Seed stage of the business life cycle
This is the first business life cycle stage when you come up with a business idea and do your research. To start, it’s important to get feedback on the viability of your idea. It could be from family and friends about the products or services you plan to offer. It could be from someone who’s had experience in successfully starting and growing a business.
You can also use government and private resources to gauge the prospects of your business idea. For example, the Australian Bureau of Statistics produces a range of demographic statistics on the Australian population and their behaviours. IBISWorld has a range of industry reports that detail various industries and their growth prospects. This resource is not free but you might be able to access it online through your local or state library.
Once you have determined the viability of the business, consider your skills and whether you have what it takes to start and grow the business. Some of these skills include general management, financial management, sales and marketing, communication, delegation, time management and negotiation. If you lack any of these skills, consider how you can improve them or get outside help.
In order to get ready for the next stage, you will need to determine how much money you need to start and run the business. Many small businesses fail due to a lack of cash early on, so you will want to give some thought to how long it will take for enough income to come in to cover business expenses and make a living.
A good place to start at this point is by creating a business plan. This document will help you clarify your thinking as you put your ideas on paper.
Start up stage
This is when you put your ideas and research into action. How this happens will depend on the type of business. It’s a crucial stage that will have a big impact on later stages so you will want to think ahead. Questions to ask when starting up are:
- Will I be able to scale the business in future?
- What business model will be best for achieving business growth?
- When will I be able to step back from running the business?
- How will I be able to sell the business when I want to move on?
While it might seem early to be asking these questions, they are important for determining how you set it up. For example, creating a business that relies on your ongoing presence will limit your future opportunities, including selling the business.
The start-up stage is a time of trial and error, determining what works and what doesn’t, and changing course to get on the right track to enable growth.
At this time, you will have worked out the initial challenges and be generating revenue reliably. Typically, cash flow has improved since the start-up stage as cash flow fluctuations are better understood and cash flow management solutions have been implemented.
You will have new issues to deal with during the growth phase, including hiring the right people for business growth.
One of the biggest challenges at this time is ensuring that staff and teams work together cohesively to attain business goals. For example, a common sticking point is between sales and marketing and production and fulfilment. While the goal of one team is to maximise sales, the other team has to create and deliver what’s being sold. Poor communication and collaboration in this situation will hinder business growth.
Other considerations at this stage are dealing with competitors and gaining market share.
Expansion stage in the business life cycle
At this point in the business life cycle, the business has established routines, employees have taken over many tasks once handled by the owner, and an industry presence has been established. Businesses at this stage, often experience rapid growth as they expand into new products or services or markets. While the business is in a position to expand, caution should be taken to avoid growing carelessly or too quickly. At the same time, a lack of growth and change can lead to complacency which often results in decline.
Business diversification could be an option, but make sure you keep focused on the core business that enabled you to reach this point. Also, be realistic about the return on investment from branching out into new areas.
Typically at this business life cycle stage, business revenue and growth have stabilised. While the business might continue to grow, it’s not at the rapid rates of earlier stages.
At the maturity stage, business founders are often faced with the choice of further growth or exiting the business. This is a time to ask some questions about the ability to further expand, including:
- Are there realistic opportunities to expand?
- Does the business have the resources to expand?
- Is continued growth sustainable?
New leadership is often brought in at this stage to move the business forward as the entrepreneurial skills needed to start and grow a business are replaced by professional management skills.
Business exit strategies include having family members take over, management buyout, sale, initial public offering (IPO) or liquidation. Learn more in Business Exit Strategy: How to Prepare to Leave Your Business.
Moving through the business life cycle
Each business is unique and moves through the business life cycle stages at a different rate. Some businesses skip steps entirely, such as fast-growing start-ups that skip the growth phase, go directly to expansion, and then hold a high-profile IPO. But these are rare exceptions.
For an overview of the business life cycle from a growth perspective, check out Business Growth Stages: Where Is Your Business?