The Seven
Stages of Business Life
 |
| The Seven Stages of Business Life |
Entrepreneurs who are
already in business know that there are different stages that their business
goes through from conception to exit. In fact, there are seven stages! It is
important to know what stage the business is in so that appropriate actions can
be taken. Knowing the seven stages of business and knowing how to plan for them
is paramount to the success of the business and the Entrepreneur.
The Seven Stages of Business
1. Seed Stage
2. Start-Up Stage
3. Growth Stage
4. Established Stage
5. Expansion Stage
6. Decline Stage
7. Exit Stage
Stage Descriptions
1. Seed Stage
The seed stage of the business life cycle is when the business is just a thought or an idea – a conception. This stage is the “birth” of a new business. Most seed stage companies will need to overcome the challenge of market acceptance and pursue one particular niche opportunity. At this stage, the Entrepreneur should be cautious to not spread time and financial resources too thin. The focus in the seed stage is on matching the business opportunity with skills, experience, and passions. Other focal points include: deciding on a business ownership structure, finding professional advisors, and business planning.
Possible money sources for the seed stage can be difficult to locate. Early in the business life cycle there is no proven market or customers. The business may have to rely on funds from the owner, friends, family, or private investors. Other sources may include suppliers, customers, and government grants.
2. Start-Up Stage
The business has actually been born and now exists legally. Products and services are now in production and the first customers begin to materialize. If the business is in the start-up stage of business, it is likely that money requirements and time-to-market have been overestimated. The main challenge is not to scuttle through the cash on hand. The Entrepreneur must learn what profitable needs the clients have and perform a “reality check” to make certain the business is going in the right direction. Start-ups require establishment of a customer base and market presence along with a tracking and conserving cash flow.
Possible money sources for start-up stage companies are the owner(s), friends, family, suppliers, customers, loans, or grants.
3. Growth Stage
In the growth stage, the business has made it through the “toddler” years and is now an actual growing “child”. Revenues and customers are increasing with new opportunities and new problems. Profits are strong, but the competition begins to surface. The toughest challenge growth stage companies face is dealing with the constant menu of issues bidding for more time and financial resources. Strong effective management is required and possibly a new business plan. Learning how to train employees and management and the art of delegation is the key to conquering this stage of development.
Growth life cycle businesses are focused on running the business in a more formal manner to deal with increased sales and customers. Better practices and methods of accounting and management systems will need to be implemented. New employees will need to be sought and hired to handle the influx of business.
Possible money sources for the growth stage are banks, profits, partnerships, grants, and leasing options.
4. Established Stage
In the established stage the business has matured into a thriving company with loyal customers and a place in the marketplace. Sales growth is not explosive, however it is manageable. Running the business becomes more “routine” with processes in place to ensure consistency.
It may become easy to rest some laurels during this stage of business. The Entrepreneur has worked very hard and has earned a rest; however, the marketplace is somewhat relentless and very competitive. There needs to be strong focus on the bigger picture. Issues such as economic factors, competition, or customers’ changes in tastes and trends can quickly make all of the hard work useless. An established life-cycle company will focus on improvements and productivity practices. To be able to compete in an already established market, the Entrepreneur will require bigger and better business practices and processes along with possible automation and outsourcing to improve the company’s productivity.
Possible money sources for the established state are profits, banks, investors, and government grants.
5. Expansion Stage
The expansion stage life cycle is characterized by a new growth into new markets and distribution channels. This stage is often the choice of small business owners to gain a bigger piece of market share and seek out new revenue and other channels of profitability. Expanding into new markets requires the research and planning of a seed or start-up stage business. The Entrepreneur should focus on a business venture that will complement their own existing capabilities and experience. Forging ahead into unrelated businesses could prove to be disastrous. Expansion stage businesses should add new products or services to an existing marketplace or expand an existing entity into a new marketplace and type of customer or target market.
Possible money sources for the expansion stage are joint ventures, banks, licensing, new investors, and partners.
6. Decline Stage
Economy, society, or market condition changes can decrease sales and consequently, profits. This issue may end many smaller companies rather quickly. Businesses in a decline stage of the life cycle will be challenged with dropping profits, sales, and a negative cash flow. The largest issue is the length of time the business can support its negative cash flow. The Entrepreneur may begin asking if it is time to move on to the final stage of the life cycle – the exit stage. The Entrepreneur should begin searching for new opportunities and business ventures. Cost-cutting measures and creating new ways of stretching cash flow are imperative for the declining stage.
Possible money sources are suppliers, customers, and owners.
7. Exit Stage
This stage is the opportunity to “cash out” on all of the years of effort and hard work that has gone into the business, or it can simply mean shutting down the business all together. Selling a business requires realism in the valuation. The years of hard work to build the company is sometimes hard to swallow when performing a realistic valuation to determine what the real value is in the current market place. If an Entrepreneur begins to take steps to close the business, the challenging part is dealing with the financial and psychological aspects of the loss. It is imperative to get a professional and proper valuation of the company. The Entrepreneur should take a look at operations, competitive barriers, and management to make the company pleasing to the buyer.
It will be important at this stage to set up a legal buy/sell agreement document along with a business transition plan. The money source for the exit stage is a business valuation partner. Accounting and financial advisors can formulate the best tax-strategy to sell or close the business.
Knowing the Stages Makes the Difference
The stages of the business life cycle could possibly not occur in chronological order. Some businesses are created to “flip” and quickly go from start-up to exit stage. Some may choose to forgo expansion and just lie in the established stage. Depending on the Entrepreneur’s ability to adapt to the changing lifestyles could mean the difference between a huge success and a miserable disaster. Whether the business is a shimmering success or a depressing failure depends on the Entrepreneur’s ability to adapt to its changing life cycles. What the Entrepreneur focuses on and takes steps toward overcoming in their current stage will affect the future outcome of the business. Understanding where the business fits in the life cycle will assist in foreseeing any challenges ahead and make it possible to make the be business decisions.
