an “upper hand.”
Actionable Advice:
Build customer loyalty that is predicated on more than a “low price.” Consider providing increased customer service or unique loyalty programs, special activities, or other services. Good anti-loyalty measures include spending controls and efficient activity (e.g., operational measures) and even costs.
Phase Four: The Maturity Stage
Your company is now recognizable and established, similar to many classic American companies. Your operations are running well; however, significant growth is infrequent.
What Happens Here?
Sales start to plateau, or at times, they may decline very slowly. Most potential customers are already informed about your brand, products, and/or services. Your profit margins narrow. Yet, your cash flow is strong, as your major investments are already paid for.
Insights for American Businesses
Many companies can remain in the maturity stage for years, for instance, legacy restaurants, automobile repair shops, and regional chains. The risk rests in complacency. The USA is known for rapidly transforming markets and technology. A well-established company and brand that fails to modernize and adapt is at risk of falling behind new competitors that have embraced e-commerce and advanced technology.
At this stage, some owners also start planning their exit, which is why understanding how to sell my business becomes important.
Phase Five: The Decline Stage
Whenever a business fails to adapt, it enters a decline phase, which is the last phase of the business life cycle.
What Happens Here?
Everything goes down: sales, profit, and customer influx. Customers go to competitors who have the products and services to satisfy their needs. The company in question loses market share and is soon outcompeted.
Insights for American Businesses
Businesses impacted by changes in technology and user behavior are the most common. Consider how video rental services have evolved into streaming services and how emerging news websites have taken the place of small newspapers. An unattended decline usually results in a company incurring debts. It makes it hard to acquire capital from investors.
Connection Between Funding and Life Cycle
As your business evolves, financing arrangements become necessary, and your financial needs, risks, and structures change. This phenomenon is referred to as the corporate funding life cycle.
With every company, the riskiest stage is the initial phase. Therefore, access to financial institutions and investors is invariably limited. If your company succeeds and grows, the available options increase, and risk decreases. It is at the business maturity stage that obtaining a conventional business loan based on the company’s proven track record becomes a possibility. Risk factors associated with obtaining a financial loan increase again at the decline stage.
Determine your financing requirements during the strongest, most stable financial phase, rather than waiting until your company is struggling.
