Business life cycle analysis

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Understanding the stages a typical small business goes through in its lifecycle can help small business owners to know whether what they are experiencing is to be expected, or whether the business is in trouble. The business lifecycle is usually made up of the following stages, each with its own characteristics:

Start-up – This is the stage where the business is first established and its operations are in their infancy. The key challenges encountered here are usually convincing potential funders, customers, and employers that the business is viable; and managing cash flow in the face of high set up costs and unexpected expenses.

Growth (take-off) – The business has been operational for a while and there is an increase in sales or income generated. The small business owner may be tempted to invest in more staff, equipment or bigger premises. However, a commonly made mistake is failing to distinguish between increased revenue and increased profitability – are products and services priced accurately, taking into account all the costs incurred to deliver them (e.g. salaries, marketing, transport, rent)? Maintaining high-quality standards (e.g. timely delivery, no faults in the product or service) is also an issue at this stage due to increased demand.

Consolidation – The business builds on its earlier successes, putting in place procedures and processes that result in the business running more smoothly than it did before. Major decisions at this stage may include deciding whether to continue to expand the business’ products and services offerings and if so, how (e.g. setting up more branches, through mergers and acquisitions, exporting). The biggest challenge a business may face at this stage is an identity crisis, as the realities of doing business may test founders’ commitment to their original business concept.

Maturity – The business settles in for the long haul, and is in a position where it can survive most unforeseen circumstances. The biggest challenge at this stage is staying in tune with trends and developments in the marketplace and ensuring that products and services remain relevant and responsive.

A small business can fail at any stage of the lifecycle, and there is no guarantee that having made it through one stage a small business owner will survive the next. Neither should small business owners panic if their businesses do not fit neatly and distinctly into the four stages above – the stages are an analytical tool to provide guidance to businesses, and are not rigid ‘either-or’ scenarios.

However, it is a useful way of assessing where your business currently stands, the progress you have made to date, and where you would like to be in the future.