The Seven Stages of Business
1. Seed Stage
2. Start-Up Stage
3. Growth Stage
4. Established Stage
5. Expansion Stage
6. Decline Stage
7. Exit Stage
Stage Descriptions
1. Seed Stage
The seed stage of the business life cycle is when the business is just a thought or an idea – a conception. This stage is the “birth” of a new business. Most seed stage companies will need to overcome the challenge of market acceptance and pursue one particular niche opportunity. At this stage, the Entrepreneur should be cautious to not spread time and financial resources too thin. The focus in the seed stage is on matching the business opportunity with skills, experience, and passions. Other focal points include: deciding on a business ownership structure, finding professional advisors, and business planning.
Possible money sources for the seed stage can be difficult to locate. Early in the business life cycle there is no proven market or customers. The business may have to rely on funds from the owner, friends, family, or private investors. Other sources may include suppliers, customers, and government grants.
2. Start-Up Stage
The business has actually been born and now exists legally. Products and services are now in production and the first customers begin to materialize. If the business is in the start-up stage of business, it is likely that money requirements and time-to-market have been overestimated. The main challenge is not to scuttle through the cash on hand. The Entrepreneur must learn what profitable needs the clients have and perform a “reality check” to make certain the business is going in the right direction. Start-ups require establishment of a customer base and market presence along with a tracking and conserving cash flow.
Possible money sources for start-up stage companies are the owner(s), friends, family, suppliers, customers, loans, or grants.
3. Growth Stage
In the growth stage, the business has made it through the “toddler” years and is now an actual growing “child”. Revenues and customers are increasing with new opportunities and new problems. Profits are strong, but the competition begins to surface. The toughest challenge growth stage companies face is dealing with the constant menu of issues bidding for more time and financial resources. Strong effective management is required and possibly a new business plan. Learning how to train employees and management and the art of delegation is the key to conquering this stage of development.
Growth life cycle businesses are focused on running the business in a more formal manner to deal with increased sales and customers. Better practices and methods of accounting and management systems will need to be implemented. New employees will need to be sought and hired to handle the influx of business.
Possible money sources for the growth stage are banks, profits, partnerships, grants, and leasing options.
4. Established Stage
In the established stage the business has matured into a thriving company with loyal customers and a place in the marketplace. Sales growth is not explosive, however it is manageable. Running the business becomes more “routine” with processes in place to ensure consistency.
It may become easy to rest some laurels during this stage of business. The Entrepreneur has worked very hard and has earned a rest; however, the marketplace is somewhat relentless and very competitive. There needs to be strong focus on the bigger picture. Issues such as economic factors, competition, or customers’ changes in tastes and trends can quickly make all of the hard work useless. An established life-cycle company will focus on improvements and productivity practices. To be able to compete in an already established market, the Entrepreneur will require bigger and better business practices and processes along with possible automation and outsourcing to improve the company’s productivity.
Possible money sources for the established state are profits, banks, investors, and government grants.
5. Expansion Stage
The expansion stage life cycle is characterized by a new growth into new markets and distribution channels. This stage is often the choice of small business owners to gain a bigger piece of market share and seek out new revenue and other channels of profitability. Expanding into new markets requires the research and planning of a seed or start-up stage business. The Entrepreneur should focus on a business venture that will complement their own existing capabilities and experience. Forging ahead into unrelated businesses could prove to be disastrous. Expansion stage businesses should add new products or services to an existing marketplace or expand an existing entity into a new marketplace and type of customer or target market.
Possible money sources for the expansion stage are joint ventures, banks, licensing, new investors, and partners.
6. Decline Stage
Economy, society, or market condition changes can decrease sales and consequently, profits. This issue may end many smaller companies rather quickly. Businesses in a decline stage of the life cycle will be challenged with dropping profits, sales, and a negative cash flow. The largest issue is the length of time the business can support its negative cash flow. The Entrepreneur may begin asking if it is time to move on to the final stage of the life cycle – the exit stage. The Entrepreneur should begin searching for new opportunities and business ventures. Cost-cutting measures and creating new ways of stretching cash flow are imperative for the declining stage.
Possible money sources are suppliers, customers, and owners.
7. Exit Stage
This stage is the opportunity to “cash out” on all of the years of effort and hard work that has gone into the business, or it can simply mean shutting down the business all together. Selling a business requires realism in the valuation. The years of hard work to build the company is sometimes hard to swallow when performing a realistic valuation to determine what the real value is in the current market place. If an Entrepreneur begins to take steps to close the business, the challenging part is dealing with the financial and psychological aspects of the loss. It is imperative to get a professional and proper valuation of the company. The Entrepreneur should take a look at operations, competitive barriers, and management to make the company pleasing to the buyer.
It will be important at this stage to set up a legal buy/sell agreement document along with a business transition plan. The money source for the exit stage is a business valuation partner. Accounting and financial advisors can formulate the best tax-strategy to sell or close the business.
Knowing the Stages Makes the Difference
The stages of the business life cycle could possibly not occur in chronological order. Some businesses are created to “flip” and quickly go from start-up to exit stage. Some may choose to forgo expansion and just lie in the established stage. Depending on the Entrepreneur’s ability to adapt to the changing lifestyles could mean the difference between a huge success and a miserable disaster. Whether the business is a shimmering success or a depressing failure depends on the Entrepreneur’s ability to adapt to its changing life cycles. What the Entrepreneur focuses on and takes steps toward overcoming in their current stage will affect the future outcome of the business. Understanding where the business fits in the life cycle will assist in foreseeing any challenges ahead and make it possible to make the be business decisions.
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