Table of Contents
Given how different businesses can be, it may be surprising to learn that they tend to share a predictable life cycle. Most companies will follow through five stages. Read on to find out what they are, how to recognize them, and how your business can make the most of each one.
Key Points
• Companies progress through five distinct business life cycle stages: development, startup, growth, maturity, and renewal or decline. Each presents unique challenges and opportunities.
• The development stage occurs before launch and focuses on identifying unmet market needs, conducting research, and establishing a foundation that will help the business succeed.
• The startup phase is when entrepreneurs introduce their ideas to the market and begin selling products or services.
• The growth phase is marked by rapid expansion of market share and customer base, creating opportunities to add locations, hire staff, and/or expand offerings.
• The maturity stage brings business stability with steady profits and moderate revenue growth, shifting focus away from aggressive expansion.
• At the renewal or decline stage, avoiding decline can require staying current on trends, maintaining remaining flexible, and embracing ongoing change.
What Is a Business Life Cycle?
Every business, regardless of its size, generally goes through five stages that make up its life cycle. Those business life cycle stages are development, startup, growth, maturity, and renewal or decline. Each stage comes with its own unique challenges and opportunities, and each is considered a healthy part of the business cycle.
By learning about each of the growth stages, you can identify where your small business currently is in its cycle and develop an appropriate business growth strategy. The following sections outline the five key stages of the business life cycle and the steps you can take to increase your odds of success as your business progresses.
1. Development
The first stage of small business growth actually begins before you start your business, while you’re coming up with business ideas and selecting one to focus on. In the development phase, you’ll be identifying an unmet need in a specific market and doing the research necessary to get your business off on the right foot.
How to Support a Business in This Phase
At this point, it’s all about laying the groundwork. You’ll want to create a detailed business plan that identifies exactly who your business will serve, the products or services your business will provide, the marketing tools and strategies you’ll use to make people aware of your company, your budget for the first year, and how you’ll fund your business.
If you don’t feel confident as a business owner yet, it may be beneficial to take business courses or workshops to ensure you’re ready to launch.
You may also want to consider whether you’re going to hire help. Having part-time, full-time, or even freelance employees will add to your startup costs but can help you get your business up and running faster.
When to Go to the Next Phase
Once you have a plan in place for your business and know where you’ll find the funds you need to launch, it’s time to move to the next phase.
How to Get to the Next Phase
This may be the time to quit your regular job so that you can fully focus on your new endeavor. Alternatively, you might decide to continue working at least part time while your business launches. You can always wait to quit until you’re making enough to replace your full-time salary.
Once you have a name and structure for your business, you may want to apply for a business checking account and business credit card. These can give you access to cash but also help you build up a credit history for your business, which might help you obtain funding later on.
As you gear up, if your business requires machinery or other fixed assets, you might want to look into equipment financing, which can be easier to get than other kinds of financing, since the equipment acts as collateral.
If your business is seasonal, you might consider applying for a business line of credit so that you can bridge slow periods. Unlike a small business loan, with a line of credit, you would be able to draw funds when you need them up to a set limit, and pay back only what you borrow (with interest).
2. Startup
Though often considered the riskiest stage of business growth, the startup phase can also be one of the most exciting. This is when you put your idea out into the world and start selling.
During the startup stage, there’s a lot to be done: You’ll generally need a website, office space, and employees, as well as a product or service to sell.
How to Support a Business in This Phase
Ideally the budgeting and finance work you did in the development phase ensures that you have enough capital to cover your startup costs. If you find yourself coming up short, you may want to weigh the pros and cons of a startup business loan. Some lenders charge high interest to loan to startups, so determine whether that’s a good tradeoff for getting the capital you need.
This is also a period of trying things out. You can test your product and target market, as well as different marketing channels. If something doesn’t work, you can tweak it and try again.
You may also want to spend time hiring people who can help your company grow. Identify the skills each role needs and then carefully choose the best candidate.
Recommended: Steps to Writing a Business Plan
When to Go to the Next Phase
Since this is one of the early stages of business growth, you may be in the startup phase for a while. You’ll know it’s time to move on when your business starts to settle and your profits become steady.
How to Get to the Next Phase
Once you’re no longer struggling financially and can confidently project sales for the future, it’s time to get ready to grow your business.
3. Growth
After you’ve been in business for a few years, your market share and customer base are now experiencing rapid growth. This presents you with a variety of opportunities to expand your business. These could include adding another location to the mix, hiring more staff, or expanding your product line.
How to Support a Business in This Phase
It’s important to keep an eye on the future while also maintaining day-to-day operations. You’ll want to set short- and long-term goals that make the most sense for your business and use your resources effectively. You’ll also need to make sure you have enough working capital to both meet your current financial obligations and also invest in new opportunities as they present themselves.
When to Go to the Next Phase
Once you’ve achieved your short- and long-term goals for growing your business, or when you feel you’ve grown as much as the market will allow, you may be ready to enter the next stage of small business growth with your established, successful company.
How to Get to the Next Phase
When your focus pulls back from aggressively growing your business, it’s time to move into the maturity phase.
Recommended: What Is Organic Growth in Business?
4. Maturity
One of the later stages of business growth is maturity. This happens when your business is stable and profits are steady. You can rely on revenues growing moderately year to year, and you can confidently make business decisions.
