“Change before you have to,” Jack Welch of General Electric is known to have said. One thing is inevitable in business and that one thing is change. Some companies are willing to change, others are forced to change, and a few are unwilling to change. Here are some of the important phases of the business life cycle that might help you navigate the ever changing landscape.
According to the Corporate Financial Institute (CFI), there are five phases in the growth and inherent changes to the life cycle of your business, its products, services, individual departments, or divisions:
Launch or Start up
This phase can best be described as how to deal with uncertainty. There are usually so many variables at this stage that it is difficult to take a specific direction, but it is a necessity in order to be successful in the long run. Typically, sales are lower but trending up to a point of sustainability. Identifying and marketing your services or product sales to specific target markets are of paramount importance. “Nothing happens until a sale is made.” becomes the mantra of a business in this stage. Change in this phase is often reactive based upon market changes and conditions. The company needs to be able to quickly pivot to another model based on feedback from the client. Maintaining your flexibility, being able to adapt and take risk are characteristics of this early stage.
Growth
The rapid growth of sales revenue typifies this stage of the business life cycle. As sales increase, usually profits are not far behind, however, there are more customers to keep happy and operations are more involved. One of the main characteristics that describe this phase is when companies pass their break even point. Sales are still expanding and cash flow is usually positive, both of which result in profit to the bottom line, as long as expenses are not excessive. Many companies in this phase are hiring more people as processes become more structured. One key point of change in this phase is the transition of the company to being more strategic in thought than reactive to circumstances.
Shake-out
During this phase of the life cycle, according to the CFI, “Sales continue to increase, but at a slower rate, usually due to either approaching market saturation or the entry of new competitors in the market. Sales peak during the shake-out phase. This growth in sales and decline in profit represents a significant increase in costs.”
Maturity
Staying relevant in the marketplace becomes the mainstay for the business. The CFI states, “When the business matures, sales begin to decrease slowly. Profit margins get thinner, while cash flow stays relatively stagnant. As a firm approaches maturity, major capital spending is largely behind the business, and therefore cash generation is higher than profit on the income statement.”
Even though the company has a strong base of customers, a consistent cash flow, and their processes are relatively efficient, the maturity phase is one of the most crucial in the growth cycle of a business. It is not only the point when change becomes the most important issue to address, it is also the most difficult since everything seems to be working well. In other words, being complacent at this phase can be dangerous.
In order to avoid trouble, many companies look to continue to diversify their products or services, and try to enter new markets, in order to “refresh” their business cycle at a more tactical level. Other companies resist change because they are too embedded in their processes or live in fear of upsetting an existing business model. There is a balance that must be maintained by company leadership that encourages everyone to be innovative and yet continue to improve upon their current product or service mix. Be mindful, there can be department, divisions, or product lines that should be analyzed for where they are positioned within the life cycle.
Decline
Almost every business has to address some form of decline in one of their areas. The reasons can be due to market competition, technological change, or inefficiencies. “At this stage, businesses have two options: accept decline or pursue renewal. Change becomes a matter of survival,” according to the CFI.
While changing your business model could be difficult, some companies use this as an opportunity for reinventing themselves. According to the CFI, “Renewal could involve entering a new industry, rebranding, or shifting to an entirely new business model.”
“To improve is to change; to be perfect is to change often,” Winston Churchill once said. As a leader in your firm, if you can understand business change in each of the above phases, you should be able to successfully navigate and overcome the challenges.