Business Life Cycle

What is Business Life Cycle?

The term “Business Life Cycle” refers to the evolution of a business in a phased manner over time. It is broadly divided into four stages – introduction, growth, maturity, and decline. A business life cycle graph is represented with the horizontal axis as the time and the vertical axis as one of the financial metrics, such as sales, profit, and cash flow. A business owner can make informed decisions if he/she has a clear understanding of where the business stands in its life cycle. This is also referred to as the economic cycle or trade cycle.

Stages of Business Life Cycle

It refers to the expansion and contraction of a business over a period of time. It can be categorized into four different stages in a graph with the business’s existence period on the horizontal axis and one of the metrics of financial terms on the vertical axis. The four stages of the business life cycle are depicted in the graph below and explanation henceforth.

1. Introduction Stage

It is marked by the launch of the business, and this is the stage in which the business evolves via product testing and commercial viability assessment. This stage is characterized by low revenue visibility and cash outflow. In this period, the investors commit only a small amount of investment in the form of seed funding, which is used to assess product viability and market acceptability. As a result, a large number of businesses usually fail to go beyond this stage.

2. Growth Stage

This stage is achieved when the business passes the product viability and market acceptability checks. This stage is characterized by significant improvement in revenue visibility and cash flow generation along with the inflow of hefty investments into the business coming from various investors and financial institutions. As the name suggests, this is a high growth stage wherein the business witnesses phenomenal growth in terms of all the financial metrics.

3. Maturity Stage

In this stage, the business enters into a consolidation stage where the market and revenue generation is stable on the back of a large customer base. In this stage, the business has a streamlined process in place, and the revenue and profits are at their peak. Typically, this is when the business becomes a cash cow, and companies usually spend a large portion of their existence in this stage.

4. Decline Stage

This stage is characterized by declining revenues and profits coupled with high customer attrition resulting in gradual closure of the business. Basically, the businesses that are unable to update their offerings and maintain customer interest fall into this category. Very few companies usually reach this stage, and once they do, it is the end of the business life cycle for them.

Unique Aspects

The business life cycle of an organization has various aspects to it, and some of the unique ones are discussed below:

• It is represented through multiple stages that usually occur one at a time. Mostly, all companies that start from scratch to reach the high points in the business experience these stages.
• Each stage requires the companies to devise entirely different strategies. For instance, the strategies used at the start of a business would be different than those followed at the maturity stage.
• All the stages occur naturally, and none of these stages can be forced. It depicts the gradual evolution of a business from its start to its end.
• The tenure of each stage exhibits huge variation wherein some stages last only for few months, some run into several years, and the rest can potentially run for a decade.

Why is Business Life Cycle Important?

Typically, companies pass through three stages prior to entering into the final stage of decline and the time taken to pass through each stage varies across companies. Each stage has its own set of challenges, and the businesses need to come up with creative solutions to overcome them. It is to be noted that timely identification of these challenges invariably allows the business owners to handle them in a more comfortable and simpler way. So, it is important that the companies recognize the life cycle stage of their business because it is only then that they can plan their course of action appropriately and determine realistic future goals.

Key Takeaways

Some of the key takeaways of the article are:

• It is the journey of a company from its launch to its maturity and then the decline.
• There are four stages – introduction stage, growth stage, maturity stage, and decline stage.
• Each stage has unique challenges, and hence the strategies across stages are entirely different.
• The seed funding takes place in the introduction stage of a business, while most of the investments happen in the growth stage.

Conclusion

It can be seen that a business life cycle is the birth, growth, maturation, and ultimate decline of a business, which is analogous to the biological life cycle of a living organism. Therefore, companies can make better-informed decisions if they can understand the sequence of events and identify the life cycle stage of their business. So, the business life cycle management is a critical task for any business irrespective of its industry and sector.

Recommended Articles

This is a guide to Business Life Cycle. Here we also discuss the definitions, importance, and top 4 stages of the Business Life Cycle along with its unique aspects. You may also have a look at the following articles to learn more –

1. Agile Lifecycle
2. Agile Development Cycle
3. Machine Learning Life Cycle
4. Business Development Strategies