Understanding the Business Life Cycle
In this guide, we’ll be taking you through the life cycle of a business from launch to maturity and whatever comes after. We’ll examine the four phases of business growth:
By the time we reach the mysterious fifth stage, you’ll have a blueprint for success for your business.
The Purpose of the Business Life Cycle
Although all businesses are inherently unique, they often follow a similar trajectory. In fact, if you plot a business’ journey from conception to present on a timeline, you’ll usually see five distinct phases. It’s similar to how people grow and mature; the business life cycle shows businesses maturing from infancy through adolescence to adulthood and eventually, old age.
According to the Startup Genome Report, 90 percent of small businesses fail. To be clear, almost all businesses start as small businesses before processing through the stages of business growth. And when a business does fail, it doesn’t usually happen right away.
Though it varies by industry, about 20 percent of businesses fail within one year of launch. Of the 80 percent that remains, 30 percent fail within the second year. Then 50 percent of the remaining businesses fail by the fifth year, and between years five and ten, 70 percent of the remaining businesses fail.
Why? It often boils down to poor planning, preparation, and decision making.
The business life cycle may have originated as an analytics tool, but it’s increasingly used as a business blueprint. Since it outlines the trajectory of a business, entrepreneurs can use the business life cycle to build stronger, healthier businesses.
The 4 Phases of Business Growth
Of the five business cycle phases, the first four relate to starting, growing, and sustaining a business. Those four stages also make up the majority of the life of a business. Don’t worry, we’ll cover the fifth stage a little later.
The stages of business growth have been labeled and re-labeled many times. However, the most straightforward, accurate model consists of these four stages: launch, growth, shake-up, and maturity.
Phase 1: Launch
Before it grows and matures, a business must be launched. This requires an investment of resources to get the business off the ground. However, revenue is low because the business is new and doesn’t have an established base of customers. This makes launch the least profitable time for a business. It’s often considered the riskiest of all phases, too.
The most important thing to remember about the launch phase is that it shouldn’t be rushed. Putting time and effort into a launch is how you build a strong business.
Additionally, keep sustainability in mind. Hiring is a prime example. Aim for a sustainable balance with your hiring. If you’re overstaffed, the unnecessary payroll eats into your revenue; if you’re understaffed, your business is less productive.
Launch can be further broken into two distinct sub-phases: development and startup.
Development refers to the initial idea and the research that follows. For most failed businesses, the problems can be traced back to insufficient development. No matter how much you may like your idea, you need to know whether it’s actually worth pursuing. In other words, is the idea profitable?
After verifying the idea is worth pursuing, you can begin preparing for launch. For eCommerce, this means you need a website, which in turn, means finding a web host and hosting plan. Make sure the website can accommodate the amount of traffic you expect to get.
From there, you’ll need to set up WordPress, design the frontend, and set up WooCommerce. Depending on the site, this can require considerable resources, or it could be as easy as installing a theme.
If you’re not using a managed hosting solution, the site will also need to be extensively tested. A major post-launch crash would really hurt the reputation and stability of a brand new business.
Once you’ve done the research, finished your testing, and gotten everything ready, it’s time to launch. In other words, you’re ready to make your eCommerce site available to the public.
Phase 2: Growth
If it’s a newborn at launch, then a business is an adolescent during the growth phase. At this point, the business is establishing an identity. In other words, the business owner is figuring out what works and what doesn’t work for the business.
After minimal returns in the launch phase, the growth phase sees revenue increasing steadily. This allows pricing to remain level (or possibly even decrease) as the business pushes past the break-even point. With the business now profitable, the owner starts looking for opportunities to grow the business. The goal is to further boost revenue and more specifically, profits.
So how do you boost profits during the growth phase? Typically, business owners focus on three important components: marketing, sales, and scaling.
Marketing is arguably the most important ingredient for growth. The idea is that with climbing revenue as proof of concept, marketing will increase reach and bring in more business.
Additionally, since overall revenue is higher, business owners can afford continuous marketing. Key advertising platforms like Google Ads and Facebook Ad Manager can bring in even more business, so revenue continues to increase.
In addition to marketing, sales is another major focus during the growth stage of the business growth cycle. It’s even common for businesses to establish designated sales teams during this stage of growth.
With a growing focus on sales, businesses transition from a passive business strategy to being more proactive.