How to Support a Business in This Phase
In this phase, you’ll want to keep on doing what works. At the same time, you want to be careful not to succumb to the biggest risk of the maturity phase — becoming stagnant.
Even when your business is mature, you don’t necessarily want it to sit still. It can be wise to continue looking for opportunities to expand your customer base or develop new products or services that tap a new market.
When to Go to the Next Phase
For some business owners, the maturity stage may bring thoughts of selling the business, merging, or buying another company. When you’re regularly questioning “what’s next for my business?” you may be ready to enter the next phase.
How to Get to the Next Phase
Something has changed in your business, whether it’s that you’ve lost the desire to continue it or the fact that your product may be less relevant (think of camera film in a digital world). It may be time to consider the best next steps for your business.
Recommended: Inorganic Growth Explained
5. Renewal or Decline
Now is the time for the hard questions: Do you need to close down your business? Is it time to sell? Should you consider a merger or acquisition? Can you come up with innovative ideas that will inject new life into your business?
How to Support a Business in This Phase
The answer lies with your personal and professional goals. If you feel ready to retire and focus on other areas of your life, you may decide to sell the business or close it down. If you’re not ready to step away from the business, on the other hand, you might decide to invest money in developing or acquiring new products or connecting with a different target market.
Signs of Renewal vs. Signs of Decline
To understand whether it may make more sense to renew your business or step away, consider the following signs.
| Signs of Renewal | Signs of Decline |
|---|---|
| There are new products and/or services your business could start selling. | Your products and/or services have become outdated or unnecessary. |
| There are new potential customers you could sell to. | Your market is dwindling. |
| You still enjoy running your business and have ideas for revitalizing your brand, | You don’t have ideas for innovations that might help the business grow. |
Strategies for Avoiding Decline
While decline can be a natural part of the business life cycle, if you want to avoid it, there are business growth strategies that may help. Here are a few:
• Staying current on market trends. Being sure you are on top of how your product and your audience are evolving can help you understand how your business and marketing may need to change in order to stay relevant.
• Being flexible. Understanding and marketing to new needs for your product may help you find new markets and continue to expand.
• Embracing change. To avoid decline, a business will have to not only recognize the need to adapt to new circumstances, but willingly take on the need to change on an ongoing basis.
Pros and Cons of the 5 Stages of Growth as a Model
Each stage of growth involves both advantages and challenges. Here’s a rundown of both for each stage.
| Stage | Pros | Cons |
|---|---|---|
| Development |
• Opportunities to explore exciting ideas |
• Requires dedication |
|
• Little or no risk since you haven’t yet launched |
• Can be difficult to get funding with only a business idea |
|
| Startup |
• Get to bring your vision to life and test your products/services |
• May need to bring in an investor |
|
• Opportunities to adapt as needed |
• Startup costs may exceed budget |
|
| Growth |
• Revenues can skyrocket |
• Growth may require capital |
|
• Can hire staff to better serve customers |
• Requires careful strategy |
|
| Maturity |
• Business is stable and running it is easier |
• Easy to become stagnant |
|
• Reaching this stage means you have succeeded |
• Must keep an eye on the competition |
|
| Renewal or Decline |
• Great chance to reinvent your brand |
• May require capital to renew brand/products |
|
• Opportunity to do what you want (sell, exit) |
• Best option may be to close your business |
External Factors That Can Accelerate or Hinder Growth
Naturally, there are factors outside your control that can affect your business’s growth. These may include elements such as:
• The state of the economy. If unemployment and prices are high, your market may be smaller, especially for discretionary goods.
• The competition. If you’re the only company serving a niche market, it could be easier to grow than if you’re trying to break into a crowded or monopoly-dominated field.
• Technology. Advances in tech can affect whether people still need your project and how effectively you’re able to produce it.
• Legal/regulatory factors. If, for instance, the rules for your industry change or your tax burden rises, your company’s growth can be affected.
Identifying Which Stage Your Business Is In
Throughout the life of your business, you will likely be in one of these stages of business growth. Identifying which one your business is currently in can help you assess and solve current challenges, as well as strategize for how you will move to the next business stage.
The Takeaway
While every business is unique, all of them tend to experience common problems and opportunities that arise at similar stages of business development. Knowing where your company is in the business cycle can help you assess and solve current challenges, develop growth strategies, and plan for the future.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Do you have to go through all five stages of business growth?
Generally, every business will go through each of the five stages of business growth, though how long a business spends in each may vary.
What are the different stages of business growth?
The five stages of business growth are: development, startup, growth, maturity, and renewal or decline.
Is starting up a stage of business growth?
Yes. Starting up is the second phase of business growth. It occurs after you’ve developed your business idea and before you’ve reached the growth stage.
Can a business move backward in the stages of growth?
Yes, it’s possible that as your company develops, it may at some point move backward to an earlier phase of business growth. There are many reasons why this can happen — a shift in your market demographic, for instance or a conscious decision to return to growth after reaching maturity. The important thing is to recognize and remain responsive to the shifting needs of your business.
How long does each stage of business growth typically last?
The duration of the stages of business development vary so much from business to business that it’s impossible to generalize. This can be due to both external and internal factors. For instance, while many companies may want maturity to be their longest phase, others may go back and forth between growth and maturity in an effort to maximize profits.
Photo credit: iStock/LaylaBird
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