Sadly, there are many reasons that businesses fail. But the good news is that some of these reasons are preventable. Not understanding the business lifecycle is one of them. Leaders can prevent it by recognizing that business strategies must change over time as a company evolves. For example, when a company is in the launch phase, it must work harder to gain recognition in the marketplace, so marketing efforts should be based on building their reputation. Later, the focus can be more about specific products or services.
In the following sections, we explore the other phases of the business lifecycle, how it applies to startups, and how to adjust strategies accordingly. To begin, let’s take a closer look at the business lifecycle.
What Is a Business Lifecycle and How Does It Work for Startups?
The business lifecycle refers to the phases companies go through from start to finish and is typically divided into five phases:
Launch. Every company has to start somewhere. During the launch phase, a business introduces itself and its products or services into the marketplace. The primary objectives must be convincing consumers why the brand is better than competitors, gaining market share, and managing cash flow.
Growth. During this phase, sales typically increase, but expenses may increase as well, as companies invest in R&D, equipment, and new employees. So, cash flow is still a concern. It is in this phase that companies first start to see positive cash flow and greater profit. Challenges may arise in the effort to balance expectations with reality (such as hiring more staff to accommodate expected sales, which may or may not materialize).
Plateau. By now, many of the kinks have been worked out and company leaders know what it takes to be successful. Many of the major expenses, such as equipment or delivery vehicles, have already been covered, and each department understands what it takes to contribute meaningfully to the company’s success.
Maturity. Maturity is the continuation of the plateau, in which companies continue to reap the benefits of understanding critical success factors. It may sound easy, but this phase is where companies can become complacent if they don’t work to stay relevant.
Decline. Companies that fail to manage the previous phases effectively find themselves in a phase of declining revenue, cash flow, market share, and profit. When they lose their competitive advantage, they discontinue operations.
The Five Stages of Startup Growth
But what about startups? Are they just companies in the initial stages listed above? Sort of. Startups certainly must go through the same business lifecycle phases. But they have their own unique startup lifecycle phases as well.
To clarify, a startup is generally recognized as a company that is no more than five years old, is innovative or disruptive in some way, has aggressive revenue and growth goals, competes in a global market, and is financed by entities outside of itself, such as venture capitalists and investors. Startups also typically embrace a problem-solving approach and are run by highly driven individuals who want to make a big impact. So, what are the five steps of a startup lifecycle?
The phases of the startup lifecycle are roughly equivalent to the launch and growth general business lifecycle phases listed above. By the time a company reaches the plateau phase, it is established and no longer considered a startup. Given that background, startups typically follow the phases listed here.
Conducting research. Startup founders must determine the problem they want to solve and ensure there is a market or potential demand for their proposed product or service. Highly ambitious companies may decide they want to create the demand. Either way, there must be an argument compelling enough to convince potential funders of revenue potential.
Securing funding. This phase may overlap with the others and should always be front-of-mind for founders, given that it’s essential for their success. They must be able to prove their case, including how they stack up against competitors, their ability to run an efficient organization, and their growth potential. The following video describes lesser-known ways to secure startup funds.
Developing an MVP. Founders must create a minimum viable product (MVP) to test in the real world. For physical objects, that means producing something close to the actual product for focus groups to use and provide feedback on. This phase is tricky because founders must have an MVP to get funding yet may also need funding to create the MVP.
Creating the business. Creating the MVP is one thing, and building a business is another. Both must be of high quality to ensure business success. Founders or a business manager must create a structure for manufacturing or procurement, distribution, hiring, and marketing. As the company grows, they must find ways to scale.
Gaining recognition. Certain signs indicate that a company is establishing a foothold within an industry. They include repeat business, social media mentions, and attention from industry observers. It is at this point that startups enter the challenging growth phase, in which — even with all the trials of the previous phases behind them — companies can easily thrive or fail.
How to Successfully Navigate Each New Phase
The descriptions in the previous section reveal that at each phase startup companies must meet specific goals. The key to success is knowing what those goals are and how to successfully achieve them. For example, developing an MVP requires the ability to create a product as close as possible to the ideal without overspending.
Some of the steps may require the help of a partner or outside consultant, and knowing when that’s the case is part of the skill base for founders. In the exciting world of startup companies, founders should not only focus on the current phase but also keep an eye on the phases to come.