In terms of business, scaling refers to increasing the capability and capacity for growth. Every business owner wants to see his or her business become a success. However, a business needs to be able to support increased capacity without compromising capability.
The purpose of scaling is to increase capacity to meet higher demand. Therefore, scaling is primarily a question of logistics. For instance, you need to consider whether you have space and capital to support expanded inventory. You also need to consider whether your supplier(s) have the production capacity to fulfill larger orders.
Phase 3: Shake-Out
After significant growth, the shake-out period sees revenue increasing at a much slower rate. This typically occurs because of market saturation or an influx of new competitors, or possibly a combination of the two.
Even though sales are still increasing during this period, profit actually begins to decrease. This can be attributed to a combination of two factors:
- Revenue growth has slowed.
- Cash flow has either remained the same or increased.
During the shake-out period, sales reach their peak, but they may begin to decline if cash flow doesn’t decrease.
The best way to prevent a sales decline is to minimize expenses. Since revenue growth has slowed, you must compensate by reducing your expenses. This reduction can be achieved by revisiting the business expenses, such as marketing, inventory, and general operating expenses.
Phase 4: Maturity
Like a person nearing retirement, maturity is the stage of business growth where sales and revenue have really slowed down. However, the business is still fairly resilient with consistent revenue. On average, annual revenue growth is about 5 percent per year. Then at a certain point, profits begin thinning, too.
One of the key challenges that business owners face in the maturity stage is the increased competition. By this point, it’s likely that many competitors with similar businesses have emerged. These new competitors benefitted from being able to reinterpret products in novel ways.
Having reached the maturity stage, the business growth cycle comes to a close. At this time, many business owners begin thinking about the next steps or potentially an exit strategy.
The Final Phase: Renewal
The business life cycle is a model for the future so you know what’s in store for your business. In turn, you can make decisions now that minimize the likelihood of undesirable outcomes.
The implication of the business life cycle is that just as there’s a beginning for a business, so too, there is an end. As the business winds down, the owner can start to consider a new direction for his or her life — but businesses don’t actually have to end. Or at the very least, the end can be significantly delayed.
Most iterations of the business life cycle have the fifth stage as decline. In other words, they portray the fifth stage as essentially the beginning of the end for businesses. But in reality, you have a choice.
When your business reaches maturity, you’re faced with an important decision: Do you want to exit the market or revitalize your business?
The decline stage closes the life cycle that started with development and launch. Sales and revenue continue to shrink until profits dry up completely. The business owner returns to much the same place as when the journey began, much like a bell curve returning to zero.
How to Delay the Decline
When the decline has already started, it’s harder — albeit not impossible — to stop. Because any strategy for delaying or mitigating decline almost always requires cash flow, meaning there needs to be consistent revenue.
One of the go-to solutions for staving off decline is to allocate a larger budget to marketing. Specifically, a business owner can try some marketing tools that haven’t already been used like social media or affiliate marketing.
Another option would be to find ways to incentivize purchases. For instance, customer loyalty reward programs encourage repeat business. Customers are more likely to make purchases and make more frequent purchases when loyalty programs are offered. These programs also reward customers who have continued to make purchases throughout the life cycle of your store.
How to Begin Renewal
Instead of letting years of hard work go to waste, the fifth stage can alternatively be a period of renewal for a business. In other words, it’s time to make a triumphant return.
In this phase, business owners step back to reassess their businesses. They look for growth opportunities and ways to realize them. The idea is to breathe new life and relevance into the business which often makes the renewal phase a time for creativity, exploration, experimentation, and innovation.
So how do you renew a business? The obvious way would be to tap into emerging markets and product trends. When trending products are actually related to the current industry, this option is particularly appealing. However, you shouldn’t ignore a promising product solely because it’s unrelated to your current industry. In fact, it’s possible that changing directions could make the new iteration of your business even more successful than it was before.
Once a plan for renewal is in place, the business will likely return to the growth stage of the business growth cycle.
What the Business Life Cycle Can Do for You
Now that you’re familiar with the business growth and life cycles, what can you do with them?
Ultimately, the value of the business life cycle is that it lets you plan for what’s to come. When you’re familiar with the business life cycle, you gain insight into the overall trajectory for your business. In turn, you can make smarter decisions that lead to higher revenue, higher profits, and more longevity for your business.
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