AMB Performance Group Blog

What is the Business Life Cycle and How Does It Apply to You?

Posted on: September 19, 2021
Business Growth

Starting a business is no easy task, but from the very first day your company goes into business, it begins down the path of the business life cycle. Understanding these key stages and how they might apply to your company is essential.

Why the Business Life Cycle Matters

As a company grows and changes, so do the operations and principles on which it works. If a company is to efficiently plan for the future, knowing more about the business life cycle can help.

More than that, though, the company needs many things at the various stages of growth. The ability to provide those resources as they’re necessary is invaluable. Additionally, anticipating the next growth stage could help executives predict potential problems and create a plan to deal with them before they occur.

What Is the Business Life Cycle?
First Phase

The life cycle consists of six different business stages your company might experience. The initial stage is the simplest. This is the development stage. At this point, your business just begins to take shape. At this early stage, information is key. From connecting with a mentor or a coach to handling all of the necessary market research behind your products or services, knowing as much as you can help get the business off on the right foot.

This is the time to continually create and implement new ideas, tweaking them along the way, so you learn how to turn a profit very effectively. Employees at this point wear several hats, so stress levels can be quite high. Sales tend to be at their lowest at this point, so your risk is relatively high. You may also have trouble getting investors at this stage of the game, as they’re not yet confident of your potential. 

Second Phase

The second phase is the launch stage. Here, you’re beginning to make those sales that will eventually build your company’s cash flow. Profit margins may still be below here, but you’ll want to invest as much as you can in marketing your company. You should have used the first phase to learn about your target audience extensively.

This is the point where you can begin to connect with them and build a following for your brand. Be as adaptable as possible during this stage of the game. As you get feedback from customers or others, you’ll want to implement it so you can move forward toward growth.

Third Phase

Growth is the next phase of a business’s life cycle, but it doesn’t happen for every company. It can only happen if you’ve managed the first two stages as efficiently as possible. Here is where you will begin to reap the financial rewards of your hard work, but you’ll want to do what you can to make it sustainable. Consistency is key when it comes to your cash flow and customer acquisition rates.

At this point, you’ll want to focus on the internal mechanisms within your company so you can build your teams up against any hard times that may come and tear down the barriers to future success. You’ll also want to think about your relationships with customers and do what you can to keep those who have been brand loyal on board with you.

Fourth Phase

The next phase is often called the shake-out stage. This happens after your company has been around for a while. At this point, you are still experiencing strong profits, but the rate of increase occurs much slower, thanks to market saturation. At this point, you’ve grown as much as you can, and future growth is severely limited. There’s not a lot of risks you may experience at this stage.

Fifth Phase

Maturity is the fifth stage in the cycle. At this point, sales may begin to decrease, as might the profit margin. Your capital flow will be pretty stagnant. Though much of that capital will be reinvested in the business, it may be time to think about new ideas and innovations to help sustain the business. Often businesses begin to experience increased risk thanks to new companies and other markets.

Final Phase

The final phase is the decline phase. At this point, sales decline, profit margins decline, and capital decline. It looks quite a bit like a failure, and a business that reaches this phase will not survive without new ideas.

Understanding Each of the Business Stages is Essential 

Every business hits somewhere among these cycles, but many business owners fail to take the time to identify where they are on the spectrum. Understanding the cycle as a whole and where your company is, though, makes it more profitable. If you’re interested in taking stock of your company and digging deep to learn more about how to prevent the final stage from approaching your company prematurely, it’s time to sit down with a business coach who can help.

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