Business life cycle
Although company growth phases may be less distinct than product life cycle phases, because growth is continuous, a company does usually move through phases from launch, through growth, to maturity. To avoid stagnation and eventual decline, it is likely that the business will need to expand into new products, or new markets.
As we have indicated previously, it is important for the management team, in particular the Board who are developing strategy, to be aware of the existence of the life cycle, and to know and understand at what stage in the cycle a business is , so that the strategy is appropriate.
There must be continual evolution of the product range, or introduction of new products and ranges for a business to remain strong. And there have to be new developments in the business itself to prevent its own decline.
In a larger company, this is often the task of product development, or new business development, or marketing,
In a small company, the business owner or manager must address these issues.
The length of the life cycle will vary according to the type of product or service and the sector in which the business is operating.
Effect of life cycle stage on strategy
Business success often depends on entrepreneurs and management teams recognising where the business is positioned in the life cycle and developing the most appropriate strategies for that stage in the cycle, and their plans and ambitions for the business.
The strategy for growth will be defined by management, usually in a 2, 5 or 10 year plan. It is important that the life cycle stage is kept in mind when the plan is developed, as the plan will in itself define whether the company continues inexorably on a course to maturity and eventual decline, or whether the life cycle is actively managed to extend the life of the company.
The plan will define the goals and strategies, to fit the direction of travel the Board want for the company. Different stages of the company’s life cycle require different objectives and strategies, so for example if they believe the organic growth of the company has plateaued, they must stimulate growth by moving to new products or markets.
The business life cycle will follow the usual stages.-
The business is just an idea and is being researched. Market research will be undertaken, a business plan produced, including cash flow forecast. A legal structure will be selected, banks and professional advisors appointed and funding will be sought.
First customers and markets are established. Adjustments may be made to product, marketing plan, selling price, packaging, production, distribution.
Customer base becomes established, competition may now be appearing, additional staff may need to be recruited and trained, and Management, Accountancy and IT systems may need to be extended. This is the difficult period where many businesses fail.
Sales and profits are good. Extra cash funding may be needed .The Business Plan should be reviewed regularly. Management must deal effectively with problems of expansion, such as new products, markets, perhaps exporting.
They must not become complacent because if they don’t continually drive the business forward, competitors will overtake. Competitors will be trying to steal market share, whether by bringing out improved products, attacking on price, mounting marketing campaigns to show their product is better than yours. Management must play a defensive game.
There is a loyal customer base, but Sales growth slows, and may begin to drop off. Competition may intensify as new products are introduced to the market. Management must find ways to sustain and even stimulate growth, by looking for new products and markets. Professional advisors, or mentors in the case of smaller companies, may be needed to offer advice, opinion and feedback
At this point if management have failed to revitalise the company, they must consider an exit route. They may sell the business or some of its brands, or the business may eventually close. If the industry is in decline, mergers and consolidations may take place.
So at each stage Management will be focused on different priorities. The board must develop a strategy that recognises and acknowledges the company’s position in the life cycle. Departments and processes such as product development and marketing, management structure, staffing, succession planning and the IT infrastructure must reflect the Boards’ vison for the short, medium and longer term future.