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Every business has its life cycle – starting with conception of the idea for a business, then the start up, implementation, growth, maturity and decline. There are a lot of different terms being used for business life cycles parallel, which is also in parallel to the product life cycle. Some of ideas involve only four stages which are the start-up, growth, maturity and decline. Others involve seven stages from start-up, growth, maturity, saturation, decline, renewal and withdrawal. In general, they are practically the same. One is just a more detailed outlook of a business cycle. With time, a business will definitely pass through different stages of development.
The 7 Stages of the Business Life Cycle
7 Stages of Business Life Cycle
How do you develop your idea into something that may turn into a business?
1: The idea:
What’s your idea?
What will your product or service that you’ll offer?
Will your business be built from scratch, or do you plan on buying an existing business?
2: Is it feasible?
Do you have the skills or experience to be successful at this business?
Do you know how much money it will take to start?
What are your plans for financing the business?
What are your own strengths and weaknesses? Be honest with yourself.
3: Who’s your market?
Who will be your market?
Who will your competition be and what are their strengths and weaknesses?
If you don’t think you have competition, are you sure? If that’s true, is the product or service really wanted?
What’s unique about your business that will make people want to buy from you instead of this competition?
**The seed stage of your business life cycle is when your business is just a thought or an idea. This is the very conception or birth of a new business.
Challenge: Most seed stage companies will have to overcome the challenge of market acceptance and pursue one niche opportunity. Do not spread money and time resources too thin.
Focus: At this stage of the business the focus is on matching the business opportunity with your skills, experience and passions. Other focal points include: deciding on a business ownership structure, finding professional advisors, and business planning.
Money Sources: Early in the business life cycle with no proven market or customers the business will rely on cash from owners, friends and family. Other potential sources include suppliers, customers, government grants and banks.
Initially, a small business owner think about the kind of business he/she wants to make. Then he does a feasibility study about the risks involved, the costs, the demand for the product or services, the potential clients, the marketability of the offering – all these things are considered at the seed phase. He also thinks about where to get funding, what other products and services to offer, the pricing and how people would react or require the product or service or both. During this seed phase, he also thinks about probable resources where to find finding such as family, friends and financiers, venture capitalist or even the bank.
Once he finally realised that there might be a need for it, then he moves to the start-up phase. Once it has been decided that there is a huge potential for the business, then he start implementing the ideas of the business. These could finding a suitable location for the business, sourcing suppliers, finding business partners, making the business plan and marketing plan, have focused on the products and service to initially offer, and also to register the business into a legal entity, whether a sole proprietorship, partnership or a corporation or a limited liability company. The small business owner would have also determined the location to best open shop, with the target clients also in mind.
Most small business owner opening a business, opt for a home business start-up – – SOHO – small office home office set-up. This is often the choice because it is more cost efficient, facing the challenge of limited financial resources. This would enable them to maintain the least overhead possible, where normally, the lease or office rent eats up a huge percentage of operational costs. It is another challenge for a start-up company to be aware of its spending/budget. The challenge lies in making sure not to over-estimate or overshoot the budget/funds, at worse prematurely.
The small business owner should also determine if he can start the business on his/her own, a one woman/man-show, or should it be better to employ a minimal number of employees and what skills would they need to posses. One option is to look into operating as a family business, especially if the business owner has adult children, a spouse or other family members that are trustworthy and reliable. Otherwise, hiring employees would be limited to two or three, everyone must be multi-skilled and able to multi-task.
At start up, focus will be on having the business fully operations which involves identifying and building clientele and developing the products and services being offered based on what the clients require.
This is also where you establish partnership and nurture relationships with suppliers. Money source would be family, friends, sometimes it could involve borrowing from one’s personal savings or getting a loan from the bank. Grants are also something to look into.
It is also wise to make arrangements with suppliers regarding terms of payment, determining how many days is required to pay – whether it is a 30 day to 90 day payment arrangement (i.e.) .
This is also where he small business owner needs to strategise on how to enter and compete in the market, being aware of competitors and their standing in the market place or industry. Knowing this will determine the course of attack or entry.
There are also other legalities that need to be taken care of such as insurances, liabilities, adhering to rules and regulations of the locality where you are operating, Taxes where to register a s GST company or not.
