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Business Life Cycles: 6 Stages and their Importance 18 December, 2020   

Whenever you decide to set up a small or a large scale business, your firm or company will go through various transition stages, commonly known as the business life cycles. These are the moments when your firm will face numerous challenges to strike in the current market.

Why should you emphasize the different stages of business life cycles?

If we tend to talk about the different business life cycles, we will understand that these are different stages after which business gets saturation or stabilization. For instance, the company will need numerous strategic plans depending upon the market's desired penetration, business development, enhancement of the overall business, and the firm's current share prices.

To be precise, it would be better to state that the overall operations and principalities would change as the company grows. Hence, efficient planning would be required to accommodate this transition smoothly.


What is the importance of a business life cycle?

In simple terms, it would be easier to state that the overall phases and stages of a company’s lifecycle are quite similar to that of a plant’s life cycle. For example, in the first place, the seeds start to mature and sprout, and later, to grow into a big tree, it will require different nutrients and resources in its entire life cycle. Thus, similar to these resources needed to develop the seed into a big tree, various resources are needed to establish a company and make the business profitable and sustainable.

So, from the very instance, you start up a business or company, you become a part of the business's entire life cycle. Such a path will take you from the initial steps of your startup's idea to the overall growth and sustainability phases of your business.


How can a proper understanding of different stages lead to the smooth running of a firm?

Although almost all the businesses are quite challenging, it is even more challenging to face those particular obstacles. It has been seen that if these particular challenges and problems are predicted and made aware of in the first place, the individuals running the business are in a more comfortable zone to deal with such problems in a simpler manner.

In this article, we will study about six of the most important stages of a business life cycle that can determine the sustainability and vulnerability of your business at the same time. Entrepreneurs and people in business must pay extra attention to every phase and chalk out methods and ways to conclude every phase efficiently.


So, what is exactly this business life cycle?

In simple terms, the business life cycle is the series of different stages of a business carried out over the entire lifetime. The entire life cycle of a particular business or company is categorized into the following 6 major stages:

  • Phase I: Development Stage

  • Phase II: Launching Stage

  • Phase III: Growth and Expansion Stage

  • Phase IV: ShakeOut Stage

  • Phase V: Maturity Stage

  • Phase VI: Decline Stage

According to some of the most renowned economists, these stages of the business life cycle can be best portrayed with a graph that would include the firm's existence period on the horizontal axis. The y-axis would include numerous metrics of financial terms. In this guide, we would be using three of the most important criteria to determine each stage's importance and viability. These three financial criteria are the business's profit, the business's overall sales, and capital flow into the business.


Phase I: Development Stage

It is the most basic and the most elementary stage of a business or a Startup. Although it might seem inexistent on papers, it is one of the most important stages in creating a business and has equal importance as all the other stages of a Startup. 

It is the step from where your business is going to take its shape. You should be careful that even after you have found out your calling, you should assess your startup's intricate detail and evaluate whether it would be successful and sustainable per your ambitions.

Try to collect as much advice during these phases as possible.

This stage is where you should try to gather as much information as possible for the complete benefit of your business. Be it your friends, family, colleagues, experts of the industry as well as financiers, you should meet them all and try to collect as much advice and information as possible so that you can land upon the correct path. Apart from this, it would help if you also started to analyze your abilities, current situation, and acceptance of the market you want to target and the capital investment required to launch your business.


Phase II: Launching Stage

It is the stage where every business or firm starts to operate by launching and showcasing their services or products. It is to be kept in mind by all the entrepreneurs and owners that during this period, the profits would be low and sometimes not existent at all. But, it is a period where one should hold their calm and implement the strategies very well.


The advertisement is the key.

It is also the period where the owners and the investors should emphasize proper advertisement and marketing of their products or services. The target audience should also be fixed, and strategic planning is according to the market's demands and the audience.

Profit margins would be lesser during this stage.

It should also be kept in mind that the business would not see much profit during this phase. However, there must be a regular flow of capital to and from the business, which will show that it is going in the right direction. During this struggling period, adaptability becomes one of the most crucial issues. You should involve yourself entirely in your company's development and interact with the customers to get their feedback on your services or products to take your company to the next level, which is your business's growth and expansion.


Phase III: Growth and Expansion Stage

This stage can only come into existence if you have executed the initial two stages very efficiently. In this period of your business, you will stand over your firm's most profitable quarters and fiscal years. When your business's sales boost rapidly, the company starts to see the profits after passing the break-even juncture, where there are neither losses nor profits.

Although it is the moment when you will see much of your profits, yet, the sales figures would still exceed the margins of profits. However, this is a good symptom as there will be an excess of cash flow into your business, and it will reach its sustainable level. It is the stage where your business will generate a consistent amount of income and will also bring in new customers within its domain.

The continuous flow of capital should be ensured.

Thus, such an event will lead to an enhanced flow of capital, and these recurring capitals would help cover any of your firm’s expenses and help bring the profit numbers to a comparative level with the sales figures.


Phase IV: ShakeOut Stage

It is the stage which reaches after a long period of existence in the market. During this particular phase, your services or products' sales are at a record high but tend to increase at a prolonged rate. This phenomenon is caused due to a situation which is known as the saturation of the market.

It is the point where your business has achieved most of its capabilities and has reached a point where any further growth probabilities are very less.

So, it may concur that even though the sales figures are at a record high during this period of a business's life cycle, the profit margins begin to decline. Such an event leads to an imperative increment in the cost price of the products or services. However, with the help of an enhanced capital flow, the profit exceeds the sales figures during this period.


Phase V: Maturity Stage

It is the period in the life cycle of a business when the market's maturity takes place. It means that the sales figures start to decrease slowly and the profit margins also get decreased with time. However, during this entire period, the flow of the capital starts to become very stagnant.

As most businesses start to reach their maturity period, most of the capital is spent on the business. Hence, the overall generation of capital becomes much greater than the profit margins.

Investors should think about newer ideas at this stage.

However, it should be noted that this is when the latest ideas and more innovative concepts are required to make the business sustain for a much longer period. The firms should try to reinvent themselves with the help of newer technologies and ideas. During this period, there is extensive competition from the upcoming markets. Hence, the existing businesses and firms should take immediate steps to sustain their firms for a longer period.


Phase VI: Decline Stage

It is the period of the life cycle of a business during which all the three major financial criteria start to decline, i.e., the sales figures, profit margins, and the capital of the business. During this period, the firm should accept the failure to revive and reinvent their strategies within the correct time. This moment of the life cycle when the business loses all its credibility and makes an undesirable exit from the market.


Conclusion

It should be noted that it is not a hard and fast rule that every business will go through the exact order of the life mentioned above cycles. Most of them might face one stage before the other. But to sustain in such a competitive market as that of today, all the entrepreneurs and leaders should take note of every stage of the business life cycle and take important steps to prevent problems with the firm.


Business Business lifecycle Planning Strategy

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