The Business Life Cycle
Every business goes through a number of changes during the course of its lifetime, and business owners should make sure they understand exactly where they are in the cycle so they can prepare for the next stage.
In this brief report, I’m going to do my best to identify each stage of the business lifecycle from a 30,000ft view so business owners can identify where they arena the cycle and take action, and people interested in buying a business will have a better idea of where to look and why.
The 7 Stages of the business Life Cycle
- Growth Slowdown
All Business’s have a life cycle commonly referred to as the Business Stage.
1. Start Up
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.
There are numerous challenges for a business start-up.
- Money is tight and resources are thin
- Marketing is new and not established
- Customers have not yet been identified
- Front end customer service systems are not yet established
- Back end product delivery systems might be a bit hap-hazard
At this stage of the business the owner is way over-worked and under-paid.
You need to really watch your pennies because this is where most start-ups fail, and the number one reason is they run out of money to operate.
2. Growth Stage
Your business is born and the doors are open. You’re selling your products and services to customers.
The phone is ringing, you are having fun and are very excited about the future.
Money is tight because you are building inventory and hiring employees, but you don’t mind because you are doing what you set out to do and are living the dream!
The Future Looks Bright!
3. Growth Slowdown Stage
Your business has made it through the infancy stage.
Revenues and customers are increasing as well as other opportunities.
You’re making money and find yourself somewhat mired in the mud of day to day operations. Dealing with employees and customers.
The fun and exciting part is beginning to wain because you are busy working “in” the business more and more.
You begin to realize this thing you created is growing bigger than you can effectively handle and you realize you can’t do it all.
This is the optimum time for a business owner to sell – This where the business will sell for the most amount of money because it has a solid growth record. It is also at the point that it isn’t fun anymore foe the owner.
If nothing else, it at this stage of the business cycle that the owner should begin planning an exit strategy.
4. Sustaining Stage
Your business has now matured into a thriving company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become more routine.
This is where you begin to rest on your laurels and begin to back off a bit. You feel you have worked hard to get where you are and deserve a bit of time to coast. Most business owners at this stage begin to get bored and neglect to pay attention to the competition.
This is where most business should begin thinking of selling – right when the begin to get bored with the business. The owner has reached their peter principal and stop growing.
This is where the business owner should do one of two things –
SELL: This is the big opportunity for your business to cash in on all the effort and years of hard work. before its too late, or
Begin expanding through acquiring the competition – especially the competitors that have entered stage 6 or 7.
5. Decline Stage
This where the business owner has mentally checked out.
They might be bored to tears with the business and lost interest, turned it over to management, or simply lost focus.
Competition might have taken a bite out of the business, or changes in the economy or market conditions. All of which can decrease sales and profits.
Unfortunately for most companies, this is where the owner has to take immediate and drastic action to get the business back on track, but they do the exact opposite.
Instead of investing in the business and taking back the reigns, they make cuts to marketing and advertising, they stop investing in the business and begin cutting back on everything.
Unfortunately for the owner, they are in denial about just about everything pertaining to the business and they tend to look the other way.
They are unknowingly becoming “Don’t-Wanters” in the business.
(This is where I teach my students and clients to begin looking for business to buy so they can get a good deal and turn things around quickly before its too late.)
6. Decay Stage
Denial has set in completely and it shows – the more revenue drops, the more the cutbacks.
This is about the time when most business owners snap out of it and decide to sell the business and get out.
Unfortunately, it is way late in the game for them to get a good price for the business because previous sales show a negative trend and buyers are quite hesitant to buy a declining business.
This is the last chance for the business owner to get honest with themselves and face reality. It is the last chance for them to either get with it and grow revenue, or get out.
If they don’t, Stage 7 of the business life cycle is imminent.
It is also the best time for a sophisticated business buyer to buy a business at a fire-sale price and get the seller to finance the purchase.
This is where I like to look for business’s because they can be easily turned around because they still have a good book of what I call ** “Off-Balance-Sheet Assets”, which in my mind are perhaps the most overlooked and valuable part of any business, and nobody knows about them!
“In all my years as an entrepreneur, I never knew about them until about 5 years ago, and I have only met one other person who knows what they are. This person happens to be a good friend of mine who bought a company out of Bankruptcy for pennies on the dollar because if the “off-ballance-sheet asset list and sold the company 10 years later for tens of millions of dollars!”
7. Failure Stage
Game over – the business owner puts a lock on the door and liquidates inventory is a going to of business sale. All those years of hard work and sacrifice are down the drain. Dreams shattered, employees lives turned upside down, jobs lost, etc.
According to business broker statistics, only 24% of business sell, leaving about 76% of business listed for sale that end up closing their doors with a going out of business sale with shattered dreams.
Understanding where your business fits on the life cycle will help you foresee upcoming challenges and make the best business decisions. Whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles.
There you have it ….. the 7 stages of a business lifecycle.
I hope you found it interesting reading and you can use some or all of it in you entrepreneurial quest.
Paul Forsberg is a Business Consultant and provides Intermediary Services in Florida.
He also coaches and teaches people how to buy businesses and become entrepreneurs so they can experience the personal freedoms and satisfactions of being in business for themselves. Even if you have zero experience and no idea how, or where to start.
To learn more about buying a business contact me here.