Evaluating the reasons for going into business is also crucial. If the small business owner has proof (feasibility study) that the offering is in demand and can be successful, then this could be good enough. However some would also need to ask themselves if this is more than just money, if the business can give a sense of fulfilment or its success could be left as a legacy to the children/family. A small business owner need to know his motivation behind the business, this will give him a clear focus for success.
Launching the business is part of the start-up which needs to focus on effective marketing strategies. This is to make sure that people know what the business offers, or stands for, its location and contact details, and who to deal with. This also needs to cover areas of competitive the pricing and encouraging terms for doing business. Starting the implementation of the marketing plans and strategies is like a test run during the start-up phase.
Listed below are some tasks that should be completed in the start-up phase.
Evaluate your personal reasons for going into business
Decide what type of business you want to start
Set up the legal structure of the business
Obtain necessary licenses
Conduct market research
Research and obtain financing
Research and obtain necessary business insurance
Create a business plan
Plan the strategy for growing the business
Find an accountant and lawyer
Open a bank account for the business
**Your business is born and now exists legally. Products or services are in production and you have your first customers.
Challenge: If your business is in the start-up life cycle stage, it is likely you have overestimated money needs and the time to market. The main challenge is not to burn through what little cash you have. You need to learn what profitable needs your clients have and do a reality check to see if your business is on the right track.
Focus: Start-ups requires establishing a customer base and market presence along with tracking and conserving cash flow.
Money Sources: Owner, friends, family, suppliers, customers, or grants.
After a successful start-up comes the growth of the business. During growth the business needs to maintain good relationships with everyone, both internal and external, such as: clients, suppliers, and government and private agencies it deals with. Also, by this time, the business is expected to be earning and not just covering the overhead. The business, at this stage is starting to win and build its market share.
The challenges here would still be the usual issues of time and money. Time and money is crucial especially of the business is focused on finding and providing a better way of service delivery, and consistently strives to improve its offering.
Clients will know the quality of work provided and word goes around. Clients recommend and there will be more clients coming as a consequence. The business then starts to build its reputation for excellence and reliability.
Relationships not only with clients but also with suppliers must be nurtured. Prompt payment, for materials or services, based on term arranged, is crucial. This way, the business comes as a reputable and trustworthy company to deal with. This will help the business in finding and establishing business relationships with new suppliers and partners.
As a growing business, standardisation or standard operational procedure which is crucial in the delivery of consistent excellent service should have been established and running smoothly, albeit still open for tweaking and modifications as the need arises. .
This is also the time to consider adding a staff for sales and marketing, or business development. This person is supposed to duplicate the process already in place and bring his own skills and experience to contribute to the growth of the business. S hiring a highly skilled and experiences staff is crucial. Background checks are also necessary to make sure employee has integrity and is professional. Having a highly skilled employee can help maximise time and value for money for the company, as there will be no need for training or re-training in the short term.
The business also has to make sure that at this stage of growth, finances are running smoothly.
Financial resource would be coming from new partnerships, through the profits, by having a higher credit line from the bank. It is still a good idea to check availability of grants.
The business could still be home based or if moving a better or bigger place is considered, leasing/renting would be wise.
Remember during the growth stage, market share are being defined, the brand is getting recognised, a very good track record in reliability and excellence is being put in place, there is growth in business partnerships and the business network is expanding. Perhaps the small business is even getting into a position where it can influence the market place better business practices and innovative.
During the growth stage, sales/business forecasts are being achieved.
Very capable and reliable accountant and lawyer are also very much needed by a growing company making sure that finances are healthy and that rules and regulations by the government and the industry are always followed. .
It is best for the business to be on its toes, keep assessing the marketing plans, and changing it when necessary, in order to keep up with the changing market.
Once the infrastructure of the company is established, the focus is to develop the business. There will probably be some sales, but there is still much to do.
The hard work is just starting. This may include many of the following:
Refine market niche
Branding the company
Establish a track record
Identify business partners
Networking to expand customer/client base
Match staff to volatile needs
Increase operational financing
Automate payroll processing
Review insurance requirements
Revisit your business plan
Recruiting the right employees
Find an accountant and lawyer
Your business has made it through the toddler years and is now a child. Revenues and customers are increasing with many new opportunities and issues. Profits are strong, but competition is surfacing.
Challenge: The biggest challenge growth companies face is dealing with the constant range of issues bidding for more time and money. Effective management is required and a possible new business plan. Learn how to train and delegate to conquer this stage of development.
Focus: Growth life cycle businesses are focused on running the business in a more formal fashion to deal with the increased sales and customers. Better accounting and management systems will have to be set-up. New employees will have to be hired to deal with the influx of business.
Money Sources: Banks, profits, partnerships, grants and leasing options.
Helpful questions to ask during the growth period
1: Increasing Market Awareness
What is the market potential for growth?
What is your promotional strategy to reach your target market?
Have you defined a marketing budget?
Do you have a marketing plan?
2: Your Operational Plan
Do you have the capacity to meet current and future sales levels?
Do you need new equipment, more personnel and/or additional working capital to increase capacity?
Do you need to increase efficiencies and effectiveness through better production processes, less waste and increased quality?
Do you need more space and bigger facilities to meet capacity needs?
3: Your team
Do you have the right people on board?
Do you have a plan for attracting future personnel?
Do you have defined duties, responsibilities, skill and experience needed for each position?
4: Your Financial Plan
How much capital (cash) will you need for business expansion?
How will you raise this capital (cash)?
Do you have a business plan for investors/lenders to review?
What are your anticipated sales, profits and cash flow based your expansion plan?
5: Plan to Grow
Have you revisited your plan to address opportunity for growth?
After the growth stage come the maturity of the business, where everything has been founded solidly, you have established clientele, partners, a bigger business entwork and may be eying expansion. Opening another office branch locally or another city or get into partnership in another city, depending on what area of focus the expansion would aim to achieve. However, upon growth some companies fall into the trap of sitting on theri laurels and stagnate. Companies need to be in theri toes, to be abreast of the changes in teh industry and their competitors, and the changing customer needs or requirements. All of these need to be considered. Aotumation is also another avenue to consider in terms of growth, outsourcing could also be considered to improve profit and productivity.
After maturity, there are different phases that csmall busness fall into. Some companies reach the point of saturation. When this happens other consider to expand, sell of close shop. The saturation phase can trigger the next step for the small business. Which can be renewal, expansion, or decline and eventually withdrawal (closing shop).
The challenge for established companies is to keep on their toes and deliver the same kind of service. As a company grows, customer satisfaction can sometimes get affected as personalised service has to give way to automation or standardisation. Companies also have the challenge of expansion in the ssense that the new products and services must be complementary or related to the existing offerings. It is risky to delve into a totally different product/service line. Unless a company has very good financial background, a new partner, a solid plan, then it can still be an avenue for expansion for the company.
How do we manage saturation point? Reinvention, innovation is a very good strategy, you change the marketing plan, improve the services and products, analyse the current market base and position. You also analyse the changing requirements of the clients and address them. SO the products and services are offered based on the clients’ needs.
Renewal / Innovation
If after the saturation period a business owner finds himself with no intention to continue, then he has a choice between selling the business and closing shop. Selling the business would be more profitable, as the clientele, suppliers and partners have been establish and the eventual owner will be going away with everything set in place. It will save the new owner years of establishing the business. All he/she needs to do is maintain and improve what exists. Normally small business owners decide to sell when they feel that they do not have the energy or ability to continue with the business anymore or they are actually having some financial difficulties and are unable to find funding from different source,
Instead of losing money and closing shop, selling the business is still a better alternative. However, for some businesses the situation might really be worse and there will be no other alternative but to close shop and try to cut loses.
Another exit options is to franchise the business and just administer and transfer the technology or process to the franchisee. Franchising is exiting through expansion. The successful process is sold including the processes and partnerships. The Franchisee can then just focus on building their own clientele. The original owner still earns from royalties or percentages of sales and from supplying materials, ingredients or whatever is required depending on the nature of the business.
characteristics and strategies of each life cycle
Exit Strategy – http://www.japaninc.com/mgz_sep-oct_2007_issue_exit-strategy
short- and long-range plans to implement strategies
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